Free market

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A free market is a competitive market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...

 where prices are determined by supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...

. However, the term is also commonly used for markets in which economic intervention and regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...

 by the state
State (polity)
A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...

 is limited to tax collection, and enforcement of private ownership and contracts. Free markets differs from situations encountered in controlled markets or a monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...

, which can introduce price deviations without any changes to supply and demand. Advocates of a free market traditionally consider the term to imply that the means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...

 is under private, and not state control or co-operative ownership
Worker cooperative
A worker cooperative is a cooperative owned and democratically managed by its worker-owners. This control may be exercised in a number of ways. A cooperative enterprise may mean a firm where every worker-owner participates in decision making in a democratic fashion, or it may refer to one in which...

. This is the contemporary use of the term "free market" by economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...

s and in popular culture; the term has had other uses historically.

A free-market economy is one within which all markets are unregulated by any parties other than market participants. In its purest form, the government plays a neutral role in its administration and legislation of economic activity, neither limiting it (by regulating industries or protecting them from internal/external market pressures) nor actively promoting it (by owning economic interests or offering subsidies to businesses or R&D).

The theory holds that within an ideal free market, property rights are voluntarily exchanged at a price arranged solely by the mutual consent of sellers
Sellers
Sellers may refer to* Sellers, South Carolina, a small US town* USS Sellers , a US Navy destroyer*Sellers , people with the surname Sellers...

 and buyers. By definition, buyers and sellers do not coerce
Coercion
Coercion is the practice of forcing another party to behave in an involuntary manner by use of threats or intimidation or some other form of pressure or force. In law, coercion is codified as the duress crime. Such actions are used as leverage, to force the victim to act in the desired way...

 each other, in the sense that they obtain each other's property rights without the use of physical force, threat of physical force, or fraud, nor are they coerced by a third party (such as by government via transfer payments) and they engage in trade simply because they both consent and believe that what they are getting is worth more than or as much as what they give up. Price is the result of buying and selling decisions en masse as described by the theory of supply and demand.

Free markets contrast sharply with controlled markets or regulated market
Regulated market
A regulated market or controlled market, is the provision of goods or services that is regulated by a government appointed body. The regulation may cover the terms and conditions of supplying the goods and services and in particular the price allowed to be charged and/or to whom they are distributed...

s
, in which governments more actively regulate prices and/or supplies, directly or indirectly, which according to free-market theory causes markets to be less efficient. Where substantial state intervention exists, the market is a mixed economy
Mixed economy
Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...

. Where the state or co-operative association of producers directly manages the economy to achieve stated goals, economic planning
Economic planning
Economic planning refers to any directing or planning of economic activity outside the mechanisisms of the market, in an attempt to achieve specific economic or social outcomes. Planning is an economic mechanism for resource allocation and decision-making in contrast with the market mechanism...

 is said to be in effect; when economic planning entirely substitutes market activity, the economy is a Command economy.

In the marketplace, the price of a good or service helps communicate consumer demand to producers and thus directs the allocation of resources toward satisfaction of consumers as well as investors. In a free market, the system of prices is the emergent
Emergence
In philosophy, systems theory, science, and art, emergence is the way complex systems and patterns arise out of a multiplicity of relatively simple interactions. Emergence is central to the theories of integrative levels and of complex systems....

 result of a vast number of voluntary transactions, rather than of political decrees as in a controlled market. The freer the market, the more truly the prices will reflect consumer habits and demands, and the more valuable the information in these prices are to all players in the economy. Through free competition between vendors for the provision of products and services, prices tend to decrease, and quality tends to increase. A free market is not to be confused with a perfect market
Perfect market
In economics, a perfect market is defined by several conditions, collectively called perfect competition. Among these conditions are* Perfect market information* No participant with market power to set prices* No barriers to entry or exit...

 where individuals have perfect information
Perfect information
In game theory, perfect information describes the situation when a player has available the same information to determine all of the possible games as would be available at the end of the game....

 and there is perfect competition
Perfect competition
In economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets...

.

Free-market economics is closely associated with laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

economic philosophy, which advocates approximating this condition in the real world by mostly confining government intervention in economic matters to regulating against force and fraud among market participants. Some free-market advocates oppose taxation as well, claiming that the market is more efficient at providing all valuable services of which defense
National security
National security is the requirement to maintain the survival of the state through the use of economic, diplomacy, power projection and political power. The concept developed mostly in the United States of America after World War II...

 and law
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...

 are no exception, that such services can be provided without direct taxation and that consent would be the basis of political legitimacy making it a morally consistent system. Anarcho-capitalists, for example, would substitute arbitration
Arbitration
Arbitration, a form of alternative dispute resolution , is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons , by whose decision they agree to be bound...

 agencies and private defense agencies
Private defense agency
A private defense agency is a conceptualized agency that provides personal protection and military defense services voluntarily through the free market. A PDA is not a private contractor of the state and is not subsidised in any way through taxation or immunities, nor does it rely on conscription...

.

In social philosophy
Social philosophy
Social philosophy is the philosophical study of questions about social behavior . Social philosophy addresses a wide range of subjects, from individual meanings to legitimacy of laws, from the social contract to criteria for revolution, from the functions of everyday actions to the effects of...

, a free-market economy is a system for allocating
Allocation
Allocation may refer to:* Computers** Delayed allocation** Block allocation map** FAT** IP address allocation** Memory allocation** C++ allocators** No-write allocation ** Register allocation* Economics** Economic system** Asset allocation...

 goods within a society: purchasing power
Purchasing power
Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing...

 mediated by supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...

 within the market determines who gets what and what is produced, rather than the state. A free market may refer narrowly to national economies, or internationally; specific reference to international markets is referred to as free trade
Free trade
Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...

 (for goods) or lack of capital control
Capital control
Capital controls are measures such as transaction taxes and other limits or outright prohibitions, which a nation's government can use to regulate the flows into and out of the country's capital account....

s (for money). Early proponents of a free-market economy in 18th century Europe contrasted it with the medieval, early modern, and mercantilist
Mercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...

 economies which preceded it.

Supply and demand



Supply and demand are always equal as they are the two sides of the same set of transactions, and discussions of "imbalances" are a muddled and indirect way of referring to price. However, in an unmeasurable qualitative sense, demand for an item (such as goods or services) refers to the market pressure from people trying to buy it. They will "bid" money for the item, while in return sellers offer the item for money. When the bid matches the offer, a transaction can easily occur (even automatically, as in a typical stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...

). In Western society, most shops and markets do not resemble the stock market, and there are significant costs and barriers to "shopping around" (comparison shopping).

The model is commonly applied to wages, in the market for labor. The typical roles of supplier and consumer are reversed. The suppliers are individuals, who try to sell (supply) their labor for the highest price. The consumers of labors are businesses, which try to buy (demand) the type of labor they need at the lowest price. As populations increase wages fall for any given unskilled or skilled labor supply. Conversely, wages tend to go up with a decrease in population.

When demand exceeds supply, suppliers can raise the price, but when supply exceeds demand, suppliers will have to decrease the price in order to make sales. Consumers who can afford the higher prices may still buy, but others may forgo the purchase altogether, demand a better price, buy a similar item, or shop elsewhere. As the price rises, suppliers may also choose to increase production, or more suppliers may enter the business.

Spontaneous order or "invisible hand"



Friedrich Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...

 argues for the classical liberal view that market economies allow spontaneous order
Spontaneous order
Spontaneous order, also known as "self-organization", is the spontaneous emergence of order out of seeming chaos. It is a process found in physical, biological, and social networks, as well as economics, though the term "self-organization" is more often used for physical and biological processes,...

; that is, "a more efficient allocation of societal resources than any design could achieve." According to this view, in market economies sophisticated business networks are formed which produce and distribute goods and services throughout the economy. This network was not designed, but emerged as a result of decentralized individual economic decisions. Supporters of the idea of spontaneous order trace their views to the concept of the invisible hand
Invisible hand
In economics, invisible hand or invisible hand of the market is the term economists use to describe the self-regulating nature of the marketplace. This is a metaphor first coined by the economist Adam Smith...

 proposed by Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...

 in The Wealth of Nations
The Wealth of Nations
An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith...

who said that the individual who:

"By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of it. By pursuing his own interest [an individual] frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the [common] good." (Wealth of Nations)


Smith pointed out that one does not get one's dinner by appealing to the brother-love of the butcher, the farmer or the baker. Rather one appeals to their self interest, and pays them for their labor.

"It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."


Supporters of this view claim that spontaneous order is superior to any order that does not allow individuals to make their own choices of what to produce, what to buy, what to sell, and at what prices, due to the number and complexity of the factors involved. They further believe that any attempt to implement central planning will result in more disorder, or a less efficient production and distribution of goods and services.

Critics, such as political economist Karl Polanyi
Karl Polanyi
Karl Paul Polanyi was a Hungarian philosopher, political economist and economic anthropologist known for his opposition to traditional economic thought and his book The Great Transformation...

, question whether a spontaneously ordered market can exist, completely free of "distortions" of political policy; since even the ostensibly freest markets require a state to exercise coercive power in some areas - to enforce contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

s, to govern the formation of labor unions, to spell out the rights and obligations of corporations, to shape who has standing to bring legal actions, to define what constitutes an unacceptable conflict of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....

, etc.

Economic equilibrium



General equilibrium theory has demonstrated, with varying degrees of mathematical rigor over time, that under certain conditions of competition
Perfect competition
In economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets...

, the law of supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...

 predominates in this ideal free and competitive market, influencing prices toward an equilibrium
Economic equilibrium
In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the values of economic variables will not change. It is the point at which quantity demanded and quantity supplied are equal...

 that balances the demands for the products against the supplies. At these equilibrium prices, the market distributes the products to the purchasers according to each purchaser's preference (or utility) for each product and within the relative limits of each buyer's purchasing power
Purchasing power
Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing...

. This result is described as market efficiency, or more specifically a Pareto optimum.

This equilibrating behavior of free markets requires certain assumptions about their agents, collectively known as Perfect Competition
Perfect competition
In economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets...

, which therefore cannot be results of the market that they create. Among these assumptions are complete information, interchangeable goods and services, and lack of market power, that obviously cannot be fully achieved. The question then is what approximations of these conditions guarantee approximations of market efficiency, and which failures in competition generate overall market failures. Several Nobel Prizes in Economics have been awarded for analyses of market failures due to asymmetric information.

Some models in econophysics
Econophysics
Econophysics is an interdisciplinary research field, applying theories and methods originally developed by physicists in order to solve problems in economics, usually those including uncertainty or stochastic processes and nonlinear dynamics...

 have shown that when agents are allowed to interact locally in a free market (i.e. their decisions depend not only on utility and purchasing power, but also on their peers' decisions), prices can become unstable and diverge from the equilibrium, often in an abrupt manner. The behavior of the free market is thus said to be non-linear (a pair of agents bargaining for a purchase will agree on a different price than 100 identical pairs of agents doing the identical purchase). Speculation bubbles
Economic bubble
An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...

 and the type of herd
Herd
Herd refers to a social grouping of certain animals of the same species, either wild or domestic, and also to the form of collective animal behavior associated with this or as a verb, to herd, to its control by another species such as humans or dogs.The term herd is generally applied to mammals,...

 behavior often observed in stock markets are quoted as real life examples of non-equilibrium price trends. Some laissez-faire free-market advocates, like Chicago school economists, often dismiss this endogenous theory, and blame external influences, such as weather, commodity prices, technological developments, and government meddling for non-equilibrium prices.

Distribution of wealth



The distribution of purchasing power in an economy depends to a large extent on the nature of government intervention, social class
Social class
Social classes are economic or cultural arrangements of groups in society. Class is an essential object of analysis for sociologists, political scientists, economists, anthropologists and social historians. In the social sciences, social class is often discussed in terms of 'social stratification'...

, labor and financial markets, but also on other, lesser factors such as family relationships, inheritance
Inheritance
Inheritance is the practice of passing on property, titles, debts, rights and obligations upon the death of an individual. It has long played an important role in human societies...

, gift
Gift
A gift or a present is the transfer of something without the expectation of receiving something in return. Although gift-giving might involve an expectation of reciprocity, a gift is meant to be free. In many human societies, the act of mutually exchanging money, goods, etc. may contribute to...

s and so on. Many theories describing the operation of a free market focus primarily on the markets for consumer products, and their description of the labor market or financial markets tends to be more complicated and controversial.

Joshua Epstein
Joshua M. Epstein
Joshua M. Epstein is Professor of Emergency Medicine at Johns Hopkins University, and a member of the External Faculty of the Santa Fe Institute.- Early life and Education:Epstein was born in New York City and grew up in Amherst....

 and Robert Axtell
Robert Axtell
- References :...

 have attempted to predict the properties of free markets empirically in the agent-based computer simulation "Sugarscape
Sugarscape
Sugarscape is a model artificially intelligent agent-based social simulation following some or all rules presented by Joshua M. Epstein & Robert Axtell in their book Growing Artificial Societies.-Origin:...

". They came to the conclusion that, under idealized conditions, free markets lead to a Pareto distribution of wealth.

Laissez-faire economics



The necessary components for the functioning of an idealized free market include the complete absence of artificial price pressures from taxes, subsidies, tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....

s, or government regulation (other than protection from coercion and theft), and no government-granted monopolies
Government-granted monopoly
In economics, a government-granted monopoly is a form of coercive monopoly by which a government grants exclusive privilege to a private individual or firm to be the sole provider of a good or service; potential competitors are excluded from the market by law, regulation, or other mechanisms of...

 (usually classified as coercive monopoly
Coercive monopoly
In economics and business ethics, a coercive monopoly is a business concern that prohibits competitors from entering the field, with the natural result being that the firm is able to make pricing and production decisions independent of competitive forces...

 by free-market advocates) like the United States Post Office, Amtrak
Amtrak
The National Railroad Passenger Corporation, doing business as Amtrak , is a government-owned corporation that was organized on May 1, 1971, to provide intercity passenger train service in the United States. "Amtrak" is a portmanteau of the words "America" and "track". It is headquartered at Union...

, patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....

s, etc.

Deregulation



In an absolutely free-market economy, all capital, goods, services, and money flow transfers are unregulated by the government except to stop collusion or fraud that may take place among market participants. As this protection must be funded, such a government taxes only to the extent necessary to perform this function, if at all. This state of affairs is also known as laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

.

Internationally, free markets are advocated by proponents of economic liberalism
Economic liberalism
Economic liberalism is the ideological belief in giving all people economic freedom, and as such granting people with more basis to control their own lives and make their own mistakes. It is an economic philosophy that supports and promotes individual liberty and choice in economic matters and...

; in Europe this is usually simply called liberalism. In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, support for free market is associated most with libertarianism
Libertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...

. Since the 1970s, promotion of a global free-market economy, deregulation
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...

 and privatization
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...

, is often described as neoliberalism
Neoliberalism
Neoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...

.

The term free-market economy is sometimes used to describe some economies that exist today (such as Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...

), but pro-market groups would only accept that description if the government practices laissez-faire policies, rather than state intervention in the economy. An economy that contains significant economic interventionism
Economic interventionism
Economic interventionism is an action taken by a government in a market economy or market-oriented mixed economy, beyond the basic regulation of fraud and enforcement of contracts, in an effort to affect its own economy...

 by government, while still retaining some characteristics found in a free market is often called a mixed economy
Mixed economy
Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...

.

Low barriers to entry


A free market does not require the existence of competition, however it does require that there are no barriers to new market entrants. Hence, in the lack of coercive barriers it is generally understood that competition flourishes in a free-market environment. It often suggests the presence of the profit motive
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...

, although neither a profit motive or profit itself are necessary for a free market. All modern free markets are understood to include entrepreneur
Entrepreneur
An entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...

s, both individuals and business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...

es. Typically, a modern free market economy would include other features, such as a stock exchange
Stock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...

 and a financial services
Financial services
Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...

 sector, but they do not define it.

Legal tender and taxes


In a free-market economy, money would not be monopolized by legal tender
Legal tender
Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency is a common form of legal tender in many countries....

 laws or by a central bank, in order to receive taxes
Value added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...

 from the transactions or to be able to issue loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....

s. Minarchists (advocates of minimal government) contend that the coercion of taxes is essential for the market's survival, and a market free from taxes may lead to no market at all. By definition, there is no market without private property, and private property can only exist while there is an entity that defines and defends it. Traditionally, the State defends private property and defines it by issuing ownership titles, and also nominates the central authority to print or mint currency. "Free-market anarchists" disagree with the above assessment they maintain that private property and free markets can be protected by voluntarily-funded services under the concept of individualist anarchism
Individualist anarchism
Individualist anarchism refers to several traditions of thought within the anarchist movement that emphasize the individual and his or her will over external determinants such as groups, society, traditions, and ideological systems. Individualist anarchism is not a single philosophy but refers to a...

 and anarcho-capitalism
Anarcho-capitalism
Anarcho-capitalism is a libertarian and individualist anarchist political philosophy that advocates the elimination of the state in favour of individual sovereignty in a free market...

. A free market could be defined alternatively as a tax-free market, independent of any central authority, which uses a medium of exchange such as money, even in the absence of the State. It is disputed, however, whether this hypothetical stateless market could function.

Index of economic freedom


The Heritage Foundation
Heritage Foundation
The Heritage Foundation is a conservative American think tank based in Washington, D.C. Heritage's stated mission is to "formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong...

, a conservative
Conservatism
Conservatism is a political and social philosophy that promotes the maintenance of traditional institutions and supports, at the most, minimal and gradual change in society. Some conservatives seek to preserve things as they are, emphasizing stability and continuity, while others oppose modernism...

 think tank
Think tank
A think tank is an organization that conducts research and engages in advocacy in areas such as social policy, political strategy, economics, military, and technology issues. Most think tanks are non-profit organizations, which some countries such as the United States and Canada provide with tax...

, tried to identify the key factors necessary to measure the degree of freedom of economy of a particular country. In 1986 they introduced the Index of Economic Freedom
Index of Economic Freedom
The Index of Economic Freedom is a series of 10 economic measurements created by The Heritage Foundation and The Wall Street Journal. Its stated objective is to measure the degree of economic freedom in the world's nations....

, which is based on some fifty variables. This and other similar indices do not define a free market, but measure the degree to which a modern economy is free, meaning in most cases free of state intervention. The variables are divided into the following major groups:
  • Trade policy,
  • Fiscal burden of government
    Fiscal burden of government
    In economics, the fiscal burden of government imposed onto its taxpayers is the influence of the tax levied on the purchasing power of the taxpayers....

    ,
  • Government intervention in the economy,
  • Monetary policy,
  • Capital flows and foreign investment,
  • Banking and finance,
  • Wages and prices,
  • Property rights,
  • Regulation, and
  • Informal market activity.

Each group is assigned a numerical value between 1 and 5; IEF is the arithmetical mean of the values, rounded to the hundredth. Initially, countries which were traditionally considered capitalistic received high ratings, but the method improved over time. Some economists, like Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...

 and other Laissez-faire economists
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

 have argued that there is a direct relationship between economic growth and economic freedom, and studies suggest this is true. Continuous debates among scholars on methodological issues in empirical studies of the connection between economic freedom and economic growth still try to find out what is the relationship, if any.

History and ideology


The meaning of "free" market has varied over time and between economists, the ambiguous term "free" facilitating reuse. To illustrate the ambiguity: classical economists such as Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...

 believed that an economy should be free of monopoly rents, while proponents of laissez faire believe that people should be free to form monopolies. In this article "free market" is largely identified with laissez faire, though alternative senses are discussed in this section and in criticism. The identification of the "free market" with "laissez faire" was notably used in the 1962 Capitalism and Freedom
Capitalism and Freedom
Capitalism and Freedom is a book by Milton Friedman originally published in 1962 by the University of Chicago Press which discusses the role of economic capitalism in liberal society. It sold over 400,000 copies in the first 18 years and more than half a million since 1962. It has been translated...

,
by economist Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...

, which is credited with popularizing this usage.

Some theorists might argue that a free market is a natural form of social organization, and that a free market will arise in any society where it is not obstructed (i.e. Ludwig von Mises
Ludwig von Mises
Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...

, Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...

). The consensus among economic historians
Economic history
Economic history is the study of economies or economic phenomena in the past. Analysis in economic history is undertaken using a combination of historical methods, statistical methods and by applying economic theory to historical situations and institutions...

 is that the free market economy is a specific historic phenomenon, and that it emerged in late medieval and early-modern Europe. Other economic historians see elements of the free market in the economic systems of Classical Antiquity
Classical antiquity
Classical antiquity is a broad term for a long period of cultural history centered on the Mediterranean Sea, comprising the interlocking civilizations of ancient Greece and ancient Rome, collectively known as the Greco-Roman world...

, and in some non-western societies. By the 19th century the market certainly had organized political support, in the form of laissez-faire liberalism. However, it is not clear if the support preceded the emergence of the market or followed it. Some historians see it as the result of the success of early liberal ideology
Ideology
An ideology is a set of ideas that constitutes one's goals, expectations, and actions. An ideology can be thought of as a comprehensive vision, as a way of looking at things , as in common sense and several philosophical tendencies , or a set of ideas proposed by the dominant class of a society to...

, combined with the specific interests of the entrepreneur
Entrepreneur
An entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...

.

Support for the free market as an ordering principle of society is above all associated with liberalism
Liberalism
Liberalism is the belief in the importance of liberty and equal rights. Liberals espouse a wide array of views depending on their understanding of these principles, but generally, liberals support ideas such as constitutionalism, liberal democracy, free and fair elections, human rights,...

, especially during the 19th century. (In Europe, the term 'liberalism' retains its connotation
Connotation
A connotation is a commonly understood subjective cultural or emotional association that some word or phrase carries, in addition to the word's or phrase's explicit or literal meaning, which is its denotation....

 as the ideology of the free market, but in American and Canadian usage it came to be associated with government intervention, and acquired a pejorative
Pejorative
Pejoratives , including name slurs, are words or grammatical forms that connote negativity and express contempt or distaste. A term can be regarded as pejorative in some social groups but not in others, e.g., hacker is a term used for computer criminals as well as quick and clever computer experts...

 meaning for supporters of the free market.) Later ideological developments, such as minarchism
Minarchism
Minarchism has been variously defined by sources. It is a libertarian capitalist political philosophy. In the strictest sense, it maintains that the state is necessary and that its only legitimate function is the protection of individuals from aggression, theft, breach of contract, and fraud, and...

, libertarianism
Libertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...

 and Objectivism
Objectivism (Ayn Rand)
Objectivism is a philosophy created by the Russian-American philosopher and novelist Ayn Rand . Objectivism holds that reality exists independent of consciousness, that human beings have direct contact with reality through sense perception, that one can attain objective knowledge from perception...

 also support the free market, and insist on its pure form. Although the Western world
Western world
The Western world, also known as the West and the Occident , is a term referring to the countries of Western Europe , the countries of the Americas, as well all countries of Northern and Central Europe, Australia and New Zealand...

 shares a generally similar form of economy, usage in the United States and Canada is to refer to this as capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...

, while in Europe 'free market' is the preferred neutral term. Modern liberalism
New liberalism
New Liberalism is a book by Matthew Kalkman that examines the evolution of Liberalism from its early beginnings to its potential future incarnations. The author argues that New Liberalism is the next step in this evolution: the notion that, in order for a society to be maintained and to evolve, it...

 (American and Canadian usage), and in Europe social democracy
Social democracy
Social democracy is a political ideology of the center-left on the political spectrum. Social democracy is officially a form of evolutionary reformist socialism. It supports class collaboration as the course to achieve socialism...

, seek only to mitigate the problems of an unrestrained free market, and accept its existence as such.

Classical economics


In the classical economics
Classical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....

 of such figures as Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...

 and David Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...

, "free markets" meant "free of unnecessary charges" and a "market free from monopoly power, business fraud, political insider dealing and special privileges for vested interests". A "free market" particularly meant one free of foreign debt; as discussed in The Wealth of Nations
The Wealth of Nations
An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith...

. Alternatively, stated, it was a market freed from Feudalism
Feudalism
Feudalism was a set of legal and military customs in medieval Europe that flourished between the 9th and 15th centuries, which, broadly defined, was a system for ordering society around relationships derived from the holding of land in exchange for service or labour.Although derived from the...

 and serfdom
Serfdom
Serfdom is the status of peasants under feudalism, specifically relating to Manorialism. It was a condition of bondage or modified slavery which developed primarily during the High Middle Ages in Europe and lasted to the mid-19th century...

, or more formally, one free of economic rent
Economic rent
Economic rent is typically defined by economists as payment for goods and services beyond the amount needed to bring the required factors of production into a production process and sustain supply. A recipient of economic rent is a rentier....

, in the formulation by David Ricardo of the Law of Rent
Law of Rent
The law of rent was formulated by David Ricardo around 1809, and this is the origin of the term Ricardian rent. Ricardo's formulation of the law was the first clear exposition of the source and magnitude of land rents, and is among the most important and firmly established principles of economics. ...

.

Marxism


In Marxist
Marxism
Marxism is an economic and sociopolitical worldview and method of socioeconomic inquiry that centers upon a materialist interpretation of history, a dialectical view of social change, and an analysis and critique of the development of capitalism. Marxism was pioneered in the early to mid 19th...

 theory, the idea of the free market simply expresses the underlying long-term transition from feudalism
Feudalism
Feudalism was a set of legal and military customs in medieval Europe that flourished between the 9th and 15th centuries, which, broadly defined, was a system for ordering society around relationships derived from the holding of land in exchange for service or labour.Although derived from the...

 to capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...

. Note that the views on this issue – emergence or implementation – do not necessarily correspond to pro-market and anti-market positions. Libertarians
Libertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...

 would dispute that the market was enforced through government policy, since they believe it is a spontaneous order
Spontaneous order
Spontaneous order, also known as "self-organization", is the spontaneous emergence of order out of seeming chaos. It is a process found in physical, biological, and social networks, as well as economics, though the term "self-organization" is more often used for physical and biological processes,...

 and Marxists agree with them because they as well believe it is evolutionary, although with a different end.

Liberalism


Support for the free market as an ordering principle of society is above all associated with liberalism
Liberalism
Liberalism is the belief in the importance of liberty and equal rights. Liberals espouse a wide array of views depending on their understanding of these principles, but generally, liberals support ideas such as constitutionalism, liberal democracy, free and fair elections, human rights,...

, especially during the 19th century. (In Europe, the term 'liberalism' retains its connotation
Connotation
A connotation is a commonly understood subjective cultural or emotional association that some word or phrase carries, in addition to the word's or phrase's explicit or literal meaning, which is its denotation....

 as the ideology of the free market, but in American and Canadian usage it came to be associated with government intervention, and acquired a pejorative
Pejorative
Pejoratives , including name slurs, are words or grammatical forms that connote negativity and express contempt or distaste. A term can be regarded as pejorative in some social groups but not in others, e.g., hacker is a term used for computer criminals as well as quick and clever computer experts...

 meaning for supporters of the free market.) Later ideological developments, such as minarchism
Minarchism
Minarchism has been variously defined by sources. It is a libertarian capitalist political philosophy. In the strictest sense, it maintains that the state is necessary and that its only legitimate function is the protection of individuals from aggression, theft, breach of contract, and fraud, and...

, libertarianism
Libertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...

 and Objectivism
Objectivism (Ayn Rand)
Objectivism is a philosophy created by the Russian-American philosopher and novelist Ayn Rand . Objectivism holds that reality exists independent of consciousness, that human beings have direct contact with reality through sense perception, that one can attain objective knowledge from perception...

 also support the free market, and insist on its pure form. Although the Western world
Western world
The Western world, also known as the West and the Occident , is a term referring to the countries of Western Europe , the countries of the Americas, as well all countries of Northern and Central Europe, Australia and New Zealand...

 shares a generally similar form of economy, usage in the United States and Canada is to refer to this as capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...

, while in Europe 'free market' is the preferred neutral term. The advocates of modern liberalism
New liberalism
New Liberalism is a book by Matthew Kalkman that examines the evolution of Liberalism from its early beginnings to its potential future incarnations. The author argues that New Liberalism is the next step in this evolution: the notion that, in order for a society to be maintained and to evolve, it...

 (American and Canadian usage), and in Europe those of social democracy
Social democracy
Social democracy is a political ideology of the center-left on the political spectrum. Social democracy is officially a form of evolutionary reformist socialism. It supports class collaboration as the course to achieve socialism...

, seek ostensibly only to mitigate what they see as the problems of an unrestrained free market, and accept the existence of markets as such.

To most libertarians
Libertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...

, there is simply no free market yet, given the degree of state intervention in even the most 'capitalist' of countries. From their perspective, those who say they favor a "free market" are speaking in a relative, rather than an absolute, sense — meaning (in libertarian terms) they wish that coercion
Coercion
Coercion is the practice of forcing another party to behave in an involuntary manner by use of threats or intimidation or some other form of pressure or force. In law, coercion is codified as the duress crime. Such actions are used as leverage, to force the victim to act in the desired way...

 be kept to the minimum that is necessary to maximize economic freedom (such necessary coercion would be taxation, for example) and to maximize market efficiency by lowering trade barriers, making the tax system neutral in its influence on important decisions such as how to raise capital, e.g., eliminating the double tax
Dividend tax
A dividend tax is an income tax on dividend payments to the stockholders of a company.-Collection:In many jurisdictions, the government requires the company to withhold at least the standard tax, paying this to the national revenue authorities and paying out only the balance to the...

 on dividends so that equity financing is not at a disadvantage vis-a-vis debt financing. However, there are some such as anarcho-capitalists who would not even allow for taxation and governments, instead preferring protectors of economic freedom in the form of private contractors.

Criticisms



Critics dispute the claim that in practice free markets create perfect competition
Perfect competition
In economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets...

, or even increase market competition over the long run. Whether the marketplace should be or is free is disputed; many assert that government intervention is necessary to remedy market failure
Market failure
Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off...

 that is held to be an inevitable result of absolute adherence to free market principles. These failures range from military
Military
A military is an organization authorized by its greater society to use lethal force, usually including use of weapons, in defending its country by combating actual or perceived threats. The military may have additional functions of use to its greater society, such as advancing a political agenda e.g...

 services to roads
Free market roads
Free-market roads is the theory that a society should have entirely privately owned roads.Free-market roads are advocated by many classic anarcho-capitalist works, including Murray Rothbard's For a New Liberty, Morris and Linda Tannehill's The Market for Liberty, David D. Friedman's The Machinery...

, and some would argue, to health care. This is the central argument of those who argue for a mixed market, free at the base, but with government oversight to control social problems.

Another criticism is definitional, in that far-ranging governmental actions such as the creation of corporate personhood or more broadly, the governmental actions behind the very creation of artificial legal entities called corporations, are not considered "intervention" within mainstream economic schools. This inherent definitional bias allows many to advocate strong governmental actions that promote corporate power, while advocating against government actions limiting it, while putting these dual positions under the umbrella of "pro free markets" or "anti-intervention."

Two prominent Canadian authors (both very hostile to the "Chicago School" philosophy) argue that government at times has to intervene to ensure competition in large and important industries. Naomi Klein
Naomi Klein
Naomi Klein is a Canadian author and social activist known for her political analyses and criticism of corporate globalization.-Family:...

 illustrates this roughly in her work The Shock Doctrine
The Shock Doctrine
The Shock Doctrine: The Rise of Disaster Capitalism is a 2007 book by Canadian author Naomi Klein, and is the basis of a 2009 documentary by the same name....

and John Ralston Saul
John Ralston Saul
John Ralston Saul, CC is a Canadian author, essayist, and President of International PEN.As an essayist, Saul is particularly known for his commentaries on the nature of individualism, citizenship and the public good; the failures of manager-, or more precisely technocrat-, led societies; the...

 more humorously illustrates this through various examples in The Collapse of Globalism and the Reinvention of the World. While its supporters argue that only a free market can create healthy competition and therefore more business and reasonable prices, opponents say that a free market in its purest form may result in the opposite. According to Klein and Ralston, the merging of companies into giant corporations or the privatization of government-run industry and national assets often result in monopolies (or oligopolies) requiring government intervention to force competition and reasonable prices.

Critics of laissez-faire since Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...

 variously see the unregulated market as an impractical ideal or as a rhetorical device
Rhetorical device
In rhetoric, a rhetorical device or resource of language is a technique that an author or speaker uses to convey to the listener or reader a meaning with the goal of persuading him or her towards considering a topic from a different perspective. While rhetorical devices may be used to evoke an...

 that puts the concepts of freedom and anti-protectionism
Protectionism
Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...

 at the service of vested wealthy interests, allowing them to attack labor laws and other protections of the working class
Working class
Working class is a term used in the social sciences and in ordinary conversation to describe those employed in lower tier jobs , often extending to those in unemployment or otherwise possessing below-average incomes...

es.

Because no national economy in existence fully manifests the ideal of a free market as theorized by economists, some critics of the concept consider it to be a fantasy – outside of the bounds of reality in a complex system with opposing interests and different distributions of wealth.

These critics range from those who reject markets entirely, in favour of a planned economy
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...

 or a communal economy, such as that advocated by Marxism
Marxism
Marxism is an economic and sociopolitical worldview and method of socioeconomic inquiry that centers upon a materialist interpretation of history, a dialectical view of social change, and an analysis and critique of the development of capitalism. Marxism was pioneered in the early to mid 19th...

, to those who merely wish to see market failure
Market failure
Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off...

s regulated to various degrees or supplemented by certain government interventions. For example, Keynesians recognize a role for government in providing corrective measures, such as use of fiscal policy for economy stimulus, when decisions in the private sector lead to suboptimal economic outcomes, such as depression
Depression (economics)
In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle....

 or recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...

, which manifest in widespread hardship. Business cycle theory is used by Keynes to explain 'liquidity trap
Liquidity trap
A liquidity trap is a situation described in Keynesian economics in which injections of cash into an economy by a central bank fail to lower interest rates and hence to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as...

s' by which underconsumption occurs, in order to argue for government intervention with central banking. Free market economists consider this credit-expansion as the cause of the business cycle in refutation of this Keynesian criticism.

Externalities


One practical objection is the claim that markets do not take into account externalities (effects of transactions that affect third parties), such as the negative effects of pollution or the positive effects of education. What exactly constitutes an externality may be up for debate, including the extent to which it changes based upon the political climate.

Some proponents of market economies believe that governments should not diminish market freedom because they disagree on what is a market externality and what are government-created externalities, and disagree over what the appropriate level of intervention is necessary to solve market-created externalities. Others believe that government should intervene to prevent market failure
Market failure
Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off...

 while preserving the general character of a market economy. In the model of a social market economy
Social market economy
The social market economy is the main economic model used in West Germany after World War II. It is based on the economic philosophy of Ordoliberalism from the Freiburg School...

 the state intervenes where the market does not meet political demands. John Rawls
John Rawls
John Bordley Rawls was an American philosopher and a leading figure in moral and political philosophy. He held the James Bryant Conant University Professorship at Harvard University....

 was a prominent proponent of this idea.

Differing ideas


Some advocates of free market ideologies have criticized mainstream conceptions of the free market, arguing that a truly free market would not resemble the modern-day capitalist economy. For example, contemporary mutualist
Mutualism (economic theory)
Mutualism is an anarchist school of thought that originates in the writings of Pierre-Joseph Proudhon, who envisioned a society where each person might possess a means of production, either individually or collectively, with trade representing equivalent amounts of labor in the free market...

 Kevin Carson argues in favor of "free market anti-capitalism." Carson has stated that "From Smith to Ricardo and Mill, classical liberalism was a revolutionary doctrine that attacked the privileges of the great landlords and the mercantile interests. Today, we see vulgar libertarians perverting "free market" rhetoric to defend the contemporary institution that most closely resembles, in terms of power and privilege, the landed oligarchies and mercantilists of the Old Regime: the giant corporation."

Carson believes that a true free market society would be "[a] world in which... land and property [is] widely distributed, capital [is] freely available to laborers through mutual banks, productive technology [is] freely available in every country without patents, and every people [is] free to develop locally without colonial robbery..."

Simulation of biological laws


The free market is believed to self-regulate in the most efficient and just way. Adam Smith described this behavior with the metaphor of an invisible hand
Invisible hand
In economics, invisible hand or invisible hand of the market is the term economists use to describe the self-regulating nature of the marketplace. This is a metaphor first coined by the economist Adam Smith...

 urging society towards prosperity.

Charles Darwin
Charles Darwin
Charles Robert Darwin FRS was an English naturalist. He established that all species of life have descended over time from common ancestry, and proposed the scientific theory that this branching pattern of evolution resulted from a process that he called natural selection.He published his theory...

's theory of evolution
Evolution
Evolution is any change across successive generations in the heritable characteristics of biological populations. Evolutionary processes give rise to diversity at every level of biological organisation, including species, individual organisms and molecules such as DNA and proteins.Life on Earth...

 was very appealing to economists, sociologists and political scientists (most notably Walter Bagehot
Walter Bagehot
Walter Bagehot was an English businessman, essayist, and journalist who wrote extensively about literature, government, and economic affairs.-Early years:...

 and William Graham Sumner
William Graham Sumner
William Graham Sumner was an American academic and "held the first professorship in sociology" at Yale College. For many years he had a reputation as one of the most influential teachers there. He was a polymath with numerous books and essays on American history, economic history, political...

) who adapted and rationalized the invisible hand by incorporating the popular idea of the survival of the fittest
Survival of the fittest
"Survival of the fittest" is a phrase originating in evolutionary theory, as an alternative description of Natural selection. The phrase is today commonly used in contexts that are incompatible with the original meaning as intended by its first two proponents: British polymath philosopher Herbert...

. They proposed – among others – that in a fully competitive economic environment (as they thought was the case of ecosystem
Ecosystem
An ecosystem is a biological environment consisting of all the organisms living in a particular area, as well as all the nonliving , physical components of the environment with which the organisms interact, such as air, soil, water and sunlight....

s) the most potent individuals would thrive and in turn society would prosper (in analogy to the observed biodiversity
Biodiversity
Biodiversity is the degree of variation of life forms within a given ecosystem, biome, or an entire planet. Biodiversity is a measure of the health of ecosystems. Biodiversity is in part a function of climate. In terrestrial habitats, tropical regions are typically rich whereas polar regions...

 and abundance of life on earth). Such arguments lead to the consolidation of neoliberalism
Neoliberalism
Neoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...

 and laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

. A notable difference, however, is that selection in biotic systems is "actual" whereas in cultural systems it is "virtual": it can be avoided/invisible due to changing or limiting human perception. This permits economic non-responsiveness to selective pressure through externalities and control of mass-media, for example, introducing significant potential for maladaption. See discussions on evolution
Evolution
Evolution is any change across successive generations in the heritable characteristics of biological populations. Evolutionary processes give rise to diversity at every level of biological organisation, including species, individual organisms and molecules such as DNA and proteins.Life on Earth...

 and Sociocultural evolution
Sociocultural evolution
Sociocultural evolution is an umbrella term for theories of cultural evolution and social evolution, describing how cultures and societies have changed over time...

 for more information.

See also


  • Agorism
    Agorism
    Agorism is a political philosophy founded by Samuel Edward Konkin III and developed with contributions by J. Neil Schulman that holds as its ultimate goal bringing about a society in which all "relations between people are voluntary exchanges – a free market." The term comes from the Greek...

  • Austrian School
    Austrian School
    The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...

  • Economic freedom
    Economic freedom
    Economic freedom is a term used in economic and policy debates. As with freedom generally, there are various definitions, but no universally accepted concept of economic freedom...

  • Economic liberalism
    Economic liberalism
    Economic liberalism is the ideological belief in giving all people economic freedom, and as such granting people with more basis to control their own lives and make their own mistakes. It is an economic philosophy that supports and promotes individual liberty and choice in economic matters and...

  • Foundation for Economic Education
    Foundation for Economic Education
    The Foundation for Economic Education is one of the oldest free-market organizations established in the United States to study and advance the freedom philosophy. Murray Rothbard recognizes FEE for creating a "crucial open center" that he credits with launching the movement...

  • Free-market roads
  • Free price system
    Free price system
    A free price system or free price mechanism is an economic system where prices are set by the interchange of supply and demand, with the resulting prices being understood as signals that are communicated between producers and consumers which serve to guide the production and distribution of...

  • Free trade
    Free trade
    Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...

  • Grey market
    Grey market
    A grey market or gray market also known as parallel market is the trade of a commodity through distribution channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer...

  • History of theory of capitalism
    History of theory of capitalism
    A theory of capitalism describes the essential features of capitalism and how it functions. The history of various such theories is the subject of this article.-Overview:...

  • Libertarian socialism
    Libertarian socialism
    Libertarian socialism is a group of political philosophies that promote a non-hierarchical, non-bureaucratic, stateless society without private property in the means of production...

  • Ludwig von Mises Institute
    Ludwig von Mises Institute
    The Ludwig von Mises Institute , based in Auburn, Alabama, is a libertarian academic organization engaged in research and scholarship in the fields of economics, philosophy and political economy. Its scholarship is inspired by the work of Austrian School economist Ludwig von Mises...

  • Market economy
    Market economy
    A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...

  • Market Socialism
    Market socialism
    Market socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...

  • Mutualism (economic theory)
    Mutualism (economic theory)
    Mutualism is an anarchist school of thought that originates in the writings of Pierre-Joseph Proudhon, who envisioned a society where each person might possess a means of production, either individually or collectively, with trade representing equivalent amounts of labor in the free market...

  • Participatory economy
  • Quasi-market
    Quasi-market
    A quasi-market is a public sector institutional structure that is designed to reap the supposed efficiency gains of free markets without losing the equity benefits of traditional systems of public administration and financing....

  • Socialism
    Socialism
    Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...

  • Transparency (market)
    Transparency (market)
    In economics, a market is transparent if much is known by many about:* What products, services or capital assets are available.* What price.* Where....

  • Underground economy
    Underground economy
    A black market or underground economy is a market in goods or services which operates outside the formal one supported by established state power. Typically the totality of such activity is referred to with the definite article as a complement to the official economies, by market for such goods and...

  • Voluntaryism
    Voluntaryism
    Voluntarism, or voluntaryism, is a philosophy according to which all forms of human association should be voluntary. This moral principle is called the non-aggression principle, which prohibits the initiation of aggressive force or coercion...



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