What Is A Free Market System?

Because of the desirability or undesirability of certain outcomes, most market systems are not completely free market systems.

The fundamental element of economics does not only refer to a general system of earnings but is also used to describe free market systems. While some historians claim that the feudal system was the first free market system, others dispute this by asserting that in the past, there was no equilibrium to maintain; things just were the way they were, therefore there was no real market system.

A true free market system occurs when certain items are produced for consumption by the general population. The more people want a certain item, the more of those items are produced. If supply cannot meet the demand, prices will rise. Of course, if prices go too high, fewer people will purchase the items, which can result in an unwanted surplus of goods. The same situation will occur if prices remain stagnant, but more items have been produced than consumer demand requires. Both of these instances eventually lead to lower prices. Many economists theorize that supply and demand will eventually find a middle ground, regardless of the fluctuations and inconsistencies that occur throughout the marketing process.

One way to look at it is to view money like a "ration card", similar to those utilized in communism. If an individual has more ration cards (i.e. more money), he can have more of a particular item. If he has fewer ration cards, he will not be able to purchase as many goods. Therefore, under this rationalization, the entire market system is really just a rationing system that determines who gets what and how much.



In a way, this all works out quite nicely; The market system determines who will have how much money, and effectively rations products so that a government or some other entity does not have to do so. However, a market system does not directly address the desirability of the outcome. Therefore, whether or not a free market system is desirable is a question that encompasses both ethical and political realms.

Because of the desirability or undesirability of certain outcomes, most market systems are not completely free market systems. The government, at least to some extent, controls certain aspects of the market and has the power to eradicate certain outcomes which it considers to be undesirable. For example, the price of corn in the United States is not set in accordance with supply and demand. The government subsidizes corn, artificially keeping corn at high prices by paying farmers to produce corn. This is done because, if the price of corn were allowed to adjust itself in a completely free market system, much more corn would be produced than is needed (the supply would be more than the demand), and the price of corn would severely plummet, sending many farmers to the unemployment line.

This is a case in which the government has decided that putting farmers out of work would have far more detrimental consequences to the economy than allowing the government to control that part of the economy. Thus, the reasoning behind state-controlled markets seems to rest on two assumptions: 1) the state can decide in most cases which outcomes are more desirable for the population, and 2) the state has the competence to determine what actions to take to bring about these results.

Most economics experts promote the free market concept in general but acknowledge that in special cases, government intervention is necessary in order to reduce undesired results. Again, these decisions are entirely subjective, which poses an ethical dilemma as to how much power the government should have in a true free market system. For example, the raising or lowering the rate at which the government borrows money can also change the amount of money in circulation, which therefore changes the value of money. After all, when the government sells bonds, it is really just borrowing money at its own set rate.

Economics, as a system, is far more complex than many people believe. In addition to the fact that the value of money fluctuates according to what it can buy, the government has the ability to change the value of money through variances in the amount of money it prints. This transforms the economy into a colossal piece of equipment running on so many different variables that it is seemingly impossible to predict future trends. Yet at the same time, the system is so intricate and delicately intertwined that even the smallest upset can have a ripple effect on the entire economic state.

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