In a comment on our recent discussion about energy, Harvey notes that “the free market is a myth.”

This is, of course, absolutely correct.

The free market is a myth in the same way that freedom of speech is a myth and that freedom of religion is a myth. Ideally, anyone can say anything he or she wants. In reality, it’s better to avoid committing libel or shouting “fire!” in a crowded theater. Ideally, there would be no interference, government or otherwise, in one’s spiritual beliefs or the practices derived from them. In reality, religious practices can’t be used as an excuse to exploit or endanger others, or to deprive them of their freedom.

Perfect freedom of speech is likely to remain beyond our grasp, but the ideal of “freedom of speech” is a good thing even if it is a myth. It reminds us that speech should be as free as we can get it. The same is true,for religion and — I believe — for markets.

Look at what happens when markets are made more free. Apple has demonstrated this very well over the past couple of years by turning the business model for mobile telephone applications on its head. Before the iPhone came along, mobile apps were a highly protected “walled garden.” The carriers and and the equipment manufacturers didn’t want anybody but them to play with their sandbox toys.

Apple changed all that. If you want to build an app for the iPhone, you just need to follow their standards. The doors have been flung open wide, and to what result? An explosion of creativity, and an explosion of new business. And not just for Apple. The app developers benefit by being able to profit from their work, and the consumers benefit by having a device whose value is (potentially) increased with each new app downloaded — if not each new app developed.

But of course, it isn’t really a “free market.” It’s just a lot more free than what existed before — which is great. But Apple is still setting those standards and deciding who can or can’t develop an application run on their platform.

So we might talk about an idealized, mythical free market that is completely unconstrained, but there’s a limit to how free you can get. The reality is that markets have to be regulated and that businesses often seek to protect their interests, not only through direct competition in the marketplace, but also by leveraging social and government pressures.

To address the question of energy, we’ve had no new nuclear power plants built in the US for some decades now. Who prevented that from happening? Well, the people, of course, especially environmentalists. And the government.

Anyone else?

Okay, you can call me overly suspicious, but I can’t help but imagine that the oil companies might have played a role. New players have a hard time competing in a “free market” when established players take steps to make sure that the market isn’t really all that free.

Another example: the vast majority of the money that has been pumped into biofuels in this country has gone towards corn-based ethanol — only attaching multiple hamster wheels to our vehicle’s drive trains and trying to get the little rascals to spin in unison would be less practical approach. The farm lobby has worked tirelessly to get the government behind this non-free-market (and ultimately not workable) approach.

We need to see an alternative energy market which is as dynamic and creative as the iPhone app market. Of course, the former would work on a time scale, and be supported by a group of players, several orders of magnitude slower and smaller than the latter. But the result would be the same — a big boost in business for the alternative fuel players and a rich new set of choices for the consumers.

How do we create a more level playing field to make that possible? I don’t know. But it’s possible that the government might have a role to play. The iPhone app success story is a great tribute to the free market, as are so many stories of huge business success built on the Internet. But as Stephen reminded us last week, the Internet itself was not a product of the free market. It was a government project.

There are any number of ways the government might help: research initiatives, tax incentives, push prizes. Or maybe they could simply enforce reasonable regulation on new businesses and industries, while allowing the ultimate economic good of our country — rather than pressure tactics from lobbyists — determine which new technologies are introduced and in what time frame.

But now, I guess I’m just dreaming, eh?