In an economy, free market is the ideal system in which the prices of goods and services are determined by open markets and consumers, where the law and the power of supply and demand are free from any government intervention, price-fixing monopoly, or authority other. Proponents of the free market concept contrast it with regulated markets, where governments intervene in supply and demand through methods such as tariffs used to curb trade and protect the economy. In an ideal free market economy, the prices of goods and services are set free by supply and demand forces and allowed to reach their equilibrium points without intervention by government policy.
In scholarly debates, the concept of a free market is contrasted with a coordinated market concept in areas of study such as political economy, new institutional economics, economic sociology, and political science. All of these areas emphasize the importance in the real market system of rule-making institutions beyond the simple forces of supply and demand that create space for forces to operate to control output and productive distribution.
One of the famous statements about the scientific approach to the concept of free market in political science is the Freer Market, More Rules by Steven K. Vogel. As the title suggests, the scientific study of free markets is more accurately understood as an act of increasing or decreasing how stricter (more free or less liberal, or deliberate) rules than the ideal of free market as a state of the world. The free market as a verb phrase, rather than the free market as a noun phrase.
Although the free market is generally associated with capitalism in the market economy in contemporary usage and popular culture, the free market has also been advocated by free market anarchists, market socialists, and some cooperative supporters and profit-sharing supporters. Critics of theoretical concepts consider systems with significant market forces, inequal bargaining power, or information asymmetry to be less than free, with the rules necessary to control these imbalances to enable markets to function more efficiently and produce more socially desirable results.
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The laissez-faire principle expresses a preference for the absence of non-market pressures on prices and wages, such as discriminatory taxes from governments, subsidies, tariffs, purely personal behavior regulations, or government-imposed monopoly or coercion. Friedrich Hayek argues in The Pure Theory of Capital that the aim is to preserve the unique information contained in the price itself.
The definition of a free market has been debated and complicated by collectivist political philosophers and socialist economic ideas. This contradiction arises from the distinctions of classical economists such as Richard Cantillon, Adam Smith, David Ricardo, and Thomas Robert Malthus, and from continental economics developed mainly by scholastic and French Spanish economists, including Anne-Robert-Jacques Turgot, Baron de Laune, Jean-Baptiste Say and Frà © monie Bastiat.
During the marginal revolution, the theory of subjective values ​​is rediscovered.
Socialist economy
Various forms of free-market socialism have existed since the 19th century. Notable early socialist supporters of the free market include Pierre-Joseph Proudhon, Benjamin Tucker, and Ricardian socialists. These economists believe that a truly free market and voluntary exchange can not exist under the exploitative conditions of capitalism.
This proposal ranges from various forms of cooperative workers operating in free market economies, such as the mutualism system proposed by Proudhon, to state-owned enterprises operating in unregulated and open markets. These socialism models should not be confused with other forms of market socialism (eg the Lange model) in which publicly owned enterprises are coordinated by various levels of economic planning, or where good capital prices are determined through marginal pricing.
Advocates of free market socialism such as Jaroslav Vanek argue that a truly free market is not possible under the conditions of private ownership of productive property. Instead, he argues that class differences and inequalities in income and power resulting from private ownership allow the interests of the dominant class to divert markets to their advantage, in the form of monopolies and market forces, or by utilizing their wealth and resources to govern government policies benefit their specific business interests. In addition, Vanek stated that workers in a socialist economy based on co-operatives and self-managed companies have a stronger incentive to maximize productivity because they will receive a share of the profits (based on the overall performance of their company) in addition to receiving their fixed wages or salaries.
The socialists also assert that free-market capitalism leads to an overly oblique distribution of income, which in turn leads to social instability. Consequently, corrective measures in the form of social welfare, distributive reimbursement, and administrative costs are required, ultimately paid into the hands of workers who spend and help the economy to run. Company monopoly is rampant in the free market, with an endless agent over consumers. Thus, free-market socialism wants government regulation of the market to prevent social instability, albeit at the cost of taxpayer dollars.
Geoist economics
As explained above, for classical economists like Adam Smith, the term "free market" does not necessarily refer to a market free from government interference, but freer than all forms of economic privilege, monopoly, and artificial scarcity. This implies that the economic rents, that is the advantages resulting from the lack of perfect competition, must be reduced or eliminated as much as possible through free competition.
Economic theory suggests the restoration of land and other natural resources is an economic royalty that can not be reduced in such a way because of its perfect inelastic supply. Some economic thinkers stress the need to divide the rent as an essential requirement for a well-functioning market. It is recommended that this will eliminate the need for regular taxes that have a negative effect on trade (see loss of deadweight) and release of land and resources that are speculated on or monopolized. Two features that enhance competition and free market mechanism. Winston Churchill supports this view with his statement "Land is the mother of all monopolies".
American economist and social philosopher Henry George, the most famous proponent of this thesis, wants to achieve this through high land value taxes that supersedes all other taxes. Followers of his ideas are often called Georgists or Geoists and Geolibertarians.
LÃÆ' Â © on Walras, one of the founders of neoclassical economics that helped formulate the theory of general equilibrium, has a very similar view. He argues that free competition can only be manifested in state ownership of natural and land resources. In addition, income tax can be eliminated because the state will receive revenues to finance public services through ownership of resources and the company.
The non-laissez-faire capitalist system
A stronger incentive to maximize productivity that Vanek understands in a socialist economy based on cooperative and self-managed enterprises can be achieved in a capitalistic free market if employee-owned enterprises are the norm, as envisaged by various thinkers including Louis O. Kelso and James S. Albus.
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Drafts
Supply and demand
Demand for goods (such as goods or services) refers to the market pressure of the person trying to buy it. Buyers have the maximum price they are willing to pay and the seller has a minimum price, they are willing to offer their products. The point at which the supply and demand curves meet is the equilibrium price of the goods and quantities demanded. Sellers are willing to offer their goods at a lower price than the equilibrium price accepts the difference as the surplus of the manufacturer. Buyers are willing to pay for goods at a higher price than the equilibrium price receives the difference as a consumer surplus.
This model is generally applied to wages in the labor market. The typical role of suppliers and consumers is reversed. Suppliers are individuals, who try to sell (supply) their labor at the highest price. Consumers are businesses, who try to buy (demand) the type of labor they need at the lowest price. As more people offer their energy in the market, equilibrium wages decline and the level of work equilibrium increases as the supply curve shifts to the right. The reverse happens if fewer people offer their wages in the market because the supply curve shifts to the left.
In the free market, individuals and companies that participate in this transaction have the freedom to enter, go, and participate in the market as they choose. Price and amount allowed to adjust according to economic conditions to achieve balance and allocate resources appropriately. However, in many countries around the world, governments seek to intervene in free markets to achieve a particular social or political agenda. Governments may seek to create social equity or equality of results by intervening in markets through measures such as imposing minimum wages (base prices) or establishing price controls (price ceilings). Other lesser-known goals are also pursued, such as in the United States, where the federal government subsidizes fertile landowners not to grow crops to prevent the supply curve from shifting further to the right and lowering the equilibrium price. This is done under the justification of retaining farmers' profits; Due to the relative inelasticity of demand for crops, increased supply will lower prices but not significantly increase the quantity demanded, thus putting pressure on farmers to exit the market. Such interventions are often carried out in the name of maintaining basic assumptions of free markets, such as the idea that production costs should be included in the price of goods. The costs of pollution and depletion are sometimes NOT included in production costs (producers who drain water at one site and then dump it downstream of polluted, avoiding water treatment costs), so the government may choose to enforce regulations in an attempt to try to internalize all production costs (and ultimately include in the price of goods).
Free market advocates argue that government intervention inhibits economic growth by disrupting the allocation of natural resources in accordance with supply and demand, while free market critics argue that government intervention is sometimes necessary to protect a country's economy from a more advanced and more influential one. economic, while providing the stability necessary for a wise long-term investment. Milton Friedman pointed to the failure of central planning, price controls and state-owned enterprises, particularly in the Soviet Union and Communist China, while Ha-Joon Chang cites examples of postwar Japanese and South Korean steel industry growth.
Economic equilibrium
General equilibrium theory has shown, with varying degrees of mathematical rigidity over time, that under certain conditions of competition, the law of supply and demand dominates in this ideal free and competitive market, affecting prices toward equilibrium that balances demand for products against inventory. At this equilibrium price, the market distributes the product to the buyer according to the buyer's preference (or utility) of each product and within the relative limits of each purchasing power of the buyer. These results are described as market efficiency, or more specifically Pareto optimum.
This restless behavior of the free market requires certain assumptions about their agents, collectively known as perfect competition, which therefore can not be the result of the markets they create. Among these assumptions are some that are impossible to achieve fully in the real market, such as complete information, interchangeable goods and services, and lack of market power. The question then is the approximation of what conditions warrant market efficiency estimates, and what failures in competition lead to overall market failures. Some Nobel Prizes in Economics have been given for the analysis of market failures due to asymmetric information.
Low barrier to enter
Free markets do not require competition, but do require a framework that enables new entrants to the market. Therefore, in the lack of coercive barriers, and in markets with low entry fees it is generally understood that competition thrives in a free market environment. Often indicates a profit motive, although neither profit motive nor profit itself is required for free markets. All modern free markets are understood including entrepreneurs, both individuals and businesses. Typically, the modern free-market economy will include other features, such as the stock exchange and the financial services sector, but they do not define it.
Spontaneous orders
Friedrich Hayek popularized the view that the market economy promotes a spontaneous order that results in "better allocation of community resources than any design can achieve." According to this view, the market economy is characterized by the formation of complex transactional networks that produce and distribute goods and services throughout the economy. These networks are not designed, but somehow arise as a result of decentralized individual economic decisions. The idea of ​​the spontaneous order is the elaboration of the invisible hand proposed by Adam Smith at The Wealth of Nations. Smith writes that individuals who:
By preferring domestic support for foreign industries, he only wants his own security; and by directing the industry in such a way that its product may be of greatest value, it simply wants its own benefits, and it is in this case, as in many other cases, led by the invisible hand to promote an end that has no part of its intentions. Nor is it always worse for the public that it is not part of it. By pursuing his own interests [an individual] often promotes that society is more effective than when he actually intends to promote it. I never know much good done by those who are affected to trade for the good [general].
Smith points out that one does not get dinner by attracting the attention of a brother from the butcher, a peasant or baker. Instead of one appeals to their own interests, and pays them for their work.
It is not from the virtue of the butcher, the brewer or the baker, that we expect our dinner, but from their concern for their own self-interest. We speak to ourselves, not to their humanity but to their self-love, and never talk to them about our own needs but about their strengths.
Proponents of this view claim that spontaneous orders are superior to any order that does not allow individuals to make their own choices what to produce, what to buy, what to sell, and at what price, due to the number and complexity of these factors. involved. They are more confident that any attempt to implement central planning will result in more chaos, or the production and distribution of inefficient goods and services.
Critics, like political economist Karl Polanyi, question whether a spontaneously ordered market can exist, completely free from "distortions" of political policy; claims that even a seemingly free market requires a state to use force of force in several areas - to enforce contracts, to regulate the formation of trade unions, to define the rights and obligations of enterprises, to establish who has stood up to bring legal action, to determine what constitutes an unacceptable conflict of interest, etc.
General principles
The Heritage Foundation, a right-wing think tank, tries to identify key factors needed to measure the degree of economic freedom of a particular country. In 1986 they introduced the Index of Economic Freedom, which was based on about fifty variables. These and other similar indexes do not define the free market, but measure degrees in which the modern economy is free, which means in many cases, free from state intervention. Variables are divided into the following main groups:
- Trade policy,
- Government fiscal burden,
- Government intervention in the economy,
- Monetary policy,
- Foreign capital and investment flow,
- Banking and finance,
- Wages and prices,
- Property rights,
- Rules, and
- Informal market activity.
It is these free market principles that help the American transition to a free-market economy. International free trade increases the country and that Americans prosper from a strong economy, they have no choice but to embrace it. Each group is assigned a numerical value between 1 and 5; IEF is the arithmetic mean of the values, rounded to the nearest hundreds. Initially, countries traditionally considered capitalist receive high ratings, but this method increases over time. Some economists, like Milton Friedman and other laissez-faire experts, argue that there is a direct link between economic growth and economic freedom, and several studies have shown that this is true. An ongoing debate exists among scholars on methodological issues in empirical studies of the relationship between economic freedom and economic growth. These debates and studies continue to explore what the relationship needs.
The principles of free market are defined as:
- Individual Rights: "We are each created with the same individual rights to control and sustain our lives, liberties, and property and for voluntary exchange of contracts."
- Restricted Government: "The government is instituted only to secure the rights of individuals, who gain their power only from the governed consent."
- Equal Justice with the Law: "Governments should treat everyone equally, not appreciating failure or punishing success."
- Subsidiarity: "The government's authority should be at the lowest possible level."
- Spontaneous Order: "When individual rights are respected, unregulated competition will maximize the economic benefits to society by providing the most goods and services at the lowest cost."
- Property rights: "Private ownership is the most efficient way to utilize resources on an ongoing basis."
- The Golden Rule: "Dealing with others honestly and demanding honesty in return."
Criticism
Free-market critics argue that, in real-world situations, it has proven to be vulnerable to the development of price-fixing monopolies. These reasons have led to government intervention, such as US antitrust law.
Two prominent Canadian writers argue that governments sometimes have to intervene to ensure competition in major and important industries. Naomi Klein illustrates this roughly in his work The Shock Doctrine and John Ralston Saul more jokingly illustrate this through examples in the Collapse of Globalism and Reinvention of the World. While its supporters argue that only free markets can create healthy competition and therefore more business and fair prices, opponents say that free markets in the purest form can lead to the opposite. According to Klein and Ralston, the incorporation of companies into corporate giants or government-run industrial privatizations and national assets often leads to monopolies (or oligopolies) that require government intervention to compel competition and fair prices. Another form of market failure is speculation, in which transactions are made to profit from short-run fluctuations, not from the intrinsic value of the firm or product.
This criticism has been challenged by historians such as Lawrence Reed, who argues that monopolies have historically failed to form even in the absence of anti-trust laws. This is because monopolies are basically difficult to sustain: companies that try to maintain a monopoly by buying new competitors, for example, are giving incentives to new entrants to enter the market in the hope of buying.
American philosopher and writer Cornel West mockingly calls what he regards as a dogmatic argument for laissez-faire economic policy as "free market fundamentalism." The West argues that such a mentality "underestimates public interest" and "makes the money-driven, prestigious, elected officials and subject to corporate earnings goals - often at the expense of the common good." American political Philosim Michael J. Sandel argues that in the last 30 years the United States has moved beyond simply having a market economy and has become a market society in which everything is literally sold, including aspects of social and civil life such as education, access to justice and political influence. The economic historian Karl Polanyi was critical of the idea of ​​a market-based society in his book The Great Transformation, noting that any attempt at his creation would destroy human society and the common good.
The free market economic criticisms range from those who resist the market fully supporting the planned economy as advocated by various Marxists, for those who want to see market failure set to various degrees or supplemented by government intervention. Keynesians support the role of the market for governments, such as using fiscal policy for economic stimulus when action in the private sector leads to less than optimal economic results from depression or recession. The business cycle theory is used by Keynesians to explain the trap of liquidity, where consumption is less, to debate government intervention with fiscal policy.
Furthermore, only one known instance of the free market actually exists, the black market. The black market is always under the threat of police, but under no circumstances does the police arrange the substances that are being made. The black market produces goods that are not fully regulated, and purchased and consumed are not regulated. This means that anyone can generate anything at any time, and anyone can buy whatever is available at any time.
See also
Note
Further reading
- Blocks, Fred and Somers, Margaret R (2014). The Power of Market Fundamentalism: Criticism of Karl Polanyi. Harvard University Press. ISBN: 0674050711
- Boettke, Peter J. "What's Wrong with Economics?", Critical Reviews Vol. 11, No. 1, p. 35, 58
- Harcourt, Bernard (2012). Free Market Illusions: Natural Order Punishment and Myth. Harvard University Press. ISBN: 0674066162
- Cox, Harvey (2016). Market as God. Harvard University Press. ISBN: 9780674659681
- Hayek, Friedrich A. (1948). Individualism and Economic Order . Chicago: University of Chicago Press. vii, 271, [1]
- Palda, Filip (2011) Pareto Republic and the New Science of Peace 2011 [1] chapter online. Published by Cooper-Wolfling. ISBN 978-0-9877880-0-9
- Sandel, Michael J. (2013). Money Can not Buy: Market Moral Boundary. Farrar, Straus and Giroux. ISBN: 0374533652
- Stiglitz, Joseph. (1994). Where is Socialism? Cambridge, Massachusetts: MIT Press.
- Verhaeghe, Paul (2014). What About Me? Identity Struggle in a Market-Based Society. Scribe Publications. ISBN: 1922247375
- Robert Kuttner, "The Man from Red Vienna" (review of Gareth Dale, Karl Polanyi: Life on the Left , Columbia University Press, 381 pp.), The New York Review Book -Books , vol. LXIV, no. 20 (December 21, 2017), p. 55-57. "In short, Polanyi gets some faulty details, but he gets the big picture right: Democracy can not survive the excessive free market, and contains the market is a political task.Ignoring it is defending fascism (Robert Kuttner, p 57)
External links
- Free Enterprise: The Economics of Cooperation Look at how communication, coordination and cooperation interact to make the free market work
Source of the article : Wikipedia
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