To Regulate or Not to Regulate?

I have heard it said that governmental regulation is neither appropriate or desirable. That the state has no right to butcher the freedoms of the market under any circumstances, presenting it to the world as some kind of sacred cow. (Perhaps bull would be a more appropriate anthropomorphicism?) On the other side of the coin, many on the left of the spectrum argue for more regulation, particularly within the financial markets. I don't consider myself to the left by any stretch, nevertheless in my opinion, regulation is a necessary evil since without it there could not exist a free market.

Allow me to explain; the free market cannot survive in isolation and whilst I don't believe that the state should be involved in setting prices or any long-term subsidy of business, as such policies only encourage inefficiency, regulation is necessary to maintain competition. If we may look to the fundamentals of the cornerstone of market economics, the Wealth of Nations, it becomes clear that Smith was not against governmental regulation. Quite the contrary.

Adam Smith argued that through the division of labour and specialisation, an industry could realise an enormous increase in productivity, and realise significant economic growth through an absolute advantage. However, the natural conclusion of an absolute advantage is a monopoly. Because a monopoly interferes with the ability of the invisible hand to find an equilibrium of prices, "the price of monopoly is upon every occasion the highest which can be got." Without the invisible hand, the free market could not exist and without government intervention, through anti-trust laws to prevent monopolies, the market would exist, but it would not be free.

Thus when we speak of government intervention in the markets, let us not speak of it as if it is some kind of taboo against nature, but judge each and every regulation on it's own merits as to whether it's purpose is justified.