Difference between revisions of "Free market"
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| − | A '''free market''' is | + | A '''free market''' is an idealised construct of [[economics|economic]] theory that refers to an economy operating with little or no governmental interference. In practice, however, governments meddle considerably in economic affairs and usually to the detriment of the economy as a whole. They act ostensibly to protect the national interest, but often baser motives are at play, particularly the desire to curry favour with their electorates. |
| − | + | Regardless of this interference, this economic philosophy is the backbone of [[capitalism]], and is sometimes referred to by the [[French]] phrase "laissez-faire," meaning to "let be." Free markets are largely dependent on the process of [[supply and demand]], where prices are determined by the amount of the product available versus the number of consumers who wish to purchase that product. The market usually punishes uncompetitive businesses, as consumers will take their custom elsewhere. | |
| − | A ''[[mixed economy]]'' contains both private-owned and state-owned enterprises | + | The opposite of a free market is a [[command system]], in which the government regulates all businesses in a centrally planned economy. History provides several disastrous examples of such folly. Economist [[Friedrich Hayek]] warned of mixing a [[planned economy]] with a competitive economy, "a mixture of the two means that neither will work." <ref>Friedrich A. Hayek, [http://www.iea.org.uk/files/upld-publication43pdf?.pdf ''Road to Serfdom'',] Reader's Digest Condensed Version, April 1945, pg. 38.</ref> |
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| + | A ''[[mixed economy]]'' contains both private-owned and state-owned enterprises, i.e. combines elements of capitalism and socialism, or a mix of market and command economy. For example, the UK is said to have a free market economy in almost all goods and services but retains a bureaucratic state-run national health service. This is justified on the grounds that it will ensure that British subjects have access to free health care which is supported out of state coffers. A similar system is provided by Canada, although Canadians with sufficient funds sometimes cross the border for treatment in the U.S. instead. In some cases these patients will be reimbursed by the government. | ||
Milton Friedman said, | Milton Friedman said, | ||
Revision as of 20:55, July 9, 2007
A free market is an idealised construct of economic theory that refers to an economy operating with little or no governmental interference. In practice, however, governments meddle considerably in economic affairs and usually to the detriment of the economy as a whole. They act ostensibly to protect the national interest, but often baser motives are at play, particularly the desire to curry favour with their electorates.
Regardless of this interference, this economic philosophy is the backbone of capitalism, and is sometimes referred to by the French phrase "laissez-faire," meaning to "let be." Free markets are largely dependent on the process of supply and demand, where prices are determined by the amount of the product available versus the number of consumers who wish to purchase that product. The market usually punishes uncompetitive businesses, as consumers will take their custom elsewhere.
The opposite of a free market is a command system, in which the government regulates all businesses in a centrally planned economy. History provides several disastrous examples of such folly. Economist Friedrich Hayek warned of mixing a planned economy with a competitive economy, "a mixture of the two means that neither will work." [1]
A mixed economy contains both private-owned and state-owned enterprises, i.e. combines elements of capitalism and socialism, or a mix of market and command economy. For example, the UK is said to have a free market economy in almost all goods and services but retains a bureaucratic state-run national health service. This is justified on the grounds that it will ensure that British subjects have access to free health care which is supported out of state coffers. A similar system is provided by Canada, although Canadians with sufficient funds sometimes cross the border for treatment in the U.S. instead. In some cases these patients will be reimbursed by the government.
Milton Friedman said,
- The most important single central fact about a free market is that no exchange takes place unless both parties benefit. [1]
References
- ↑ Friedrich A. Hayek, Road to Serfdom, Reader's Digest Condensed Version, April 1945, pg. 38.