I still haven’t read the book you recommended, but I’d like to explain one thing – what I meant when I said libertarians believed that markets could be “magically” free.
I understand your point about free-market mechanisms balancing things out, both in theory and in most cases in practice. However, there are other factors that affect a market than just the internal ones. Markets operate in the broader context of society and the power relationships between their participants, and they should be taken into account when considering how they function.
I think we can agree that somewhere down the line there was such a thing as an entirely free, completely unregulated market – I would assert it was somewhere at the level of Grawp and Groop trading fish for deer hides, and not much later. Today, you’d be hard pressed to find one that isn’t regulated to some degree. The logical conclusion is that there must be a reason (or more likely a set of reasons) for this.
I think that the main one is the fact that the participants in a market try to bend the rules to their own advantage by establishing market regulators (starting with guilds and such, ending with the likes of the FDA and SEC). If you can accept this, you have to conclude that when you establish a free market, it will naturally (in other words through the natural inclination of market participants to mess with the rules of the game) devolve into a regulated one, unless something stops it from happening. The question then is what that something could be.
The way I see it, it could either again be the market participants seeing their own advantage best served by setting up rules to keep regulators out (but in effect enforcing “free market” rules), by an outside body (i.e. “government”) motivated by some external ideology or their own interests (resulting in “anti-monopoly” regulations), or finally “market magic”, which is where I see most libertarians sitting. I have yet to hear a libertarian explain how markets would keep themselves from by-and-by descending into one kind of regulation or another without an external force to ensure this.
I will read the Rothbard book when I have a bit more time around mid-May, and I’m really curious if and how it addresses this issue.