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A free market is a market in which prices of goods and services are arranged completely by the mutual consent of sellers and buyers. Sao Paulo Stock Exchangejpg|thumb| Virtual market arena where buyer and seller are not present and trade via intemediates and electronical information By definition, in a free market environment buyers and sellers do not coerce or mislead each other nor are they coerced by a third party. [1] In the aggregate, the effect of these decisions en masse is described by the law of supply and demand. Here are some examples of French words and phrases used by English speakers. Supply and demand is an Economic model describing effects on price and quantity in a Market. Free markets contrast sharply with controlled markets, in which governments directly or indirectly regulate prices or supplies, distorting market signals. A planned economy or directed economy is an Economic system in which the Government or Workers' councils manages the Economy. [2] In the marketplace the price of a good or service helps to quantify its value to consumers and thus balance it against other goods and services. In a free market, this relationship between price and value is more clear than in a controlled market. Through 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 where individuals have perfect information and there is perfect competition. A perfect market is Heuristic and has the following assumptions Rationality of all market actors (Rationality in meaning of the actor's utility maximization Perfect information is a term used in Economics and Game theory to describe a state of complete knowledge about the actions of other players that is instantaneously In Neoclassical economics and Microeconomics, perfect competition describes a market in which no buyer or seller has Market power.

Free market economics is closely associated with laissez-faire 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. Laissez-faire ( pronunciation: French,; English,) is a French phrase literally meaning Let do (“allow to do” Hence, with government force limited to a defensive role, government itself does not initiate force in the marketplace beyond levying taxes in order to fund the maintenance of the free marketplace. Some free market advocates oppose taxation as well, claiming that the market is better at providing all valuable services of which defense and law are no exception, and that such services can be provided without direct taxation. National security is the entire scope of measures undertaken by the Governments of Nation-states in providing assurance of national Sovereignty Law is a system of rules enforced through a set of Institutions used as an instrument to underpin civil obedience politics economics and society Anarcho-capitalists, for example, would substitute arbitration agencies and private defense agencies. Anarcho-capitalism (also known as Free-market anarchism) is an individualist anarchist Political philosophy that advocates the elimination Arbitration, a form of Alternative dispute resolution (ADR is a legal technique for the resolution of Disputes outside the Courts wherein the A private defense agency (PDA is a conceptualized agency that provides personal protection and military defense services voluntarily through the Free market.

While some economists regard the free market as a useful if simplistic model in developing economic policies to attain social goals, others regard the free market as a normative rather than descriptive concept, and claim that policies which deviate from the ideal free market solution are 'wrong' even if they are believed to have some immediate social benefit. Normative has specialized meanings in several academic disciplines Samuelson treated market failure as the exception to the general rule of efficient markets. Samuelson is an English language Patronymic Surname meaing son of Samuel.

In political economics, one opposite extreme to the free market economy is the command economy, where decisions regarding production, distribution, and pricing are a matter of governmental control. Political economy originally was the term for studying production buying and selling and their relations with law custom and government A market economy is a realized Social system based on the Division of labour in which the prices of Goods and Services are determined in a A planned economy or directed economy is an Economic system in which the Government or Workers' councils manages the Economy. Other opposites are the gift economy and the subsistence economy. A gift economy is a Social theory in which goods and services are given without any explicit agreement for immediate or future Quid pro quo. A subsistence economy is an Economy in which a group attempts to produce no more output per period than they must consume in that period in order to survive but do not attempt The mixed economy is intermediate between these positions. A mixed economy is an Economic system that incorporates aspects of more than one economic system

In other words, a free market economy is "an economic system in which individuals, rather than government, make the majority of decisions regarding economic activities and transactions. "[3] In social philosophy, a free market economy is a system for allocating goods within a society: purchasing power mediated by supply and demand within the market determines who gets what and what is produced, rather than the state. Social philosophy is the philosophical study of questions about social Behavior (typically of Humans. A market economy is a realized Social system based on the Division of labour in which the prices of Goods and Services are determined in a Purchasing power is the amount of value of a good/services compared to the amount paid with a Currency. Supply and demand is an Economic model describing effects on price and quantity in a Market. Early proponents of a free-market economy in 18th century Europe contrasted it with the medieval, early modern, and mercantilist economies which preceded it. The early modern period is a term initially used by historians to refer mainly to the period roughly from 1500 to 1800 in Western Europe ( Early modern Europe) Mercantilism is the idea that a colony should export more goods than it imports and that a colony should sell at higher prices and buy at lower prices

Contents

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 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). A stock market, or (equity market is a private or public market for the trading of company Stock and derivatives of company In reality, most shops and markets do not resemble the stock market (eg the job market), and there are significant costs and barriers to "shopping around" (comparison shopping).

When demand exceeds supply, suppliers can raise the price. Consumers who can afford the higher prices may still buy, but others may forgo the purchase altogether, buy a similar item, or shop elsewhere. (i. e. , the consumer might say: "A two-dollar hot dog? I'd rather buy a hamburger at McDonald's!"). As the price rises, suppliers may also choose to increase production. Or more suppliers may enter the business. For example, the gourmet coffee business, pioneered by Starbucks, revealed a demand for three-dollar cups of coffee. CoFFEE is an Open source Software for computer supported collaborative learning (CSCL in a digital classroom Starbucks Corporation ( is an international Coffee and coffeehouse chain based in Seattle Washington. Other stores began offering such coffee to satisfy the demand.

Increased supply (meaning volume) can indirectly result in lower prices, particularly with computers and other electronic devices. A computer is a Machine that manipulates data according to a list of instructions. Mass production techniques have been steadily reducing prices 20 to 30% per year since the 1960s. Mass production (also called flow production, repetitive flow production, series production, or serial production) is the production of The functions of a multi-million dollar mainframe computer in the 1960s could be performed by a $500 dollar computer in the 2000s. The camcorder has been said to place "a television studio in your hand". A camcorder is a portable Consumer electronics device for recording Video and audio using a built-in recorder unit

Spontaneous order or "Invisible hand"

Friedrich Hayek argues for the classical liberal view that market economies allow spontaneous order; that is, "a more efficient allocation of societal resources than any design could achieve. Friedrich August von Hayek CH ( May 8, 1899 March 23, 1992) was an Austrian British Economist See also the closely related articles Emergence and Self-organization. "[4] 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 proposed by Adam Smith in The Wealth of Nations who said that the individual who:

"intends only his own gain is led by an invisible hand to promote an end which was no part of his intention. The invisible hand is a Metaphor coined by the Economist Adam Smith. Adam Smith ( baptised 16 June 1723 – 17 July 1790) was a Scottish moral philosopher and a pioneer of Political economy. An Inquiry into the Nature and Causes of the Wealth of Nations is the Magnum opus of the Scottish economist Adam Smith. 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. An Inquiry into the Nature and Causes of the Wealth of Nations is the Magnum opus of the Scottish economist Adam Smith. Rather one appeals to their self interest, and pays them for their labour.

“ 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. " [5] ”

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.

Economic equilibrium

The law of supply and demand predominates in the ideal free market, influencing prices toward an equilibrium that balances the demands for the products against the supplies. Supply and demand is an Economic model describing effects on price and quantity in a Market. In Economics, economic equilibrium is simply a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium values of economic 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 is the amount of value of a good/services compared to the amount paid with a Currency.

This equilibrating behavior of free markets makes certain assumptions about their agents, for instance that they act independently. Some models in econophysics [6] have shown that when agents are allowed to interact locally in a free market (ie. Econophysics is an interdisciplinary research field applying theories and methods originally developed by physicists in order to solve problems in Economics, usually 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 and the type of herd behavior often observed in stock markets are quoted as real life examples of non-equilibrium price trends. An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, or a speculative A herd is a large group of animals The term is usually applied to mammals particularly Ungulates. Free-market advocates, especially Austrian school followers, often dismiss this endogenous theory, and blame external influences, such as weather, commodity prices, technological developments, and government meddling for non-equilibrium prices. The Austrian School, also known as the “ Vienna School ” or the “ Psychological School ” is a heterodox school of economics that advocates Additionally, market equilibria occur as a the result of the agrregate of many buyers and sellers; will not normally have a unique price.

Distribution of wealth

On the purely theoretical level proponents of a free market do not care about the distribution of wealth resulting from the system; however, on a practical political level the issue is important. The distribution of purchasing power in an economy depends to a large extent on the nature of government intervention, social class, labor and financial markets, but also on other, lesser factors such as family relationships, inheritance, gifts and so on. Social class refers to the hierarchical distinctions (or stratification) between individuals or groups in Societies or Cultures. Labour economics seeks to understand the functioning of the Market and dynamics for labour. In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds "Heir" and "Heiress" redirect here For the men and women fragrances endorsed by Paris Hilton see Heiress (fragrance. giFT Internet File Transfer ( giFT) is a computer software daemon that allows several File sharing protocols to be used with a simple client having a 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. The free market can be seen as facilitating a form of decision-making through what is known as dollar voting, where a purchase of a product is tantamount to casting a vote for a producer to continue producing that product. In Economics, dollar voting is an Analogy used to explain how the purchasing choices of Consumers affect which products will continue to be produced

The effect of economic freedom on society's and individuals' wealth remains a subject of controversy. Economic freedom is freedom to produce trade and consume any goods and services acquired without the use of force fraud or theft Wealth derives from the old English word "weal" which means "well-being Kenneth Arrow and Gerard Debreu have shown that under certain idealized conditions, a system of free trade leads to Pareto efficiency, but the traditional Arrow-Debreu paradigm within economics is now being challenged by the new Greenwald-Stiglitz paradigm (1986) [7]. Kenneth Joseph Arrow (born August 23, 1921) is an American Economist and joint winner of the Nobel Memorial Prize in Economics Gérard Debreu (born July 4, 1921, Calais December 31, 2004, Paris) was a French-born economist and mathematician Pareto efficiency, or Pareto optimality, is an important concept in Economics with broad applications in Game theory, Engineering and the The Arrow-Debreu model, also referred to as the Arrow-Debreu-McKenzie model (ADM model is the central model in the General (Economic Equilibrium Theory and often Joseph Eugene Stiglitz (born February 9, 1943) is an American Economist and a professor at Columbia University. Many advocates of free markets, most notably Milton Friedman, have also argued that there is a direct relationship between economic growth and economic freedom, though this assertion is much harder to prove empirically, as the continuous debates among scholars on methodological issues in empirical studies of the connection between economic freedom (EF) and economic growth clearly indicate: [8] [9] [10]. Milton Friedman (July 31 1912 November 16 2006 was an American Nobel Laureate Economist and Public intellectual. "there were a few attempts to study relationship between growth and economic freedom prior to the very recent availability of the Fraser data. These were useful but had to use incomplete and subjective variables" [11]. Joshua Epstein and Robert Axtell have attempted to predict the properties of free markets empirically in the agent-based computer simulation "Sugarscape". Joshua M Epstein is Director of the Center on Social and Economic Dynamics Senior Fellow in Economic Studies at The Brookings Institution, and a member of the External They came to the conclusion that, again under idealized conditions, free markets lead to a Pareto distribution of wealth [6] . The Pareto distribution, named after the Italian Economist Vilfredo Pareto, is a Power law Probability distribution that coincides with

On the other hand more recent research, specially the one led by Joseph Stiglitz seems to contradict Friedman's conclusions. Joseph Eugene Stiglitz (born February 9, 1943) is an American Economist and a professor at Columbia University. Friedman, Friedmann, and Freedman are common Surnames They may refer to According to Boettke:

Once incomplete and imperfect information are introduced, Chicago-school defenders of the market system cannot sustain descriptive claims of the Pareto efficiency of the real world. Pareto efficiency, or Pareto optimality, is an important concept in Economics with broad applications in Game theory, Engineering and the Thus, Stiglitz's use of rational-expectations equilibrium assumptions to achieve a more realistic understanding of capitalism than is usual among rational-expectations theorists leads, paradoxically, to the conclusion that capitalism deviates from the model in a way that justifies state action--socialism--as a remedy. Joseph Eugene Stiglitz (born February 9, 1943) is an American Economist and a professor at Columbia University. Socialism refers to a broad set of economic theories of social organization advocating state or collective ownership and administration of the Means of production and distribution [12]

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, tariffs, or government regulation (other than protection from coercion and theft), and no government-granted monopolies (usually classified as coercive monopoly by free market advocates) like the United States Post Office, Amtrak, arguably patents, etc. Laissez-faire ( pronunciation: French,; English,) is a French phrase literally meaning Let do (“allow to do” For other uses of this word see Tariff (disambiguation. A tariff is a tax imposed on goods when they are moved across a political boundary In Economics, a government-granted monopoly (also called a "de jure monopoly" is a form of Coercive monopoly by which a government grants exclusive privilege 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 National Railroad Passenger Corporation, Doing business as Amtrak, is a Government-owned corporation that was organized on May 1, 1971 A patent is a set of Exclusive rights granted by a State to an inventor or his assignee for a fixed period of time in exchange for a disclosure of an

Deregulation

In an absolutely free-market economy, all capital, goods, services, and money flow transfers are unregulated by the government except to stop collusion 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 ( pronunciation: French,; English,) is a French phrase literally meaning Let do (“allow to do” Internationally, free markets are advocated by proponents of economic liberalism; in Europe this is usually simply called liberalism. Economic liberalism is the Economic component of Classical liberalism. In the United States, support for free market is associated most with libertarianism. The United States of America —commonly referred to as the Libertarianism is a term used by a broad spectrum of political philosophies which prioritize individual Liberty and seek to minimize or even abolish the Since the 1970s, promotion of a global free-market economy, deregulation and privatization, is often described as neoliberalism. Deregulation, a term which gained widespread currency in the period 1970-2000 can be seen as a process by which governments remove reduce or simplify Restrictions on Business Privatization is the incidence or process of transferring ownership of business from the Public sector (government to the Private sector (business Originally coined by its critics and opponents " neoliberalism " is a label referring to the recent reemergence of Economic liberalism or Classical liberalism The term free market economy is sometimes used to describe some economies that exist today (such as Hong Kong), but pro-market groups would only accept that description if the government practices laissez-faire policies, rather than state intervention in the economy. Hong Kong ( officially the Hong Kong Special Administrative Region, is a territory located on China 's south coast on the Pearl River Delta, and borders An economy that contains significant economic interventionism by government, while still retaining some characteristics found in a free market is often called a mixed economy. A mixed economy is an Economic system that incorporates aspects of more than one economic system

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, although neither a profit motive or profit itself are necessary for a free market. All modern free markets are understood to include entrepreneurs, both individuals and businesses. An entrepreneur is a person who has possession over a company enterprise, or Venture, and assumes significant accountability for the inherent risks and the outcome A business (also called firm or an enterprise) is a legally recognized organizational entity designed to provide goods and/or services to Typically, a modern free market economy would include other features, such as a stock exchange and a financial services sector, but they do not define it. A stock exchange, share market or bourse is a Corporation or Mutual organization which provides "trading" facilities for Stock Financial services refer to services provided by the finance industry.

Legal tender and taxes

In a truly free market economy, money would not be monopolized by legal tender laws or by a central money maker authority which coerces society to use its own money as the unique medium of exchange in trades, in order to receive taxes from the transactions or to be able to issue loans. Legal tender or forced tender is Payment that by Law, cannot be refused in settlement of a Debt ( Debtor cannot successfully be sued Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. A loan is a type of Debt. This article focuses exclusively on monetary loans although in practice any material object might be lent Minarchists (advocates of minimal government) contend that the so called "coercion" of taxes is essential for the market's survival, and a market free from taxes may lead to no market at all. In Civics, minarchism, sometimes called minimal Statism, small government, or limited-government Libertarianism 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 and anarcho-capitalism [13][14]. Individualist anarchism refers to any of several traditions that hold that "individual conscience and the pursuit of self-interest should not be constrained by any collective Anarcho-capitalism (also known as Free-market anarchism) is an individualist anarchist Political philosophy that advocates the elimination A free market could be defined alternatively as a tax-free market, independent of any central authority, which uses as medium of exchange such as money, even in the absence of the State. It is disputed, however, whether this hypothetical stateless market could function freely, without coercion and violence.

Ethical justification

The ethical justification of free markets takes two forms. One appeals to the intrinsic moral superiority of autonomy and freedom (in the market), see deontology. Deontological ethics or deontology (from Greek grc δέον deon, "obligation duty" and grc -λογία -logia) is an The other is a form of consequentialism—a belief that decentralised planning by a multitude of individuals making free economic decisions produces better results in regard to a more organized, efficient, and productive economy, than does a centrally-planned economy where a central agency decides what is produced, and allocates goods by non-price mechanisms. Consequentialism refers to those moral theories which hold that the consequences of a particular action form the basis for any valid moral judgment about that action An older version of this argument is the metaphor of the Invisible Hand, familiar from the work of Adam Smith. Metaphor (from the Greek: μεταφορά - metaphora, meaning "transfer" is language that directly compares seemingly unrelated subjects The invisible hand is a Metaphor coined by the Economist Adam Smith. Adam Smith ( baptised 16 June 1723 – 17 July 1790) was a Scottish moral philosopher and a pioneer of Political economy.

Modern theories of self-organization say the internal organization of a system can increase automatically without being guided or managed by an outside source. Self-organization is a process of Attraction and repulsion in which the internal organization of a System, normally an open system, increases When applied to the market, as an ethical justification, these theories appeal to its intrinsic value as a self-organising entity. Other philosophies such as some forms of Individualist anarchism and Mutualism (economic theory) anarchism believe that a truly "free market" would result in prices paid for goods and services to align with the labor embodied in those things. Individualist anarchism refers to any of several traditions that hold that "individual conscience and the pursuit of self-interest should not be constrained by any collective Mutualism, is an Anarchist school of thought, can be traced to the writings of Pierre-Joseph Proudhon that envisioned a society where each person might possess a

In practice

While the free-market is an idealized abstraction, it is useful in understanding real markets whether artificially created and regulated by governments or non-governmental agencies, or phenomena such as the black market and the underground economy, which can be remarkably robust in persisting despite attempts to suppress these markets; in fact, many proponents of the free market point to sectors such as the drug trade to prove the phenomenon is both spontaneous and can function without government intervention though some would still prefer the contracts be brought under court protection.

Index of economic freedom

The Heritage Foundation, a conservative think tank, tried to identify the key factors which allow to measure the degree of freedom of economy of a particular country. The Heritage Foundation is an American conservative Think tank. Conservatism is a term used to describe political philosophies that favour Tradition, where tradition refers to various religious cultural or nationally defined A think tank (also called a policy institute) is an organization institute corporation or group that conducts Research and engages in advocacy in areas such In 1986 they introduced Index of Economic Freedom, which is based on some fifty variables. The Index of Economic Freedom is a series of 10 economic measurements created by the Wall Street Journal and The Heritage Foundation to measure the degree of Economic freedom 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:

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 and other Laissez-faire economists have argued that there is a direct relationship between economic growth and economic freedom, but this assertion has not been proven yet, both theoretically and empirically. Milton Friedman (July 31 1912 November 16 2006 was an American Nobel Laureate Economist and Public intellectual. Laissez-faire ( pronunciation: French,; English,) is a French phrase literally meaning Let do (“allow to do” Continuous debates among scholars on methodological issues in empirical studies of the connection between economic freedom (EF) and economic growth still try to find out what is the relationship, if any. [8] [9] [10]. [11].

"In recent years a significant amount of work has been devoted to the investigation of a possible connection between the political system and economic growth. For a variety of reasons there is no consensus about that relationship, especially not about the direction of causality, if any. " (AYAL & KARRAS, 1998, p. 2) [11]

History and ideology

Some theorists 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 (ie Ludwig von Mises, Hayek). Ludwig Heinrich Edler von Mises (ˈluːtvɪç fɔn ˈmiːzəs ( September 29, 1881 – October 10, 1973) was an Austrian Friedrich August von Hayek CH ( May 8, 1899 March 23, 1992) was an Austrian British Economist The consensus among economic historians is that the free market economy is a specific historic phenomenon, and that it emerged in late medieval and early-modern Europe. Economic history is the study of how economic phenomena evolved in the past Other economic historians see elements of the free market in the economic systems of Classical Antiquity, and in some non-western societies. Classical antiquity (also the classical era or classical period) is a broad term for a long period of cultural History centered on the Mediterranean By the 19th century the market certainly had organized political support, in the form of laissez-faire liberalism. Classical liberalism (also known as traditional liberalism, Laissez-faire liberalism, Market liberalism or in much of the world 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, combined with the specific interests of the entrepreneur. An ideology is a set of beliefs aims and Ideas especially in politics An entrepreneur is a person who has possession over a company enterprise, or Venture, and assumes significant accountability for the inherent risks and the outcome

Marxism

In Marxist theory, the idea of the free market simply expresses the underlying long-term transition from feudalism to capitalism. Marxism is the political philosophy and practice derived from the work of Karl Marx and Friedrich Engels. Feudalism, a term first used in the early modern period (17th century in its most classic sense refers to a Medieval Europe Political system composed Capitalism is the Economic system in which the Means of production are owned by private Persons and operated for Profit and where Note that the views on this issue - emergence or implementation - do not necessarily correspond to pro-market and anti-market positions. Libertarians would dispute that the market was enforced through government policy, since they believe it is a spontaneous order and Marxists agree with them because they as well believe it is evolutionary, although with a different end. Libertarianism is a term used by a broad spectrum of political philosophies which prioritize individual Liberty and seek to minimize or even abolish the See also the closely related articles Emergence and Self-organization. Marxism is the political philosophy and practice derived from the work of Karl Marx and Friedrich Engels.

Liberalism

Support for the free market as an ordering principle of society is above all associated with liberalism, especially during the 19th century. Liberalism is a broad array of related ideas and theories of Government that consider individual Liberty to be the most important political goal (In Europe, the term 'liberalism' retains its connotation 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 meaning for supporters of the free market. This word has distinct meanings in other fields see Connotation (semiotics and Connotation and denotation. Words and phrases are pejorative if they imply disapproval or contempt ) Later ideological developments, such as minarchism, libertarianism and objectivism also support the free market, and insist on its pure form. In Civics, minarchism, sometimes called minimal Statism, small government, or limited-government Libertarianism Libertarianism is a term used by a broad spectrum of political philosophies which prioritize individual Liberty and seek to minimize or even abolish the Although the Western world shares a generally similar form of economy, usage in the United States and Canada is to refer to this as capitalism, while in Europe 'free market' is the preferred neutral term. The term Western world, the West or the Occident ( Latin: occidens -sunset -west as distinct from the Orient) can have multiple meanings Capitalism is the Economic system in which the Means of production are owned by private Persons and operated for Profit and where Modern liberalism (American and Canadian usage), and in Europe social democracy, seek only to mitigate what they see as the problems of an unrestrained free market, and accept its existence as such. Social liberalism, also called new liberalism (as it was originally termed high liberalism radical liberalism, modern liberalism, or Social democracy is a Political ideology of the left and centre-left

To most libertarians, there is simply no free market yet, given the degree of state intervention in even the most 'capitalist' of countries. Libertarianism is a term used by a broad spectrum of political philosophies which prioritize individual Liberty and seek to minimize or even abolish the 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 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. Coercion (co-er-shion is the practice of compelling a person or manipulating them to behave in an involuntary way (whether through action or inaction by use of threats g. , eliminating the double tax on dividends so that equity financing is not at a disadvantage vis-a-vis debt financing. A dividend tax is an Income tax on dividend payments to the Stockholders (shareholders of a company 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. Anarcho-capitalism (also known as Free-market anarchism) is an individualist anarchist Political philosophy that advocates the elimination

Criticism

Critics dispute the claim that in practice free markets create perfect competition, or even increase market competition over the long run. In Neoclassical economics and Microeconomics, perfect competition describes a market in which no buyer or seller has Market power. Competition in economics is a term that encompasses the notion of individuals and firms striving for a greater share of a market to sell or buy goods and services In economic models the long-run time frame assumes no fixed Factors of production. Whether the marketplace should be or is free is disputed; many assert that government intervention is necessary to remedy market failure that is held to be an inevitable result of absolute adherence to free market principles. Market failure is a concept within economic theory wherein the allocation of goods and services by a Free market is not efficient. These failures range from military services to roads, and some would argue, to health care. A military is an Organization authorized by its Nation to use force usually including use of Weapons in defending its Country (or by attacking Free Market Roads is the Libertarian concept of privately owned roads as opposed to the most normal government owned ones in existence today 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.

Critics of laissez-faire variously see the "free market" as an impractical ideal or as a rhetorical device that puts the concepts of freedom and anti-protectionism at the service of vested wealthy interests, allowing them to attack labor laws and other protections of the working classes. In Rhetoric, a rhetorical device or resource of language is a technique that an author or speaker uses to evoke an Emotional response in the audience (the For the protectionist Australian political party from the 1880s to 1909 see Protectionist Party Labour law (also known as employment or labor law is the body of Laws administrative rulings and precedents which address the legal rights of and restrictions Working class is a term used in academic Sociology and in ordinary conversation to describe depending on context and speaker those employed in specific fields or types

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 or a communal economy, such as that advocated by some types of socialism, to those who merely wish to see markets regulated to various degrees, and these range from those who associate markets with greed which they believe to be inherently immoral to those who raise practical objections. A planned economy or directed economy is an Economic system in which the Government or Workers' councils manages the Economy. Socialism refers to a broad set of economic theories of social organization advocating state or collective ownership and administration of the Means of production and distribution Greed is the Selfish desire for or pursuit of Money, Wealth, power, Food, or other Possessions, especially when this denies Morality (from the Latin la moralitas "manner character proper behavior" has three principal meanings

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, although this is disputed by those who contend that an externality such as pollution can be and is regularly dealt with by the courts through the principle of protecting individual liberty and property rights. In Economics, an externality is an impact on any party not directly involved in an economic decision Liberty, the freedom to act or believe without being stopped by unnecessary force Property is any physical or virtual entity that is owned by an individual 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 while preserving the general character of a market economy. Market failure is a concept within economic theory wherein the allocation of goods and services by a Free market is not efficient. In the model of a social market economy the state intervenes where the market does not meet political demands. The social market economy was the main economic model used in Western and Northern Europe during the Cold War era John Rawls was a prominent proponent of this idea. John Rawls ( February 21, 1921  &ndash November 24, 2002) was an American Philosopher, a Professor of

Martin J. Whitman

Not all advocates of capitalism consider free markets to be practical. Capitalism is the Economic system in which the Means of production are owned by private Persons and operated for Profit and where For example, Martin J. Whitman has written, in a discussion of Keynes, Friedman and Hayek, that these "…great economists…missed a lot of details that are part and parcel of every value investor's daily life. Martin J Whitman is an American investment advisor and a strong critic of the direction of recent changes in Generally Accepted Accounting Principles (GAAP in the John Maynard Keynes 1st Baron Keynes CB (ˈkeɪnz "cains" (5 June 1883 &ndash 21 April 1946 was a British Economist whose ideas Milton Friedman (July 31 1912 November 16 2006 was an American Nobel Laureate Economist and Public intellectual. Friedrich August von Hayek CH ( May 8, 1899 March 23, 1992) was an Austrian British Economist Value investing is an Investment paradigm that derives from the ideas on investment and Speculation that Ben Graham & David Dodd began " While calling Hayek "100% right" in his critique of the pure command economy, he writes "However, in no way does it follow, as many Hayek disciples seem to believe, that government is per se bad and unproductive while the private sector is, per se good and productive. In well-run industrial economies, there is a marriage between government and the private sector, each benefiting from the other. " As illustrations of this, he points at "Japan after World War II, Singapore and the other Asian Tigers, Sweden and China. For a topic outline on this subject see List of basic Japan topics. World War II, or the Second World War, (often abbreviated WWII) was a global military conflict which involved a majority of the world's nations, including Singapore The term Four Asian Tigers or East Asian Tigers refers to the Economies of South Korea, Hong Kong, Singapore "Sverige" redirects here For other uses see Sweden (disambiguation and Sverige (disambiguation. Talk People's Republic of China) PEOPLE'S REPUBLIC OF CHINA ARTICLE GUIDELINES The notable exception is Hong Kong which found prosperity on an extremely austere free market concept. Hong Kong ( officially the Hong Kong Special Administrative Region, is a territory located on China 's south coast on the Pearl River Delta, and borders

He argues, in particular, for the value of government-provided credit and of carefully crafted tax laws. [15] Further, Whitman argues (explicitly against Hayek) that "a free market situation is probably also doomed to failure if there exist control persons who are not subject to external disciplines imposed by various forces over and above competition. " The lack of these disciplines, says Whitman, lead to "1. Very exorbitant levels of executive compensation… 2. Executive compensation (also director remuneration) is how top executives of business Corporations are paid Poorly financed businesses with strong prospects for money defaults on credit instruments… 3. Speculative bubbles… 4. An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, or a speculative Tendency for industry competition to evolve into monopolies and oligopolies… 5. In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient An oligopoly is a Market form in which a Market or Industry is dominated by a small number of sellers (oligopolists Corruption. " For all of these he provides recent examples from the U. S. economy, which he considers to be in some respects under-regulated,[16] although in other respects over-regulated (he is generally opposed to Sarbanes-Oxley). The Sarbanes-Oxley Act of 2002 ( also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox [17]

He believes that an apparently "free" relationship—that between a corporation and its investors and creditors—is actually a blend of "voluntary exchanges" and "coercion". For example, there are "voluntary activities, where each individual makes his or her own decision whether to buy, sell, or hold" but there are also what he defines as "[c]oercive activities, where each individual security holder is forced to go along…provided that a requisite majority of other security holders so vote…" His examples of the latter include proxy voting, most merger and acquisition transactions, certain cash tender offers, and reorganization or liquidation in bankruptcy. Proxy voting and delegated voting are procedures for the Delegation to another member of a Voting body of that member's power to vote in his absence Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their Creditors Creditors may file a bankruptcy petition against [18] Whitman also states that "Corporate America would not work at all unless many activities continued to be coercive. Corporate America is an informal phrase describing the world of Corporations within the United States not under government ownership "[19]

"I am one with Professor Friedman that, other things being equal, it is far preferable to conduct economic activities through voluntary exchange relying on free markets rather than through coercion. But Corporate America would not work at all unless many activities continued to be coercive. "[20]

Notes and References

  1. ^ Foldvary, Fred E.. Fred Emanuel Foldvary (born May 11, 1946) is a lecturer in Economics at Santa Clara University, California, and a research fellow Has Deregulation Failed?, The Progress Report, 2002. "Free Market." Rothbard, Murray. The Concise Encyclopedia of Economics
  2. ^ Dictionary of Finance and Investment Terms. Barrons, 1995 --- "market in which price is determined by the free, unregulated interchange of supply and demand. The opposite is a controlled market, where supply, demand, and price are artificially set, resulting in an inefficient market. "
  3. ^ Free-Market Economy, Microsoft® Encarta® Online Encyclopedia 2006
  4. ^ Hayek cited. Petsoulas, Christian. Hayek's Liberalism and Its Origins: His Idea of Spontaneous Order and the Scottish Enlightenment. Routledge. 2001. p. 2
  5. ^ Smith, Adam [1776]. "2", Wealth of Nations. An Inquiry into the Nature and Causes of the Wealth of Nations is the Magnum opus of the Scottish economist Adam Smith. Retrieved on 2007-12-08. Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. Events 1609 - Biblioteca Ambrosiana opens its reading room the second public library of Europe.  
  6. ^ a b Critical Mass - Ball, Philip, ISBN 0-09-945786-5
  7. ^ GREENWALD, Bruce and STIGLITZ, Joseph E. Philip Ball (born 1962 is an English Science writer. He holds a degree in chemistry from Oxford and a doctorate in physics from Bristol University 1986 Externalities in Economies with Imperfect Information and Incomplete Markets, Quarterly Journal of Economics, no. 90.
  8. ^ a b COLE, Julio H. and LAWSON, Robert A. Handling Economic Freedom in Growth Regressions: Suggestions for Clarification. Econ Journal Watch, Volume 4, Number 1, January 2007, pp 71-78.
  9. ^ a b DE HAAN, Jacob and STURM, Jan-Egbert. How to Handle Economic Freedom: Reply to Lawson. Econ Journal Watch, Volume 3, Number 3, September 2006, pp 407-411.
  10. ^ a b DE HAAN, Jacob and STURM, Jan-Egbert. Handling Economic Freedom in Growth Regressions: A Reply to Cole and Lawson. Econ Journal Watch, Volume 4, Number 1, January 2007, pp 79-82.
  11. ^ a b c AYAL, Eliezer B. and KARRAS, Georgios. Components of Economic Freedom and Growth. Journal of Developing Areas, Vol. 32, No. 3, Spring 1998, 327-338. Publisher: Western Illinois University.
  12. ^ BOETTKE, Peter J. What Went Wrong with Economics?, Critical Review Vol. 11, No. 1, P. 35. p. 58
  13. ^ Biography of Murray N. Rothbard (1926-1995)
  14. ^ The Machinery of Freedom
  15. ^ Ibid. , p. 4.
  16. ^ Ibid. , p. 4.
  17. ^ Martin J. Whitman, Third Avenue Value Fund Letters to our Shareholders July 31, 2004 (PDF), page 2.
  18. ^ Ibid. , p. 5.
  19. ^ Martin J. Whitman, Third Avenue Value Fund letter to shareholders October 31, 2005. Events 445 BC – Ezra reads the Book of the Law to the Israelites in Jerusalem (see Nehemiah 91 NLTse Year 2005 ( MMV) was a Common year starting on Saturday (link displays full calendar of the Gregorian calendar. p. 6.
  20. ^ Ibid. , p. 5-6.

See also

Contrast

External links

Another name for capitalism;

Bibliography

Dictionary

free market

-noun

  1. Any market in which trade is unregulated
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