You wrote: For example if you say in a free market people consent to respect their property rights, I would say these people form a "government" and have thus defined government rules.

I define a government as a group of people who have a monopoly of force in a given territorial region. Such monopolies are very dangerous and often inimical to property rights. The very people who claim to defend property typically become the worst aggressors against it. Specifically, my own property is far more vulnerable to seizure by government employees than by ordinary burglars.

I'm sorry if that sounds like anti-government propaganda, but it's the simple paintful truth of history and the current moment.

Ideally, people institute governments for the purpose of protecting individual life and property, but it just doesn't turn out that way. After all, human beings are at the helm of such force monopolies, and it's generally unwise to trust human beings with that much power.

You wrote: I am not sure if your definition of free market is really workable in practice (no coercion, people just respect each other etc.).

On the contrary, the non-initiation of aggression works everywhere that it is tried, all the time. It happens billions of times per day, in homes, stores, and businesses all over the globe. It is the norm -- so common that it goes unnoticed and unremarked. Aggression and force are the exceptions, the deviations from the norm.

You wrote: So let me just ask again what I asked in another comment: are there cases in history where free markets have resolved a tragedy of the commons situation?

In a free market with strong property rights, there are no commons. The tragedy of the commons arises where there are no clearly defined property rights.

To answer your question directly: yes. One example is the elephant population in Africa. In areas without property rights, poaching abounds and the elephant population is decimated. In areas with property rights, elephant populations triple. There's no magic involved, and it happens for a simple reason: property owners want lots of elephants to live on their property. Wouldn't you? You might say that the "dirty little secret" is that these property owners sell hunting licenses for $50K a pop to Teddy Roosevelt types to go in and bag some big game. But what's so dirty about it if fewer elephants are killed and more elephants are born? Do you want elephants or don't you? ;)

You wrote: "That was the original claim as I understood it: just let the markets run their course, and they'll fix the world's problems."

I would rephrase that. Just let people run their course without initiating aggression against each other, and they will fix the world's problems. And when I put it that way, it seems obviously and trivially true. But that is the definition of a free market after all, so it's not just a word game.

You might say that free markets are not "workable" because very few people will behave that way. But as I point out, most people refrain from aggression against other people's property most of the time. It's the norm. Theft, murder, and rape are very rare and uncommon occurrences. They only seem common because they get so much attention when they do occur.

You wrote: villagers letting their sheep ruin the common grazing grounds. The solution was to set up fences, that is change the property rules - in my view a government intervention, not an achievement of the market

Not at all. Those are achievements of free people trying their best to minimize conflict. People don't like conflict and will try to minimize it on their own. I suggest you read "The Voluntary City" for some historical examples of people doing amazing things, seemingly impossible in this day and age, without the "magic" of government, a.k.a. unilateral force and aggression against other people. They even managed to build roads of all things -- the favorite example trotted out now as something only government can do. And they weren't toll roads either. Hard to imagine now, but it's so obvious when you see how they did it.

Common sheep grazing lands, and common fishing areas in the ocean, are all prime examples of tragedy of the commons. Where there are no property rights, there is no motivation to preserve what's there. It's just one giant ugly grab, indistinguishable from looting.

Perhaps you are arguing that only governments are capable of defending property rights, since only governments have the sufficient force to do so. That's what Ayn Rand thought, and I think she's wrong about that. I don't need to get into an argument about guns here, and here's why: guns are a last resort when it comes to defending life and property. Free and uncoerced people will try all sorts of things to avoid coming to that point. Sociopaths don't care, but they are rare. Most people will go to great lengths to maintain their reputation, which is why arbitration is so often effective.

I'm not going to address CO2 certificates, because to me that represents an externality that is extremely difficult to define in terms of specific offenders and victims. CO2 is one of those things that animals must produce in order to survive. I do think that the "free market", which again means any group of individuals interacting solely by mutual consent, are fully capable of dealing with any threat there. Consider the vast changes in awareness of environmental issues over the last few decades. Hell, these days it's uncool to throw cans in the trash and to waste energy. This is social pressure, not the threat of physical force.

More people need to get more wealthy so they can afford a clean environment. Poor people scrabbling in the dirt cannot afford to think about it. And I predict that as the Chinese become more capitalized, they will innovate in manufacturing and energy production to reduce emissions of all sorts. There's a simple reason for that. Producing waste requires energy, and energy costs money. But without capital, you cannot afford the innovation at the margin to clean up the processes.

Is the free market magic? Will it lead to the Kingdom of God on earth? Hell no. But I am sick of hearing people extol the virtues of force monopolies, and how if they don't apply the lash, nobody will ever do anything right or worthwhile. The reality is quite the opposite.