Often whilst discussing the topic of [government-] free-markets regulated by the market participants alone, the interlocutor will make the claim that only bedlam and chaos would arise from the lack of government oversight of all market transactions.
I believe that this Pavlov's-dogmatic† assertion is conditioned into the layman two-fold; first by what passes for American History education in our schools, and second, by years of living within the framework of a regulating state.
It's the second point I would like to explore further.
I want to ask the reader to take a moment and imagine living on an remote island along with a small group of others, but with no communication to the outside world. Assuming that there is no elected leader, and everyone gets along, what percentage of any given sample of that population would you say are dishonest, or have no remorse over causing financial or bodily harm to others?
Now imagine that you lived on the island, and you found the lost property of another person, would you return it even if they would never be the wiser?
I know that I would. Call me naive, but I believe that most of the population are born naturally honest and overall good people. I'm willing though to admit that I can't speak for everyone, and that there exists a minute number of individuals who are born polar to natural law.
It was just a few years ago when I read Alan Greenspan's essay titled "The Assault on Integrity" featured in Ayn Rand's "Capitalism: The Unknown Ideal" which brought this humanistic insight to my attention, and which has been churning in the back of my mind ever since. (It's actually a very powerful piece, Greenspan's present day integrity not withstanding ;-) You may read this by clicking here: "The Assault on Integrity" and select the first link to page 118.)
In the essay, Greenspan explains:
"The hallmark of collectivists is their deep-rooted distrust of freedom and of the free-market processes; but it is their advocacy of so-called "consumer protection" that exposes the nature of their basic premises with particular clarity.
By preferring force and fear to incentive and reward as a means of human motivation, they confess their view of man as a mindless brute functioning on the range of the moment, whose actual self-interest lies in "flying-by-night" and making "quick-kills". They confess their ignorance of the role of intelligence in the production process, of the wide intellectual context and long-range vision required to maintain a modern industry. They confess their inability to grasp the crucial importance of the moral values which are the motive power of capitalism.
Capitalism is based on self-interest and self-esteem; it holds integrity and trustworthiness as cardinal virtues and makes them pay off in the marketplace, thus demanding that men survive by means of virtue, not of vices. It is this superlatively moral system that the welfare statists propose to improve upon by means of preventive law, snooping bureaucrats, and the chronic goad of fear."
The essay straightforwardly demonstrates that this pessimistic view of humanity (i.e. claims such that "chaos will prevail absent of government regulation") and its accompanying regulatory implementation only begets further discordant tendencies in the realm of human relationships, nicely summed up in the common expressions- "dog-eat-dog world" and "watch your back".
The most valuable asset to an individual or business is their integrity, or good will. This seemingly trifle point is a big deal when the market is unhampered by regulations. As a motivating agent, it is by far the greatest incentive for people and businesses to provide the highest level of service and product. Regulations and punitive damages when instituted by third-parties, are too poor a substitute for the purpose of keeping businesses honest.
In fact, it lowers the bar for all competitors who produce, say for example, breakfast cereals. If the regulation stipulates that the advertised weight can be off by 5%, every business no longer has to compete on selling you the advertised weight, since the regulation set the bar to some minimum standard, the different producers can now "collude" to not give a private guarantee staked on their reputation, that their product is exactly what they claimed it to be. In essence, regulations reverse the incentive model with punitive disincentives, and hence encourage businesses to get away with as much as they legally can.
All this is of course is not without the help of the beguiled consumers, who innocently believe that only further government scrutiny and fear of punishment will keep the companies straight, and so they no longer rely on the reputation and integrity that good will would have provided sans regulations.
The layman thus loses his or her innocence, and always seeks to get ahead, perhaps even unethically, since if he or she doesn't, other unscrupulous individuals (just like himself) will ride roughshod over them.
This is why I laugh when people conditionally regard anarchism as chaos; a better definition of chaos cannot be found than in the replacement of integrity with government regulation, and unfortunately this humantropy™ self-perpetuates us into a snarling pack of nervous dogs‡.
†I lay stake to this pun
‡This one too.