Subprime: Why a Free and Democratic Society Needs Law

Abstract

It is common to view "the free market" and "government regulation" as opposites. This way of framing policy and legal questions suggests that regulation inevitably deprives us of freedom. But another word for "regulation" is "the rule of law." The opposition of markets and regulation makes it easy to forget that markets are defined by a legal framework that sets minimum standards for social and economic relationships.

We can better appreciate the legal framework of markets by remembering that regulation was needed to abolish feudal relationships, to prohibit relations of servitude, slavery, and racial inequality, and to spread access to property by redistributing property rights from lords to tenants and slave holders to slaves. Libertarian calls for deregulation fail to recognize the extent to which regulation was needed historically to create a society of free and equal persons with widely dispersed property ownership. Regulations are also needed to define property rights and to protect individuals from fraud and unfair or deceptive practices in market transactions. Libertarian ideals actually support a great deal of supposedly liberal legislation. Further, Americans demand regulations that go far beyond those championed by libertarians, as evidenced by the consumer protection laws and myriad regulatory statutes in force in every state, as well as in federal law. Although Americans tend to talk like "small-government" libertarians, we legislate like liberals. Minimum standards regulations do not deprive us of freedom; rather, law promotes both freedom and democracy by outlawing social and economic relationships that are "subprime" because they fall below the minimum standards acceptable for human relationships in a free and democratic society. It is time we acknowledged the regulations we too often take for granted. If we do that, we can debate what those laws should be, rather than focusing on a false debate about whether they should exist at all.

Keywords: property, regulation, markets, consumer protection, legal history, feudalism, equality, democracy, freedom, liberty