Free market

A free market economy is an idealized form of market economy in which buyers and sellers are permitted to carry out transactions based solely on mutual agreement without interventionism in the form of taxes, subsidies, regulation, or government provision of goods or services beyond simply the protection of property rights and enforcement of contracts. The free market is a mainstay of ideologies such as minarchism, libertarianism, and 19th century liberalism, as well as the Western understanding of capitalism. It is anathema to communism and some variants of socialism, although modern liberalism and other variants of socialism seek only to mitigate what they see as the problems of an unrestrained free market.

Currently, there are no totally free or ideal markets in operation. Taxes and government regulation bias the equilibrium points of every large market in existence today. Furthermore, monopolistic practices, cartels, and asymmetrically distributed knowledge are often cited as potentially disrupting the operation of the free market. Knowledge bias can lead to problems such as insider trading, price fixing, adverse selection, moral hazard, and the principal-agent problem. Some believe that the notion of a free market is inherently unachievable because they hold that governments create property rights and are fundamentally involved in markets through the enforcement of such rights. Others argue that the concept of property comes from natural law and therefore it is incorrect to see governments as creating markets.

In the ideal free market, the law of supply and demand predominates, influencing prices toward an equilibrium that balances the demands for the products against the supplies. At these equilibrium prices, the market distributes the products to the purchasers according to each purchaser's use (or utility) for each product and within the relative limits of each buyer's purchasing power. In this mathematical ideal market, the distribution of products is Pareto optimal, meaning that no purchaser could have his or her purchasing limits filled in a way more useful to them without reducing the usefulness of some other purchaser's bundle of products. Optimality in this sense refers only to the distribution of products given the pre-existing purchasing power of the participants; it does not have anything to say about the equity of the allocation of purchasing power itself, which is often an input to the mathematical ideal market. The necessary components for the functioning of a simple, mathematically pure free market include the complete absence of artificial price pressures from taxes, subsidies, tariffs, or government regulation, perfect (or, at least, equivalent) knowledge about the value of the goods, geographic availability of all goods to all people, and no artificial monopolies (the United States Post Office, Amtrak, arguably patents, etc.) or similar arrangements on the part of the actors.

The distribution of purchasing power in an economy depends to a large extent on the labor and financial markets, but also on other factors such as family relationships, inheritance, gifts and so on. Many theories describing the operation of a free market focus primarily on the markets for consumer products, and their description of the labor market or financial markets tends to be more complicated and controversial.

Modern trends that promote international market systems are often described by detractors as neoliberalism.

Free market

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