In Chapter 4 we described the ideology of the financial system in terms of free and unfettered markets, subject to a minimum of regulation. In practice, free markets are an economic abstraction. Any market of any kind is a social institution characterized by a particular structure and particular practices that put limitations of one kind and another (membership, location, technology, etc.) on who can participate and how. In the case of financial markets, we have already noted the existence of two kinds of regulation concerned with how people compete, neither of which are generally considered to impinge adversely on their efficient operation: prudential regulation, designed to prevent the system as a whole from collapsing; and conduct regulation, designed primarily to protect the interests of customers.

Apart from protecting customers, regulations controlling conduct also include various measures to govern and protect the markets themselves: controls whose purpose is to keep the markets free, or at least as free as possible. This sounds paradoxical, but the idea of free market competition is itself paradoxical. It is of the nature of competition that there are winners and losers, and if the competition is truly free and unfettered, there is nothing to prevent the winners from pressing home their advantage to the limit, eliminating their competitors and so destroying the competitive market. Where competitions are run for the sake of competition, as in sport, the effects of winning are generally self-limiting. The winners, to be winners, need worthwhile opponents; you can’t run a football league with just one team. In business, though, where the competition is a means to an end rather than an end in itself, the limit of winning is monopoly power, where one player controls the whole market.