Ha-Joon Chang has pointed out many fallacies of free market capitalism in his book "23 Things They Don't Tell You About Capitalism". You can watch his summary lecture here.
He paraphrases Winston Churchill's comment about democracy, "capitalism is the worst economic system except for all the others" and he points out that no markets are entirely free: they are all limited by politics, laws and social norms.
Yet we feel free to choose how to spend or invest our money. The market alocates resources and makes choices by a process of individual choice and approval, punishing bad choices with loss and supporting good choices with gain. It's survival of the fittest. The best products and best investments win.
I suggest that the second layer of free market capitalism is how we 'spend' our votes. And I suggest that if we can choose policies freely, from a wide range of 'suppliers', then the best ideas will emerge. These ideas may define the boundaries of capitalism, moulding it in ways that best suit the common good. Furthermore, if the ideas are only produced by a small political oligopoly, the major parties, it is unlikely that society will evolve and adapt as quickly and as effectively as the entrepreneaurial politics that Interactive Democracy fosters. Oligopolies may be as retarding to politics as they are to markets!