It is easy to recognize that free markets are not problem free. By definition, thieves and scammers have as much access as anyone. Greed can run rampant causing significant differences between perceived and real value. People that allow others to manage their money for them can get seriously hurt. Consequently, it is very tempting to want to fix those problems with free markets.

You have hit on the problem in your choice B. No one seems to apply the “right” solution for all.

From my perspective, the solutions that seem to work are transparency and well reasoned valuation methods. For instance, in our most recent credit problems both of these conditions were a problem. Financial institutions made a fatal decision in valuing the failure of any given mortgage as independent from the failure of another. They failed to accurately reflect the macro economic effects of the economy on borrowers ability to pay off loans. With the lack of a well reasoned valuation method for these derivatives buyers valued them artificially high. Additionally, many buyers were managing money for others and less risk averse and more reward oriented than someone managing their own funds further driving up the artificial value. Finally, there was poor understanding in the market place of how many of these derivatives there were or how many layers there were, making it hard for more rational buyers to understand the risk and properly value their purchase. Eventually reality set in and the inflated markets collapsed.

In a free market it is the responsibility of every buyer to understand the details of each transaction. Is the auditor of this company’s books legitimate, or are they letting something slide to maintain their revenue? Did the product manufacturer use lead paint or some other harmful ingredient? Understanding details of every transaction is incredibly difficult given the size and scope of our economy today. Hence there is a great temptation to try to fix it through regulation.

Once you travel down the path of trying to fix it through the government you run into the challenge that the government is now a provider and people will flock to it seeking to influence it. The government may become influenced to provide a central bank or a large stimulus package. The government may be influenced to go beyond the bounds of transparency and valuation and into other moral decisions such as those executives earn too much money. This puts unnatural constraints on free markets causing even more problems.

From my perspective, free markets are necessary but not sufficient for a problem free economy. Free markets are better than putting control into the hands of one government or 3 government institutions (e.g., executive, legislative, judicial). Free markets will however, have problems.

So how do we manage the problems? The best answer I have found is too take a larger perspective. To understand that sin (greed, and other temptations) are a natural condition of our life here on earth, but Christianity provides us hope of a better alternative and we can seek to live that better way today. We can seek to avoid temptation and greed and to love our neighbor. This will go a long way in reducing the problems of free markets. I hope everyone that reads this has found or can find the peace that Christianity provides for this troubled world.