Free Market

An entirely theoretical economic system in which all the participants have access to perfect information, all the consumers are automata motivated by the desire to maximize their marginal utility and all the suppliers are constrained by supply and demand.


Economic War.

Competition is conflict resolved in a destructive manner. War is large scale competition. Free market is large scale economic competition. So, a free market is economic warfare.

How any serious economist manages to believe that anything good comes from warfare is beyond me. Of course, the consumers benefit from bankruptcies and price wars just as surely as the vultures benefit from the corpses and bloodletting on the battlefield. But then, using the biology term for vultures and necrophages is quite revealing. So one of the assumptions of the free market is that the consumer (in actuality, the customer since nothing is ever marketed at babies, only their parents) is all-deserving and the worker can go hang himself. The free market is the perfect ideology of the rich and super-rich since it underwrites their belief that they are all-deserving and that labour must fight itself.

In actuality, nothing good comes about from competition but only from conflict resolved in a cooperative manner. Of course, people frequently confuse conflict with competition and rarely recognize cooperation even when they trip over it. Thus they confuse conflict/cooperation with conflict/competition and can't realize that the latter has no advantages. -- rk


The FreeMarket as defined above assumes three things: Does a FreeMarket require the absence of government regulation? No: government regulations which work only to ensure these principles (such as mandatory disclosure laws and antitrust regulation) work to bolster the FreeMarket, not undermine it. But see a contrary opinion below.

-- RussellGold and KeithBraithwaite


FreeMarket economics are often confused with CapitalistEconomics?.

Under a capitalist system most businesses are great supporters of free market principles for themselves (except for government subsidies), and great demanders of stringent government interference in their competitors (except for government subsidies).


I would think that in a truly FreeMarket, there are no laws governing business. Customers (which includes virtually all entities in a FreeMarket, since businesses as well as individuals must buy things) are free to do whatever research they can on their vendors, and vendors (again, an all-inclusive category, since individuals must sell something to have a positive cash flow) are likewise free to do whatever research they deem necessary on their customers. There is no great divide between "business" and "individual," since both roles may be played by the same entity at different points in the game. There is no freedom of information, save for what people can extract from each other. This means that one entity may do a large amount of research, interviewing, bribery of employees, and the like, and then publish the results of that research to all paying customers. This entity may then sell empty space in this publication to other entities seeking to make themselves better known to the target market of the publication. Thus is media. This seems to work pretty well. There are good times, and there are bad times, but with this system, the participants are free to choose how and when they will address their own problems, or make their own mark, or profit, or even what their profit will be, whether monetary or otherwise. Can organizations grow to become large? Of course. Is someone then free to "topple the empire?" Of course. Does this happen often? Constantly, from smaller markets all the way up. -- EvanCofsky

It's not very easy for empires to get toppled, though, since beyond a certain size you gain significant power to cripple competitors. It can happen, but the fact that you could gain and lose noble titles never prevented a nobility. PowerSelfAristocratizes.


There's an economists' definition of FreeMarket that's more or less what RussellGold described above. Economists can use it as a foundation for modelling, and say: "If there is a FreeMarket for commodity X, we can deduce the following about it..." Or they can be daring and clever and say, "If there is almost a FreeMarket for commodity X, except for condition Y, we can deduce..." Or they can do some legwork and say: "There is currently not a FreeMarket for commodity X because ... and this is how to make the market for commodity X behave more like a FreeMarket..."

Then there are various political ideologues' definitions of FreeMarket, where the term ends up meaning "free of whatever government restrictions I consider odious". This does not quite match the economists' definition, because economists might say, "The government has to do Z to make an effective FreeMarket in commodity X", while the ideologues might say, "Z is an immoral restriction on our freedom and therefore violates the tenets of the FreeMarket".

For example, the USA has a system of "pollution credits", where factories can buy or sell the right to put a defined amount of pollution in the air, and therefore they can pay for improved pollution-control systems by selling their no-longer-needed pollution credits. This is more efficient than the old system, where the the EPA mandated certain pollution-control technologies for all factories, regardless of how much good each individual technology would do at each individual factory. Economists love this system, because it uses FreeMarket-like mechanisms to handle a classic regulatory problem. It seems to me, though, that a hard-core libertarian should oppose pollution credits, because they are ultimately a license granted by the state. The ideologically pure libertarian way to handle pollution would be to allow anyone harmed by the pollution to sue the polluters for damages, and allow factories to contract with their neighbors to give the neighbors some consideration in exchange for the neighbors waiving their right to sue.

I'm reminded of a quote I saw from an economics professor: "Students come into an economics program as freshmen, and they're all Democrats. Then they take an economics class and learn the theories about how markets should work, and they become Republicans. Then they take a few more classes and learn how markets end up operating in the real world, and they become Democrats again." I wish I could remember the name of the professor who said that.... -- SethGordon

There's a frequent trick used in Economics 101 classes to teach students how cooperation among the producers in a market breaks down with as little as half a dozen producers. The problem with the trick is that MonopolisticEffects? only begin occurring when /less/ than half a dozen producers own more than half of the market and, of course, they never bother explaining that every single FunctioningMarket on the planet is Monopolistic. -- rk

I wonder how much of what causes the markets to operate unfreely is attributable to the government stepping in and trying to make it operate freely. Of course, the normal, fair solution is to add even more regulation to the market, since it is already doing such a good job of making the market truly free. --EvanCofsky

While governments sometimes intervene to make the markets work freely, they more commonly intervene to tilt them towards the constituents of the people in power.

Most interestingly, government interventions that do not have the desired effect are usually augmented by other (supposedly corrective) interventions rather than rescinded. And so ad infinitum

In the real world, markets tend not to operate freely because the conditions described above do not generally hold. Free flow of information often requires active effort on the part of producers, who do not always find it in their short term best interest; barriers to competition do exist, as many production businesses require large infrastructure investments, and often lock in consumers in a number of ways, and even the third condition often does not hold, especially when products and services are largely paid for by insurance. Government intervention is occasionally focused on addressing these things, but doing so takes the kind of political courage rarely found. -- RussellGold

I don't find myself filing insurance claims to buy food. If I'm free to find ways to raise a large amount of capital to enter a market with "large barriers to entry" I wouldn't feel hampered by the costs of capital. As a producer (I produce lines of code, in exchange for dollars), I'd like to keep my consumers knowing only what they need to know for me to make a sale. If that means I open up more information, I do. If I feel like I'd have to give too much information, I walk. As a consumer, for some things, I just don't care enough to do a huge amount of research. For others, I spend weeks pouring over any information I can gather, whether from the vendor itself, or other consumers, or other vendors, or even the media (a vendor of information, legally or illegally obtained). If I don't feel comfortable with a vendor, I walk. If there are only a few vendors, and I don't like any of them, I can pick one which I dislike the least, find another way of doing what I need done, or do it myself. I have yet to encounter a product which I can't find an alternative for, whether a direct substitute in features, or by substituting a different method of doing what I need done which doesn't require me to use a set of vendors I dislike. -- EvanCofsky

You have been fortunate. How so?

How about examining in detail some examples that are extremely likely to be counter-examples :
For an interesting biological spin on what free markets mean and why they're important, try http://www.bionomics.org.


A FreeMarket isn't. See CorporateGovernment.


Please consider the following additions to the components of a free market listed at the top of the page.

Single suppliers or small numbers of suppliers, especially "cartels," are considered monopolist and anti-free market. The same can be said of single or dominant consumers. The last item leads to most of the disagreement between free market advocates and those who disagree.

A free market approach believes that a price summarizes all evaluation of a good or service, hence that price is deemed "fair". In this case, fair merely means adhering to all of the free market principles. Others view "fair" as incorporating a social component, and would describe free market pricing as "unfair".


CategorySociety CategoryEconomics

EditText of this page (last edited June 20, 2005) or FindPage with title or text search