Francis Cianfrocca writes that the solution to the dilemma of how to design a real-world free market is to have a “system of strict financial regulation that makes it largely impossible for people to take risks with other people’s money.”

I respectfully disagree with a good bit of the rest of his post, which appears to me to run conservatism, classical liberalism, and libertarianism together into an undifferentiated “Right.”  Nothing of which I am aware in conservatism, or classical liberalism, requires or even recommends an entirely free market.  Such a thing would not be self-enforcing, and is a self-evident impossibility, for reasons Hobbes could explain.

To my mind, Adam Smith, from the classical liberal perspective, dealt first and best with the problem with Francis discusses: the endless need to balance personal and economic freedom with some measure of government control through the legal system, and I would add, responsibility for the common defense.

But the idea that people should not be allowed, by regulation, to take risks with other people’s money is not viable.  Banks exist to take your money.  They give it back to you, with interest, when you need it.  In order to do this, they need to make profit. They do this by making loans.  Loans are risky.  They are also beneficial, because they provide capital that others need to improve their productivity, and thereby the economy as a whole.

A world in which no one was allowed to take a risk with someone else’s money would be a world with no banks and no investments, in which everyone was very poor and kept their meager lot under their mattress (if such a thing had been invented).  I doubt that we will get very far by requiring everyone in the world to get by without taking any risks with anyone else’s assets.