This is the heading of chapter 13 of "Natural Capitalism" (Lovins, Lovins and Hawker) that influenced me years ago. One of my favourite bits is where the authors directly expose tthe assumptions of the free market as, if not being invalid, having obvious exceptions. The authors say that "it's only because markets are so imperfect that there are exceptional business opportunities left."
I'm blogging this material here as to get to an RBE we need some transitional steps - and making the free market do what it theoretically should, or showing that it can't, may be one such step.
It's a US focussed book, published in 1999, but the ideas hold up pretty well.
Anyway, here are the 18 assumptions (in italics), interspersed with the "hang on though" exceptions (in the book you turn the page). All credit is due to the authors of the book.
1. All participants have perfect information about the future. If anyone had it, he or she’d be barred from elections and stock markets — and probably not given any credence by the rest of us.
2. There is perfect competition. Competition is so imperfect that exceptional profits are commonly earned by exploiting either one’s own oligopolistic power or others’ oversights, omissions, and mistakes.
3. Prices are absolutely accurate and up-to-date. Markets know everything about prices and nothing about costs.
4. Price signals completely reflect every cost to society: There are no externalities. Most harm to natural capital isn’t priced, and the best things in life are priceless.
5. There is no monopoly (sole seller). Microsoft, airlines’ fortress hubs, and your managed health-care provider come close.
6. There is no monopsony (sole buyer). Consider your utility, the Peanut Marketing Board, and the Federal Aviation Administration.
7. No individual transaction can move the market, affecting wider price patterns. What about Warren Buffet and the Hunt Brothers?
8. No resource is unemployed or underemployed. Thirty percent of the world’s people have no work or too little work. (Economists justify this by calling them “unemployable” — at least at the wages they seek.)
9. There’s absolutely nothing that can’t be readily bought and sold (no unmarketed assets) — not even, as science-fiction author Robert Heinlein put it, “a Senator’s robes with the Senator inside.” Most of the natural capital on which all life depends can be destroyed but neither bought nor sold; many drugs are bought and sold in a pretty effective free market, but doing either can jail you for life.
10. Any deal can be done without “friction” (no transaction costs). The hassle factor is the main reason that many things worth doing don’t happen.
11. All deals are instantaneous (no transaction lags). Does your insurance company always reimburse your medical bills promptly? Does your credit-card company credit your payments immediately?
12. No subsidies or other distortions exist. Worldwide subsidies exceed $1.5 trillion annually — for example, America’s 1872 Mining Act sells mineral-bearing public land for as little as $2.50 an acre and charges no royalties.
13. No barriers to market entry or exit exist. It’s hard to start up the next Microsoft, Boeing, or GM — or to get out of the tobacco business
14. There is no regulation. The world’s regulations, put on a bookshelf, would extend for miles.
15. There is no taxation (or if there is, it does not distort resource allocations in any way). The Internal Revenue Code exists.
16. All investments are completely divisible and fungible — they can be traded and exchanged in sufficiently uniform and standardized chunks. You can’t buy a single grape at the supermarket, nor an old-fashioned front porch in most housing developments.
17. At the appropriate risk-adjusted interest rate, unlimited capital is available to everyone. Many people are redlined, must resort to loan sharks, or have no access to capital at any price.
18. Everyone is motivated solely by maximizing personal “utility,” often measured by wealth or income. So why does anyone fall in love, do good, or have kids, and why do three-fifths of Americans attend weekly worship services?