Among the most loaded and most misleading phrases in popular use is "unfettered markets" – as in this sentence from an October 18th front-page article in the Wall Street Journal entitled "As Two Economists Debate Markets, The Tide Shifts":
As a product of Milton Friedman’s Chicago School of thought, which stresses the virtues of unfettered markets, Mr. [Eugene] Fama rose to prominence at the University of Chicago’s Graduate School of Business.
No one in his or her right mind believes that virtue exists in markets that are unfettered. An unfettered market would certainly be awful.
What Friedman, Hayek, Sowell, Walter Williams, Vernon Smith, Leland Yeager, Steven Landsburg, Bruce Yandle, Arnold Kling, and any other market-oriented economist you care to name (including yours truly) endorse are markets fettered principally by two general sets of institutions.
The first fetter is competition – competition for consumer dollars, as well as competition for the best access to supplies.
The second fetter is the common law of property, contract, and tort, all supplemented, when appropriate, by criminal law.
Reasonable people might believe that such fetters are too weak or too distorted or that they otherwise fall short of the fetters imposed by statutes and by bureaucratic regulation. But no reasonable person can believe that the likes of Milton Friedman and Walter Williams believe that markets are best that are truly unfettered.
Indeed, one important reason prompting many economists to support markets is that markets embedded in the common law are likely to be more tightly and more appropriately fettered than are markets in which statutory and bureaucratic regulation play a large role. (Show me a protectionist tariff and I’ll show you firms that are released from some fetters.)
The issue is not fetters vs. no fetters. The issue is what sort of fetters work best – what sort of fetters are most likely and most consistently to fetter firms and consumers to do what is best over the long run.