Reply #1 of 2:

Personally, I like markets. I think market systems have the capacity to maximize human wellbeing. However, I believe that government is necessary for the creation of markets, and government policy has the capacity to make them run smoothly (or make them unstable).

Contrary to popular belief, money did not emerge from a free market. Money was originally created by primitive States: when one nation invaded and plundered another, they’d take all their valuables, and the State would mint the gold and silver into coins to pay the soldiers with. At the same time, the State would start demanding its subjects to pay taxes in the form of this government-issued currency, creating a general demand for money, and thereby leading to the emergence of a market. Prior to such government intervention, there was nothing like a market in the conventional sense. (David Graeber, Debt: The First 5,000 Years)

And monetary systems need to be regulated in order for markets to function efficiently. The gold standard collapsed, not because the government mucked it up, but because unregulated currency just doesn’t work...and that’s why the governments had to change their policies. Money is a commodity, like any other commodity. Why do supply and demand equilibrate within a free-market system? Because the producers of commodities increases production to match any increase in demand. If there is a higher demand for widgets, the manufacturer of widgets will increase production in order to meet the demand. When there is greater demand for money, you need to increase the production of money—i.e. increase the money supply. This monetary inflation will not cause price inflation so long as you do not “print” more money than is needed to meet the increase in demand. If you don’t increase the money supply in order to meet the greater demand for money, this leads to the phenomenon of what Milton Friedman called “too many hands chasing too few dollar bills,” which was a major cause of the Great Depression. When the demand for money goes up, the value increases; so, the government can increase the money supply to meet that demand. The value of the currency won’t change, as the increase in value due to increase in demand is merely offset by the decrease in value due to increase in supply—the end result is that the value of the money stays the same, i.e. remains stable. (Cf. Milton Friedman, A Monetary History of the United States)

John Maynard Keynes’ argued that a primary function of money is its use as a store of value. In order for a market to function efficiently, the value of money needs to be stable. Under a pure gold standard, the value of gold would fluctuate drastically as gold flowed in and out of the economy due to international trade. If international trade led to a bunch of gold leaving the American economy, then gold in the U.S. would become more scarce, harder to acquire, and would be more expensive. (We sort of saw this with Bitcoin, where the higher demand in relation to availability in parts of Asia led to the price on Mt. Gox being much higher than on exchanges based in other parts of the world.) Keynes argued that governments need to pursue monetary policies that stabilize the price level and avoid drastic fluctuations—both inflation and deflation are evils to be avoided. We are better off with a stable currency than with a currency that drastically fluctuates in value. Bitcoin, for instance, would make a terrible currency for a free market. You wouldn’t want to rely on it as a store of value. (Cf. John Maynard Keynes, A Tract on Monetary Reform)

Now, don’t get me wrong, I’m familiar with the works of Rothbard and Karl Menger on the history of money, banking, etc. I just think that they were wrong. This is not to say that the Austrian School is completely wrong on everything, just that they are wrong on some very important points. For instance, F. A. Hayek and Ludwig von Mises were totally right when they held that artificially low interest rates encourage malinvestments, thereby stimulating unsustainable booms that inevitably lead to busts. Nevertheless, Rothbard is wrong on money in general. Rothbard thought that any system that allows banks to adjust supply in accordance with demand would constitute counterfeiting or fractional-reserve banking. (Cf. Murray Rothbard, The Case for a 100 Percent Gold Dollar & The Present State of Austrian Economics, where he argues that issuing money not directly backed by gold [or another commodity] ought to be legally prohibited) More recent anarcho-capitalist theorists have departed from Rothbard’s stance though. Jeffrey Tucker supports Bitcoin as a stateless alternative to government money, even though it is not backed by any commodity, and David Friedman supports fractional-reserve banking within an anarcho-capitalist framework. (Cf. David Friedman, The Machinery of Freedom, Ch. 46) David Friedman’s anarcho-capitalist framework would actually allow banks to privately regulate the value of money through lending practices, then competition would keep them from devaluing the currency since everyone will want to use a privat currency with a stable value rather than an inflationary one. If you aren’t familiar with David Friedman, you should check him out. As far as anarcho-capitalist theorists go, he is by far the most interesting. Personally, I think a system of competing currencies is not likely to produce stability. When we look at crypto-currency markets, they are extremely volatile. We need stable money. And I don’t accept Friedman’s assertion that competition would be sufficient to keep private banks from devaluing money.

Another reason for my departure from market-anarchism is that I have been influenced by F. A. Hayek and Hernando de Soto Polar’s ideas about the role of rules and social order in free-market systems. In order for businessmen to be able to plan their actions, they need to know what the rules of the game are going to be. So, Hayek holds that there should be isonomy (equal law), where the rules are standard. There ought to be no arbitrary interventions in the system by the State; the rules ought to be standard across the board.

“Liberalism for this reason restricts deliberate control of the overall order of society to the enforcement of such general rules as are necessary for the formation of a spontaneous order, the details of which we cannot foresee.”—F. A. Hayek (Law, Legislation, & Liberty, Ch. 1)

Spontaneous order, per Hayek, doesn’t emerge from a vacuum. The State has to create the rules first, then the spontaneous order will emerge. Government ought not to intervene in the economy to help this business or that business. Government should create the rules and regulations that create the framework for a free market: establish property laws, establish courts and police to enforce those property laws, establish a standard currency, etc. Then the government should step back and let the free market take care of the rest. That was Hayek’s view.

Hernando de Soto Polar, another free-market economist, focuses more on property arrangements. Without government, there are natural systems of property, but they tend to be usufructuary. In a state of nature, there is no legal “title” or “deed” to a piece of land. This restricts markets and keeps them from being able to function most efficiently. If you create legal property titles, it allows people to use their homes and land as collateral for loans, which gives people the capacity to borrow money in order to go into business. Thus, it is in the best interest of society that government create a standard system of legal property titles, as well as a system of law governing contracts and a system of courts and police for adjudication/dispute resolution and enforcement. It’s only within this sort of framework that markets can be truly free and entrepreneurs can do their job.

Anarcho-capitalism, in my estimation, can’t serve the same purpose. Under anarcho-capitalism, you would have a system of polycentric law. There would not be standard rules that apply universally, so it would be much harder for businesses to plan. Markets would probably be more chaotic and less stable. This is not to say that anarcho-capitalism wouldn’t work. It could work, but it would be less stable and less utopian than its advocates imagine. I also suspect that it would tend to degrade over time. I think that “anarchistic” systems like anarcho-capitalism (on the right) and democratic confederalism (on the left) can work. I just don’t think that they will produce the utopias that their advocates believe they will.

Furthermore, I do not think that markets are perfect. We live in an imperfect world, after all. You should read my post Markets Are Not Perfect. The free market simply can’t deal with things like pollution and healthcare in an efficient and affordable way. I somewhat follow ordoliberalism in believing that markets sometimes fail and that governments need to “ensure that the free market produces results close to its theoretical potential.”(Wikipedia)

So, basically, I follow Hayek in believing that government should create the framework for law and order that allows for spontaneous order to occur, and then let the market do its thing, for the most part, but I follow ordoliberalism in thinking that government ought to step in when the market fails to bring about the most desirable results. If corporations start polluting the air and water, the government needs to take action to fix that.