The free market. When it comes to finance, it’s something we tend to put a lot of faith in. And for the most part, it works as an efficient way to keep the economy ticking along and it helps us determine the fair price of goods and services.

But while there are a lot of benefits to free market thinking, have we reached our limit?

According to two pieces in this issue of The Analyst, those limits are looming large—and there are some dire consequences on the other side.

Let’s start with “Don’t Get Stranded,” in which Pauline Lai gives us her thoughts on a speech delivered by one of the finance field’s biggest pioneers—Robert Litterman, former chairman of the Quantitative Investment Strategies Group at Goldman Sachs and co-developer of the renowned Black−Litterman Global Asset Allocation Model.

Litterman’s basic thesis is that climate change risk is real, and unfettered emissions are quickly overloading an important and finite resource: the ability of the earth’s atmosphere to absorb carbon. And since our atmosphere is clearly vital to the future of the planet, industries and companies that emit a lot of carbon should pay a steep price for doing so.

Litterman has certainly done the math (which is impressive), and he has come up with a risk-based model for determining how much carbon hogs should pay, based on the increased potential they create for catastrophic outcomes (floods, droughts, severe weather).

His ominous message: we should start paying soon, because things are about to get a whole lot worse.

The question is, should the fate of humankind and our planet be up for auction?

For the answer, we can look to Rossa O’Reilly’s article, “When the Price Isn’t Right,” which tackles important and fundamental questions, such as: Are there things that no one should be able to buy? And are there limits to the free markets and limits to what free market dynamics should be applied to? O’Reilly’s article looks for answers in a 2012 book called What Money Can’t Buy by Harvard University Professor Michael Sandel. In it, Sandel points out the many defects of a market-driven society, including the fact that it thrives at the expense of basic human virtues such as altruism, generosity, civic spirit, and solidarity.

Moreover, money can open too many doors and buy people the right to do things they really shouldn’t able to do, such as shoot an endangered black rhino in South Africa in exchange for $150,000, for example. Or, in the case of Robert Litterman’s book mentioned earlier, the right to pollute the earth’s atmosphere.

But if free markets have their limits, what are the alternatives? And who decides what should be priced and what should be left alone?

I’ll leave that up to the CFA charterholders among you. For now, I’m off to clear out my flooded basement and turn off any unnecessary lights….