What does it mean to say "The free market doesn't work"?
It means: freedom doesn't work.
Is that really what people believe? That freedom has failed and what we need instead is an authoritarian elite (or the whims of the majority) telling us not just how to live our lives, but criminalizing actions deemed "not in our best interest"?
Perhaps some definitions would help clarify our thinking and any subsequent debate.
The free market is nothing more than the sum total of the voluntary exchanges of goods and service which take place within a division of labor economy. "Voluntary" is to be contrasted with "coercion." The coercion we are concerned with here is that which involves an initiation of force*. Nothing wrong with force used in retaliation or self-defense--though these actions are properly delegated to a government in order to achieve objective laws under the rule of law.
In a free market, individuals are not prevented by the government from participating in voluntary exchanges of mutual agreement. Contracts are legally enforced. Fraud is punishable by law. Demonstrable harms to life, liberty and property are subject to prosecution and legal punishment. The rest is up to us.
"Innocent until proven guilty" is applied not just in the court room, but also in economic transactions--which would require the dismantling of most of the regulatory behemoth we have come to view as "government."
We are all free to advise, educate, advertise, promote, offer, suggest, even propagandize-- but no one is "free: to coerce those whom they are unable to convince. Not even for the sake of a "living wage" or providing medical care or protecting people from their own mistakes.
Freedom is not a hedonistic license to do as you please. One man's freedom ends where another man's rights begin.
The Freedom that is an essential foundation of civil society is freedom from the initiation of force--not just in economic transactions, but in all social interactions.
Freedom is a social concept not a metaphysical concept. We can never be free from the need to act in order to gain the values we require to sustain our lives and achieve our happiness. There is no freedom from want --anymore than there is freedom from gravity. The natural state of man is one of poverty and hunger. Through voluntary cooperation and exchange to mutual benefit, man has progressed from a live-by-the-moment animal to the abundant prosperity of western civilization. Truly, a heroic achievement.
What does is mean to say the free market "works" or doesn't "work"?
For a market to work, it does not mean there must never be any mistakes, or that every exchange is always the best of all possible exchanges, or that everyone achieves equal material reward for a given amount of effort, or that honesty and hard work will guarantee success, or that every resource is always used to maximum efficiency. The free market is a process of discovery and experiment, trial and error, reward and painful consequence, of learning, accumulating knowledge and experience, and hopefully, steady gradual progress.
The free market, as life, is a process of learning by thinking and doing, replete with both failures and successes. Life "works" through focused attention, learning and action--constantly evaluating, adjusting, compensating, innovating. The free market works in exactly the same way-- because the market isn't a "thing" with properties of its own, but simply the name we give to the sum of our economic exchanges. What works is life--and for human beings, that means (on the most fundamental level) reason applied to the facts of reality. On a social level, it means recognizing, both formally through laws and informally through ethics and mores, that in order to survive, man must be as free to live by the judgment of his own mind in his social interactions as he is in his encounters with reality.
What works is reason, and reason requires freedom from the initiation of force. Applied to the realm of economic exchange and progress, that means a free market.
Freedom works, and because it does, so does the free market.
*[Fraud entails the use of deception to obtain a consent which would be denied if the truth were disclosed and thus is a variation of initiated force.]
objective laws http://www.tafol.org/bulletins/b07.html
rule of law http://duhaime.org/LegalDictionary/R/RuleofLaw.aspx