The Utility of Freedom of Speech
Economists refer to the benefits conferred by something as "utility". Likewise, there is a school of philosophical thought known as utilitarianism, which holds that activities which confer a net utility to society should be permitted, and those with negative net utility be forbidden.
(Subject to some restraints, depending on who you listen to, of course. John Stuart Mill was an utilitarian who suggested ways of calculating utility that would prevent a tyranny of the majority.)
I consider myself to be something of an utilitarian; my only ideal is to uphold what benefits society, subject to Mill's constraints. It just so happens that many liberal ideals coincide with what I consider to benefit society.
Freedom of speech is one such ideal. The benefits conferred on society by unfettered freedom of speech are hopefully obvious; by increasing the supply of ideas, we have a greater chance of striking gold.
Of course, if you look at it another way, by allowing bad ideas to proliferate and be given a hearing, we are reducing our chances of lucking out by diverting our attention from other ideas.
This latter argument is the fundamental basis for most suggestions that speech be limited. That there must be restraints on freedom of speech is accepted by most; hardly anyone would support speech which directly harms others, e.g. slander or incitement.
However, there are grounds for suggesting that going further would be going too far. I am not a fan of restricting lewd or prurient speech, nor would I support banning controversial ideas such as hate speech. (I have pondered the possibility of civil penalties for hate speech, though.)
The reason for this can be encapsulated in one Malaysian newspaper editor's response when he was told he could not publish something. It ran along the lines of, "Is a civil servant going to tell me what is inflammatory and what is not inflammatory?"
Basically, in any civilised society at the present, it is a bureaucracy which would determine what ideas can and cannot be heard, and as Lord Acton said, power corrupts.
It is not healthy to allow a bureaucracy to restrict speech; society can draw up laws, but these laws are often as likely to trap good ideas as they are to trap bad ones, especially when these laws must be enforced by a bureaucracy.
The economist Milton Friedman once said: "Underlying most arguments against the free market is a lack of belief in freedom itself." I have to agree, even when it comes to the marketplace of ideas.
The effectiveness of the market and individuals in discerning goods and services which carry utility and those which don't has been proven in practice. Is there any reason to think I can know what to buy, but not what to read, what to listen to?
If someone abuses their freedom of speech, to publish hate speech, so be it. The market will respond accordingly based on the strength of these ideas.
Allowing the state to interfere excessively in the marketplace of ideas is a bad idea. Correcting externalities like slander and incitement is something any economist would almost certainly agree with, but going any further and telling people that they cannot say this or cannot say that without more justification than "Some people don't like what you're saying" is unnecessary intervention.
What's important is allowing people to make their own choices, provided these choices do not harm others. As the American politician Adlai Stevenson said, ideas which are the height of absurdity in one generation are common wisdom in another — to smother these "absurd" ideas in the cradle simply because we don't like some other truly bad ideas which resemble them is throwing the baby out with the bathwater.