What Is A Free Market Economy?
Free market economy is a buzz word - or phrase. It's one of those terms that when most people hear it they think they know what it means.
Perhaps we shouldn't be too hasty in that assumption. Though we may be prone to assuming such understanding, a surprising number of people when queried have a harder time than you might think providing a precise definition of the term.
Providing a definition of the term is complicated by the fact that no one owns such terms. No definition turns out to be the final word on the topic. Diametrically opposed definitions have no intrinsic criteria to conclusively resolve their differences.
Furthermore, reverting to semantics or historical precedent solves nothing as precedents can be found for any position if one is determined and clever enough. There is no science of definition. Definition is inherently subjective.
Hopefully acknowledging these limits to definition establishes the lack of delusion informing the effort undertaken, here. I'm well aware that my definition is neither incontestable nor objectively truth. Such unavoidable limits though do not thereby diminish it. Its virtue lies in its utility. It is a definition that facilitates an important distinction about the nature of the world.
I'd also recommend it because unlike some others it is not piecemeal or makeshift. It is rooted in principle. As such, there is value in the precision it offers. I of course have no control over what others think on that matter.
The central point in this prologue is that, despite anyone else's opinion on the matter, the definition offered here is what I mean by the phrase "free market economy." Refuting my definition in no way refutes the arguments made on behalf of that which I define as such. Attempting that would be a colossal case of missing the point.
So, working back to front, an economy is that part of a society concerned with employing resources: material, human or otherwise. It assumes nothing about how they are employed.
Markets are nexuses for the trading of resources by economic actors. (Use of the term "resources" should not mislead the reader into assuming "natural resources" - e.g., stuff dug out of the ground. "Resources" rather refer to anything which an actor might put to some use. The term could be treated as interchangeable with "goods.") It is worth mentioning that "market" does not assume the operation of money. A barter economy is no less a market economy.
While it may not have money, that does not prevent a market economy from having prices. Indeed, they are essential to it. Prices then are not inherently understood in relationship to money, but rather as the consensual evaluation of resources compared to that of other resources. Where money is part of the market, it is traded as simply another resource. Its value is determined by supply-and-demand just like that of any other resource. (For more on this, see my article on the Meaning of Money at the Fiat Currency Review.)
Market economies then are economies wherein value is established through the relative supply of and demand for resources that arises in the process of trading them. If a given resource is widely available and/or very few people want it, it will be valued less: it would take relatively more of it for most people to trade something they valued higher (i.e., it would have a lower price), than another resource less available and/or more widely in demand. Though, demand is always subjective .
This is the operation of a market economy. A free market economy is still more specific. The use of the word "free" would allow it to be interchangeable with "voluntary." In a free market economy anyone is free to exchange any resource with anyone else who wants to freely participate in that trade.
We've now established three separate phenomena: an economy, a market economy and a free market economy. Let's illustrate the distinctions with reference to the case of marijuana. Most jurisdictions of the world prohibit selling and buying (not to mention growing and consuming) of marijuana. Police forces exercise their monopoly of legitimized violence to suppress trade in this resource.
It is a fact though that in many parts of the world the buying and selling of marijuana is a major part of the economy. It funnels income into areas that otherwise might not see nearly so much cash available to be spent locally.
Police violence (being physically abducted and caged, is violence, whether regarded as legitimate or not) does not seem able to suppress markets. It does, though, suppress free markets. Where strong demand persists, even in the face of the threat of violence, markets emerge and persist.
If demand is sufficient, suppression of a resource, even by violence, will not eliminate the market for it. Threats of police violence do diminish the number of buyers and sellers in that market. And, since "trafficking" or "dealing" or otherwise holding large quantities is usually dealt with more severely, selling in particular is very dangerous. Dealing with this danger incurs elevated business costs. Those costs, combined with the violence-induced supply reduction, result in prices higher than the market would otherwise provide.
Government violence used to suppress markets increases prices by constraining free trade. The same dynamic is not restricted to supposedly criminal resources. All government tariffs, zoning, subsidies, bailouts, and most taxation and regulation, effectively - and usually intentionally - constrains freedom to trade.
Politically well connected sellers can influence government policy, directing its police powers in service of their economic interests. It is this kind of crony mercantilism that is the antithesis of a free market economy.
Perhaps we shouldn't be too hasty in that assumption. Though we may be prone to assuming such understanding, a surprising number of people when queried have a harder time than you might think providing a precise definition of the term.
Providing a definition of the term is complicated by the fact that no one owns such terms. No definition turns out to be the final word on the topic. Diametrically opposed definitions have no intrinsic criteria to conclusively resolve their differences.
Furthermore, reverting to semantics or historical precedent solves nothing as precedents can be found for any position if one is determined and clever enough. There is no science of definition. Definition is inherently subjective.
Hopefully acknowledging these limits to definition establishes the lack of delusion informing the effort undertaken, here. I'm well aware that my definition is neither incontestable nor objectively truth. Such unavoidable limits though do not thereby diminish it. Its virtue lies in its utility. It is a definition that facilitates an important distinction about the nature of the world.
I'd also recommend it because unlike some others it is not piecemeal or makeshift. It is rooted in principle. As such, there is value in the precision it offers. I of course have no control over what others think on that matter.
The central point in this prologue is that, despite anyone else's opinion on the matter, the definition offered here is what I mean by the phrase "free market economy." Refuting my definition in no way refutes the arguments made on behalf of that which I define as such. Attempting that would be a colossal case of missing the point.
So, working back to front, an economy is that part of a society concerned with employing resources: material, human or otherwise. It assumes nothing about how they are employed.
Markets are nexuses for the trading of resources by economic actors. (Use of the term "resources" should not mislead the reader into assuming "natural resources" - e.g., stuff dug out of the ground. "Resources" rather refer to anything which an actor might put to some use. The term could be treated as interchangeable with "goods.") It is worth mentioning that "market" does not assume the operation of money. A barter economy is no less a market economy.
While it may not have money, that does not prevent a market economy from having prices. Indeed, they are essential to it. Prices then are not inherently understood in relationship to money, but rather as the consensual evaluation of resources compared to that of other resources. Where money is part of the market, it is traded as simply another resource. Its value is determined by supply-and-demand just like that of any other resource. (For more on this, see my article on the Meaning of Money at the Fiat Currency Review.)
Market economies then are economies wherein value is established through the relative supply of and demand for resources that arises in the process of trading them. If a given resource is widely available and/or very few people want it, it will be valued less: it would take relatively more of it for most people to trade something they valued higher (i.e., it would have a lower price), than another resource less available and/or more widely in demand. Though, demand is always subjective .
This is the operation of a market economy. A free market economy is still more specific. The use of the word "free" would allow it to be interchangeable with "voluntary." In a free market economy anyone is free to exchange any resource with anyone else who wants to freely participate in that trade.
We've now established three separate phenomena: an economy, a market economy and a free market economy. Let's illustrate the distinctions with reference to the case of marijuana. Most jurisdictions of the world prohibit selling and buying (not to mention growing and consuming) of marijuana. Police forces exercise their monopoly of legitimized violence to suppress trade in this resource.
It is a fact though that in many parts of the world the buying and selling of marijuana is a major part of the economy. It funnels income into areas that otherwise might not see nearly so much cash available to be spent locally.
Police violence (being physically abducted and caged, is violence, whether regarded as legitimate or not) does not seem able to suppress markets. It does, though, suppress free markets. Where strong demand persists, even in the face of the threat of violence, markets emerge and persist.
If demand is sufficient, suppression of a resource, even by violence, will not eliminate the market for it. Threats of police violence do diminish the number of buyers and sellers in that market. And, since "trafficking" or "dealing" or otherwise holding large quantities is usually dealt with more severely, selling in particular is very dangerous. Dealing with this danger incurs elevated business costs. Those costs, combined with the violence-induced supply reduction, result in prices higher than the market would otherwise provide.
Government violence used to suppress markets increases prices by constraining free trade. The same dynamic is not restricted to supposedly criminal resources. All government tariffs, zoning, subsidies, bailouts, and most taxation and regulation, effectively - and usually intentionally - constrains freedom to trade.
Politically well connected sellers can influence government policy, directing its police powers in service of their economic interests. It is this kind of crony mercantilism that is the antithesis of a free market economy.
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New Unique Article!
Title: What Is A Free Market Economy?
Author: Wallace Eddington
Email: honestoffers4u@gmail.com
Keywords: free market economy,economics,ethics,social issues,government,regulation,drug war,finance,business,family
Word Count: 957
Category: Ethics
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