In general, we as people like to be free to do what we please. We do not like to be restricted in what we can do and thus tend to gravitate towards places and societies where we are the most free. Taken to its conclusion, this means a system with no rules would be ideal, a sort of Utopia. People could live how they want and do what they want at all times with no restrictions besides those they would impose on their personal selves. This form of governance would actually be a lack of government, in other words an anarchy.
However, we know that anarchies do not work. Even in the animal kingdom we see that anarchies do not work if animals are to live together. There is some form of hierarchy or governance in every species that lives communally and has a scarcity of resources available to it. There has to be some order to distribute those resources otherwise it becomes a free for all and everyone fends for themselves. Social structure breaks down and the community collapses due in part I’d imagine to lack of trust.
That gets us to the first shortcoming in relation to the free market. We can be mean to each other. Call it greed, selfishness, meanness or whatever but it’s when we elevate our own wants and desires above the needs of others and act upon them. This can come in the form of murder, rape, destruction or theft of property, or any other even seemingly minor selfish act. The egregious acts must be controlled in order to have an ordered society. This is why we have interpersonal defense in the form of police, international defense in the form of militaries, and the court systems who arbitrate the consequences of these selfish acts between individuals in societies. Put simply, we aren’t infinitely moral creatures.
The next shortcoming may be best illustrated with an example. Imagine yourself at the store buying shampoo. You look at price, how it smells, what brand it is, what characteristics it has, and maybe even the type of bottle to make sure it stands on the shelf well. If the sky was the limit, what other attributes would factor into your decision? Would you choose based on the environmental responsibility of the shampoo company? How about how well they pay their workers? Maybe what country the company is from? How about the CEO pay? All of these may not factor into your own purchasing decision but it’s guarentee they would factor into someone‘s decision. If only we had the information and werr all knowing. Some argue on this point that it should right itself if you have a free market information distribution system. What information mattered to the people is what would get distributed. This is true except that as a species we tend to view social success emulation as more important than transaction information distribution (ie. What the Kardashians ate yesterday gets more news coverage than the forced labor conditions of a garment factory in Bangladesh). The reasons for that, however are better left to another post.
This takes us to the third and final shortcoming of humanity that prevents us from living in a Utopia. We have a lack of fore sight. We don’t think of how our decisions will affect our immediate decedents let alone our grandchildren or great grandchildren. In many instances it’s impossible because of a lack of knowledge. In other instances where we do have the knowledge we don’t because for lack of a better set of words, we don’t care. Sometimes though, even when we have the best intentions and all the knowledge, we still have a hard time due to time. It’s very difficult for us to project the consequences of our individual actions very far into the future. This is wholly separate from ignorance or selfishness. It’s a literal lack of ability.
That’s it, that’s all three. I have to say these assume you are actually able to choose your transactions and your market participants actually compete. I’ve been able to classify every societal failing into a single one of these or a combination of them. Anything from the incredibly resource intensive healthcare market in the US to our inability to respond to global warming to secondary education pricing can be explained by these. If you made it all the way through this post I challenge you to come up with a social failing that can’t be attributed to one of these three. I couldn’t but that’s not saying there aren’t more so I welcome you to try.
In addition, the talk of all these and humanities lack of ability to have infinite morality, knowledge, and fore sight, gets me suspect that there is a rather simple mathematical underpinning to society and that if you figured it out you could get close to an ‘ideal’ society – at least as close as we can get with our shortcomings. Of course this is pure speculation and I don’t have the time at the moment to pursue it much further.