A model for an economic system in which:
- People are free to trade with whomever (and only whomever) they choose.
Anyone can choose to buy from or sell to whomever they want whenever (and only whenever) the trade is mutually consensual.
No-one can force a transaction on another.
- People have perfect information about the outcomes of any transaction they make.
When someone chooses to buy a product, they know what it will do, how long it is likely to do it, how well it will do it,
and what side-effects it is likely to cause.
- People are rational. Given the information they can analyse the information to make a good choice.
- People are insatiable. They always want more than they have.
Free Market Economic theory (or at least the
neo-classical model) is built on these
axioms, and they provide a powerful analytical tool.
Advocates of the free market suggest that we should change our laws so that
such an economy can develop.
Clearly though, on close inspection each of them breaks down. The following objections are often raised.
- People are forced into transactions by stand-over merchants, muggers and other criminals.
In practice taxes must be collected for police and defense
- Sometimes people do not get a reasonable choice of who to trade with - there may only be
one bank, one supermarket or one employer to deal with.
While such situations exist in some parts of the free world, they are very unusual for the vast majority of people.
Ironically the most ardent critics of free markets are the people most likely to advocate reducing the choice that
people have. They advocate compulsory unionism, compulsory produce boards, government monopolies and
- People do not have perfect information about the trades they are about to make.
This is true, but it is a reasonable
approximation. Business people clearly take risks,
and if this is with their own money, then so be it.
Most money that people spend is on things they understand. People buy the same food, and similar clothes many times.
They buy fewer cars, but have access to information which allows them to make a good (if imperfect decision).
They buy a home, and take some risk in doing so, but even that market is well understood, even if the prices
are sometimes volatile.
- People are not rational - they frequently act irrationally. People are not perfect, but neither are
political systems. In fact people will not make the best decision for themselves, but they will generally
make a better decision than anyone else - including their government.
Any system based on the belief that
the government will make better decisions for people's welfare than the people themselves is on the road to
dictatorship and tyranny. People who advocate making decisions for other's welfare are rarely interested
in people's welfare, but simply after control and power.
There are also other objections to the free market model.
- Given total choice people will discriminate against some groups.
In practice this is not a problem. Any discrimination is either justified or unjustified. If it is justified, then what's the
problem? If it is not justified, then this just creates opportunity for others less stupid.
- People are not insatiable - they frequently say 'that's enough for me'.
This is normally due to a misunderstanding about what insatiable means.
People who say this are really saying 'I don't want to keep paying the price for
There is in fact a cost in acquiring anything - storage, or disposal if it
While some people retire and say
'that's enough money for me',
they are really saying
'it is not worth continuing to pay the price of work to acquire more money'.