One of the most misused and abused terms in language today is "free market".
The definition of a free market is business governed by supply and demand, and not restrained by government regulation or subsidy.
This definition is often used in conjunction with environmental regulation and minimum wage laws, but almost never with trade between firms and corporations. Which is the problem, because without government protections this "free market" wouldn't exist.

Two centuries before the term economics was invented there was another term for the study of production, buying and selling - political economy.
The original masters of this study recognized that law and trade were directly linked. Adam Smith, David Ricardo, and Karl Marx among other realized that politics and the economy were two sides of the same coin.
It's only around the time of the Robber Barons that the study of economics became a separated from the laws that dominated it. It was also around this time that banks took over the job of monetary policy.

The Rise of the Corporation

"The limited liability corporation is the greatest single discovery of modern times...Even steam and electricity are less important..."
- President of Columbia University, 1911

Some people are aware of the twisted, bizarre, and tragic Supreme Court ruling that allowed corporations to be be granted personhood, and equal protection under the 14th Amendment. This ruling, by granting them the right of "free speech", has allowed corporations to gather immense influence in Washington.
What fewer people are aware of is that none of this would matter if not for a different law passed just a few decades earlier - limited liability.

The corporation is built around the idea of limited liability for investors, the notion that if you buy part or all of a company, you yourself are not liable for its debts or the harm that it might do; your risk is limited to your investment. In other words, you may own all or part of a company, but you are not responsible for what it does beyond your investment. Whereas supply and demand exist in all times and places, the notion of limited liability investing is unique to modern capitalism and reshapes the dynamic of supply and demand.
It is also a political invention and not an economic one...In a more natural organization of the marketplace, the owners are entirely responsible for the debts and liabilities of the entity they own.

Before 1855 this concept of limited liability was unknown. Instead, the global market functioned more as a real free market. The dominant corporate world we now know would not exist if the political decision had not been made that encouraged corporations to grow to their present massive size.
Put another way, in a true free market society people harmed from BP's oil spill would not just be able to sue the company, they would be able to sue the shareholders as well. Yes, it would discourage people from sending their money to Wall Street to buy stocks, but it would also encourage BP to not be so reckless about their oil drilling. Another effect of removing limited liability is that it would change corporate culture, which is all about maximizing shareholder profits by externalizing costs into something that might resemble responsible actions.

Remember that our founding fathers were violently opposed to abusive multinational corporations.

After looking at a list of the corporate crimes committed over the last few decades we all might want to seriously consider taking away this political gift to corporations.
Instead, all the talk around Washington is about "tort reform", which is a code word for limited liability for corporations too.

Rewording Insurance

“A credit default swap...is an insurance contract, but [the industry has] been very careful not to call it that because if it were insurance, it would be regulated.”
- former director of the Commodities Futures Trading Commission

The derivatives market is 20 times the size of the American economy, yet it isn't regulated. The credit default swap market alone is several times the size of the American economy.
Way back in history, even before Adam Smith wrote "Wealth of Nations", lawmakers realized that this type of unregulated insurance was a bad idea, both for society and for the economy.

During the 18th Century, the British insurance market was much like the over-the-counter derivatives market today. It was big, profitable, cutting edge (the idea that risk could be calculated was brand new) and unregulated. London insurers wrote policies on many things and for anyone. Merchants bought insurance to hedge against the risk of their ships sinking. And sometimes they bought insurance to speculate on whether or not someone else's ship would sink.
The problem was obvious. Insurance contracts used to protect against the loss of property owned by the person buying the policy helped the buyer eliminate the consequences of calamity. Insurance contracts used to bet on whether or not calamity would befall someone else's property not only let the buyer place a bet, it gave the buyer incentive to make that calamity occur, to destroy the insured property he did not own, to sink the other guy's ship, in order to collect on an insurance contract.

Today, instead of sinking ships, they sink companies and even nations. The Wall Street banks can create synthetic shorts and naked credit default swaps faster than central banks can print money.
After using these unbacked financial instruments to crash a nation's economy, they then pick up the assets of the nation for pennies on the dollar in anticipation of a public sector bailout. The entire situation the Wall Street banks help create in the first place.

There are other problems with the unregulated derivatives market - no proof that the counterparty selling the insurance has the ability to pay up if the default happens. That's what happened when AIG went bankrupt.

In 1746, Parliament passed the Marine Insurance Act, requiring anyone seeking to collect on an insurance contract to have an interest in the continued existence of the insured property. Thus was born the insured-interest doctrine. The indemnity doctrine, which precludes a buyer from insuring property for more than it's worth, soon followed.

It's not entirely correct to say that this sort of destructive insurance practice was simply banned during colonial days. Wall Street traders always find more creative ways of getting around regulations.
In the late 19th Century we witnessed the bucket shop. Like credit default swaps, people used bucket shops for derivative betting in which no actual transaction is made on the exchanges. Bucket shops were outlawed after they led to the Panic of 1907.

There is nothing wrong with credit default swaps as long as they are sold and regulated like the insurance contracts that they are.
The only reason that we have a market worth several times the GDP of the entire American economy is because of the political decision not to regulate part of the insurance industry. The political economy created this monster, and the political economy must slay it now.

Revisiting the Volcano God

"If God did not exist, it would be necessary to invent him."
- Voltaire

The Volcano God of Economics is all-powerful. If he rains hot lava and ash upon us in the form of job losses and depression it is because we have angered him with our welfare, child labor laws, environmental regulations, and worker safety laws. We must make sacrifices to appease him.
The Volcano God of Economics says nothing can stop globalization. There is no alternative. Besides, globalization is good for you, in the same way that suffering develops character.
If you doubt the words of the Volcano God of Economics then not only are you damned forever, but it only shows that you don't know economics. How could you know economics, because economics is unknowable to mere mortals.

At least that is way that economics is presented to us by its High Priests of Economics. The place that the High Priests worship is at The Temple, also known as the Federal Reserve. It would be dangerous for us to look inside The Temple because we would not understand what we are seeing.

The thing is, like every cult before it, this worshiping of the Volcano God of Economics is a bunch of crap.
We invented this God! It didn't spring out of the ground by itself. Once we look inside The Temple we will realize that all our sacrifices are being used by the corrupt priests for their own pleasures. The reason why the Volcano God rains ash and lava upon us is because the appetites of the High Priests have became ever larger and more greedy.
If we look inside The Temple we might decide to tear it down and lynch a few corrupt priests.