Free market economy, whether being sanctified or vilified, just rolls off the tongue. We use it so casually, surely we know to what it refers.
There is a kind of built in self deception to such thinking. Indeed, in the case of "free market economy," a reflex of understanding doesn't turn out to predict the ability to provide a reliably coherent and consistent definition.
Additionally, there is the problem that no one owns such terms. No one gets the final say over what the definition is. Two people with radically different definitions are just as entitled to use their own version.
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.
The non-essential role of money is not to be confused with the elective nature of prices in markets. Prices after all are not based on monetary units (even if expressed in them where money exists). They are rather expressions of the consensus on the comparable valuation of resources. When money does exist, it is only one more resource. Like all the others, its value is determined through supply-and-demand driven trade. (For more on this, see my article on the Meaning of Money at the Fiat Currency Review.)
So a market economy is one in which value is determined by the relative supply of and demand for resources 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 describes the workings of a market economy. More precision still is required to define a free market economy. "Free" might be regarded as interchangeable with "voluntary." A market is free when actors may enter or exit it at will: the freedom is freedom to exchange any resource desired with any partner both desired and likewise disposed.
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.
Nonetheless, such markets exist and often thrive. They frequently are the major source of income in the economies of many areas. For some regions the marijuana market is the difference between local economic hardship and relative prosperity.
The threat of violence by the police (being physically abducted and caged, surely qualifies as violence, whether you consider it legitimate or not) of course eliminates a free market in marijuana trading. Due to the high demand, though, nonetheless markets emerge to serve the needs of the prospective consumers.
If there is enough demand, whatever types of suppression of a resource may be attempted, markets will rise to serve it. However, the threat of police violence does eliminate both potential buyers and sellers from the market. Selling is especially dangerous and thus incurs very high costs. Consequently, prices are extremely high.
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.
Hence, the doors are thrown wide open to all manner of influence peddling, self dealing, rent seeking and regulatory capture as the politically well connected bend government's police powers to the service of their own economic interests. It is this kind of crony mercantilism that is the antithesis of a free market economy.
There is a kind of built in self deception to such thinking. Indeed, in the case of "free market economy," a reflex of understanding doesn't turn out to predict the ability to provide a reliably coherent and consistent definition.
Additionally, there is the problem that no one owns such terms. No one gets the final say over what the definition is. Two people with radically different definitions are just as entitled to use their own version.
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.
The non-essential role of money is not to be confused with the elective nature of prices in markets. Prices after all are not based on monetary units (even if expressed in them where money exists). They are rather expressions of the consensus on the comparable valuation of resources. When money does exist, it is only one more resource. Like all the others, its value is determined through supply-and-demand driven trade. (For more on this, see my article on the Meaning of Money at the Fiat Currency Review.)
So a market economy is one in which value is determined by the relative supply of and demand for resources 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 describes the workings of a market economy. More precision still is required to define a free market economy. "Free" might be regarded as interchangeable with "voluntary." A market is free when actors may enter or exit it at will: the freedom is freedom to exchange any resource desired with any partner both desired and likewise disposed.
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.
Nonetheless, such markets exist and often thrive. They frequently are the major source of income in the economies of many areas. For some regions the marijuana market is the difference between local economic hardship and relative prosperity.
The threat of violence by the police (being physically abducted and caged, surely qualifies as violence, whether you consider it legitimate or not) of course eliminates a free market in marijuana trading. Due to the high demand, though, nonetheless markets emerge to serve the needs of the prospective consumers.
If there is enough demand, whatever types of suppression of a resource may be attempted, markets will rise to serve it. However, the threat of police violence does eliminate both potential buyers and sellers from the market. Selling is especially dangerous and thus incurs very high costs. Consequently, prices are extremely high.
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.
Hence, the doors are thrown wide open to all manner of influence peddling, self dealing, rent seeking and regulatory capture as the politically well connected bend government's police powers to the service of their own economic interests. It is this kind of crony mercantilism that is the antithesis of a free market economy.
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