In economics, a free market is an idealized system in which the prices for goods and services are determined by the open market and consumers, in which the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority. Proponents of the concept of free market contrast it with a regulated market, in which a government intervenes in supply and demand through various methods such as tariffs used to restrict trade and protect the economy. In an idealized free market economy, prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy.
In scholarly debates, the concept of a free market is contrasted with the concept of a coordinated market in fields of study such as political economy, new institutional economics, economic sociology, and political science. All of these fields emphasize the importance in actually existing market systems of rule making institutions external to the simple forces of supply and demand which create space for those forces to operate to control productive output and distribution.
One famous statement of the scholarly approach to the concept of free markets within political science is Freer Markets, More Rules by Steven K. Vogel. As the title suggests, the scholarly study of free markets is more accurately understood as the act of increasing or decreasing how strict rules are (more free or less free; liberalizing or deliberalizing) rather than the idealized concept of free markets as a state of the world. Free markets as a verb phrase, rather than free markets as a noun phrase.
Although free markets are commonly associated with capitalism within a market economy in contemporary usage and popular culture, free markets have also been advocated by free-market anarchists, market socialists, and some proponents of cooperatives and advocates of profit sharing. Criticism of the theoretical concept consider systems with significant market power, inequality of bargaining power, or information asymmetry to be less than free, with regulation being necessary to control those imbalances in order to allow markets to function more efficiently as well as produce more desirable social outcomes.
Comments are closed.