The cars could be made so fast that humans could not drive the cars any more. In addition, safety of the audience would be compromised and the costs would be prohibitively expensive to maintain competition.
While there has been a set of rules and regulations always in Formula 1 (that's what the name "formula" refers to), there have been periods when the cars have been ridiculously quick, despite all the limiting regulations.
In the late 1970's ground effect cars were able to produce a huge amount of downforce with very little drag, and the cars would corner at high speeds and had a rock hard suspension, the drivers hated the cars because of the rough ride.
In the 1980's, there were turbo engines that developed more than 1300 horsepower in qualifying trim. They could spin the wheels on top gear when the boost kicks in. This was expensive, stupid and dangerous but the audience loved it.
In the early 2000's, aerodynamic advances and improvements in computational fluid dynamics made it possible to get immense amounts of downforce. Cars regularly reached top speeds of 340-360 km/h, and ran at more than 400km/h outside of regular racing/testing in special top speed configuration. The costs were ridiculous and only a few top teams were competitive. The teams used up to 8 engines per weekend (that's roughly as much as they use in the whole season).
"Anything goes" is just not a good idea when it comes to motorsport. There are things that have been banned in the past that could be incorporated in a fast and safe racing formula, though.