I think we are talking about
a) Markets in general
b) Function of prices
c) Stock Markets
d) Policing
In your article, you suggest that (b) is out of whack and you seem to suggest or nudge people to think about more 'elegant' solutions. Which, in my opinion is a 'done and dusted' area of argument. I don't wish to argue something of that epistemological topic in a blog. Now, just because I may not know how the engine works, or have a bare idea of an engine, doesn't mean I am a bad driver. I could lift the hood and look underneath it, if necessary.
But apart from stating my understanding of prices and markets at a high level, I don't wish to engage in a back and forth convo on whether prices should be allowed to function as a free, natural phenomenon between agents or whether someone thinks he is clever enough to construct optimal prices in an excel sheet.
About markets. Markets in general are never perfect. The price is the 'vessel' that carries 'blood' to all parts of the market. There could be frictions at junctions. Health hazards, unfair competition, import dumping etc. We also need Taxation to build out more parts of this 'body' inside the market. Some of these frictions are addressed through less than perfect tools. For example, anti-trust rulings are usually unfair. Because they define the 'market share' so narrowly that the 'monopoly' is more often seen as a predator. Be that as it may.
On nuclear weapons, I think the trigger-happy nations in this regard are the centrally planned socialist countries. This example goes against your stance. Even at a national level, nuclear warfare is a lose all situation because of capitalism. Because nations depend on industries and free markets, a nuke kills the cash cow! Therefore, a two-way nuke threat only results in an equilibrium (Ind-Pak). If the world was comprised of only centrally-planned-no-respect-for-prices-market nations, nuke warfare could be an everyday affair. The equilibrium is also because of the experience gathered from a one-time use. (a case of post facto price adjustment)
Policing of nations, detecting nuke secret transfer etc is necessary. How is that connected to the first three parts above? And how does it weaken the concept of free markets?
Free markets stand on effective laws, regulations and policing. The more effective the laws are that govern free markets, the greater the efficiency of free markets. I don't see any inconsistency that you seem to vehemently portray as the 'clinching' evidence against capitalism.
Laws are the grossbody that support the functioning of free markets. The grossbody is only a scaffolding that supports a vital free market. If you substitute the grossbody for the vital 'organs', then you are mistaken.
About stock markets. Stock markets are the microcosm of prices, reflecting the prices in the real economy. The stock prices are claims on ownership of capital goods, that is, the producers in the real economy. If an oil field is worth $100 Million, the piece of paper that says 'ownership in the oil field' should also trades at $100 Million. Albeit, at that moment. No one is saying the $100 Million is the value written in stone. A guy named Rockefeller transported oil by barrels (a term which we still use today despite there being no barrels in the real world of oil transportation) and made profits applying his ingenuity. The stock paper that 'rode on his back' too increased in value. Why do any of these examples portray 'clinching' evidence against free markets and capitalism as it were? I simply don't understand.
The debates of active vs passive are shallow terms that mean different things in different contexts. Just because purchase and sale of stock paper is intermediated by a less-intelligent person, it is a case for passive investing. If it is intermediated by a more-intelligent person, it is a case for active investing. These terms don't marshall any merit when we are discussing about price setting in free markets. (There is more institutional rivarly than any economic merit in these discussions)
Regards
Ashok