{"id":3938,"date":"2017-11-09T20:24:11","date_gmt":"2017-11-09T20:24:11","guid":{"rendered":"https:\/\/crunchlearning.com\/website_ec2cbfb0\/?p=3938"},"modified":"2026-04-30T09:56:12","modified_gmt":"2026-04-30T09:56:12","slug":"free-market-economy","status":"publish","type":"post","link":"https:\/\/crunchlearning.com\/website_ec2cbfb0\/free-market-economy\/","title":{"rendered":"Free Market Economy: A Detailed Summary"},"content":{"rendered":"\n

A free market economy is an economy<\/a> in which individual people and businesses make the majority of the economic decisions and usually controls most or all of the means of production through private ownership and competition.\u00a0 It is viewed as a contrasting system to mixed<\/a> or command economies<\/a>.\u00a0 While a free market system promises the highest level of consumer choice, it often suffers from wide income gaps between the rich and the poor and the highs and lows of the boom and bust cycle.\u00a0 Free market economies have occurred throughout history, but is best well known in Britain during the Industrial Revolution<\/a>.<\/p>\n\n\n\n

Economics is the study of how societies handle the distribution of money (wealth) and the production of goods and services.  There are several different types of economic systems that historians and economists have identified throughout history, including: command economy, mixed economy and free market economy. <\/p>\n\n\n\n

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WHAT IS A FREE MARKET ECONOMY?<\/h2>\n\n\n\n

A free market economy is considered to be on the right side of the economic spectrum<\/a> and is based on the principles of individualism<\/a>, such as: economic freedom, self-interest, competition and private property.\u00a0 This means that a free market economy contains a low degree of government intervention in the economy and focuses on the maximum freedom of choice for the individuals and businesses of the country.\u00a0 For example, in a free market economy the economic decisions of a country are generally determined by the individual needs or wants of the people and businesses.\u00a0 Therefore, the market forces of supply and demand<\/a> are responsible for determining the needs of the citizens of the country, deciding what should be produced and who should get them.\u00a0 The individual wants or desires of the people of the country are the most important factor in a free market economy and the leadership of the government is usually focused on maintaining this freedom and staying out of the way of supply and demand.\u00a0 Furthermore, in a free market economy, the means of production is controlled by individuals and businesses through the use and promotion of private property.\u00a0 As a result, the production output of the economy and the wages of the workers are determined by the market forces of supply and demand.\u00a0 This contrasts with a command economy, where the central government sets wages and quotas for production.<\/p>\n\n\n\n

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EXAMPLES OF A FREE MARKET ECONOMY<\/h2>\n\n\n\n

Because of the nature of free market economies, they are often associated with democratic<\/a> societies based upon the principles of laissez-faire capitalism<\/a>.\u00a0 A democracy is a form of government in which most or all authority of the country is in the hands of the people who elect representatives to run the government.\u00a0 Often, laissez-faire capitalism is also referred to as free market capitalism or market capitalism.\u00a0 Simply put, laissez-faire translates to \u201cleave us alone\u201d meaning that the government should remain out of the economy and instead allow individuals to freely carry out their own economic affairs. Historically, laissez-faire capitalism was most common in Britain<\/a> during the 18th and 19th centuries in the timeframe of the Industrial Revolution<\/a>.\u00a0 At the time, it was a revolutionary idea, because in the previous centuries,\u00a0mercantilism<\/a>\u00a0had been the dominant economic system.\u00a0 In general, mercantilism is viewed as an economic system that favored heavy government control and regulation.\u00a0 At the time, absolute monarchs ruled over vast empires and controlled almost all aspects of the economy.\u00a0 However, prominent thinkers, including\u00a0Adam Smith<\/a>, began to argue against mercantilism in favor of an economic system with more freedom for individuals.\u00a0 The development of capitalism<\/a> as an economic system, sought to reject the idea of government control of the economy and instead put the focus on individuals. On the economic spectrum, laissez-faire capitalism is a right-wing ideology that is fundamentally based on: private ownership, competition, free trade, self-reliance, self-interest, and the principles of supply and demand.\u00a0 These principles are central to understanding a free market economy.\u00a0 Some modern examples of countries that embrace the principles of free market economies are: Hong Kong, Singapore, Australia and the United States.\u00a0 While no current country is considered to be a true free market economy, these four contain high levels of economic freedom for their citizens by ensuring many of the principles above.\u00a0 In reality, most countries contain a mix of right and left wing economic values.<\/p>\n\n\n\n

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POSITIVES OF A FREE MARKET ECONOMY<\/h2>\n\n\n\n

On the positive side, a free market economy benefits society because it focuses on competition and economic freedom as its main principles.  Competition is important because it allows privately owned businesses to compete for the money of consumers.  This leads to several different things including: lower prices for goods and services, increased innovation and a wider selection of products.  Consumers benefit from this system because they receive low prices for high quality goods and services.  Next, while a command economy may sometimes lead to waste if the leader is not producing the exact goods and services desired by the people, a free market economy is excellent at avoiding waste.  In general, the concept of competition pushes individuals and businesses to use resources in an efficient manner in order to maximize profits.  Therefore, free market economies are generally less wasteful.  The next positive aspect of a free market economy is that they lead to high levels of economic output.  The competition present in a free market economy is not just limited to businesses but also drives individuals to work as hard as possible to earn money.  This incentive for profit and wealth benefits the overall economy because it causes a high level of economic output that means the economic system is producing many goods and services in an efficient manner.<\/p>\n\n\n\n

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NEGATIVES OF A FREE MARKET ECONOMY<\/h2>\n\n\n\n

Although there are several positive aspects of a free market economy, there are also several negative aspects as well.\u00a0 First, a free market economy is based on little or no government intervention in the economy.\u00a0 While this may be beneficial in promoting economic freedom and choice, it also has the ability to cause large income gaps in society.\u00a0 For example, during the Industrial Revolution in Britain, which had a free market economy, the business owners were able to amass large fortunes while the working class people struggled.\u00a0 Because the government did not intervene in the economy, working class people suffered with low wages, a lack of worker rights and horrible working conditions<\/a>.\u00a0 The lack of a government to protect the working class people meant that wealthy entrepreneurs could take advantage of the poor.\u00a0 The next problem associated with free market economies are that they often lead to higher levels of unemployment.\u00a0 A key feature of a command economy<\/a> is that the government provides full employment for all people in society.\u00a0 However, the nature of a free market economy is such that individuals cannot count on the government to protect or help them in a time of need.\u00a0 As such, most countries based on a free market economy have some level of unemployment.\u00a0 This means, that at some points a certain percentage of the population will be struggling with poverty and be unable to support themselves.\u00a0 Further to this idea, because the government does not intervene in a free market economy, monopolies may also form.\u00a0 A monopoly is when one corporation dominates and controls an entire industry.\u00a0 This is bad for consumers, because without the benefit of choice, the corporation would increase prices to whatever they wanted.\u00a0 Finally, free market economies are usually reliant on the forces of supply and demand.\u00a0 While this provides a framework for economic freedom to exist it also creates a system of \u2018boom and bust\u2019 in the overall economy.\u00a0 As such, free market economies are often susceptible to changing economic conditions, which could be difficult to endure for many average consumers.<\/p>\n","protected":false},"excerpt":{"rendered":"

A free market economy is considered to be on the right side of the economic spectrum and is based on the principles of individualism, such as: economic freedom, self-interest, competition and private property. This article details the main principles of a free market economy.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"iawp_total_views":14,"footnotes":""},"categories":[49,37,11,111],"tags":[88,62,17,113],"class_list":["post-3938","post","type-post","status-publish","format-standard","hentry","category-economics","category-age-of-enlightenment","category-industrial-revolution","category-liberalism","tag-age-of-enlightenment","tag-economics","tag-industrial-revolution","tag-liberalism"],"_links":{"self":[{"href":"https:\/\/crunchlearning.com\/website_ec2cbfb0\/wp-json\/wp\/v2\/posts\/3938","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/crunchlearning.com\/website_ec2cbfb0\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/crunchlearning.com\/website_ec2cbfb0\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/crunchlearning.com\/website_ec2cbfb0\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/crunchlearning.com\/website_ec2cbfb0\/wp-json\/wp\/v2\/comments?post=3938"}],"version-history":[{"count":4,"href":"https:\/\/crunchlearning.com\/website_ec2cbfb0\/wp-json\/wp\/v2\/posts\/3938\/revisions"}],"predecessor-version":[{"id":10976,"href":"https:\/\/crunchlearning.com\/website_ec2cbfb0\/wp-json\/wp\/v2\/posts\/3938\/revisions\/10976"}],"wp:attachment":[{"href":"https:\/\/crunchlearning.com\/website_ec2cbfb0\/wp-json\/wp\/v2\/media?parent=3938"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/crunchlearning.com\/website_ec2cbfb0\/wp-json\/wp\/v2\/categories?post=3938"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/crunchlearning.com\/website_ec2cbfb0\/wp-json\/wp\/v2\/tags?post=3938"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}