Free market

A free market economy is one in which buyers and sellers are permitted to carry out transactions based on mutual agreement on price. The free market is considered the mainstay of capitalism. It is anathema to communism and some variants of socialism, although most variants of socialism seek to mitigate what they see as the problems of an unrestrained free market.

In a free market, the law of supply and demand tends to influence prices toward an equilibrium in which buyers and sellers are both satisfied -- at least in theory. In reality there are very few totally free or ideal markets in operation. Taxes and government regulation bias the equilibrium points of most large markets in existence today.

Free Markets and Capitalism

In contrast to the political terms capitalism and socialism the concept of the free market is purely economic. Nations tend to have an economic system that accords with their government's political ideology. Hence, democratic countries tend to have economies that are closer to a free market, while socialist countries generally have command economies. Despite official support for one economic model or another, nations generally have a mix of some sort.

Capitalism as implemented in democratic countries (such as America, Canada, and most of industrial Europe) tends to be a mix between capitalism and statism (see state capitalism). In these countries, the government routinely intervenes in the operation of the economy. Government intervention in the U.S. includes the granting of monopolies (such as franchises for cable TV or intellectual "property" rights) or the break-up of monopolies (as the dissolution of AT&T into the Baby Bells).

See: Friedrich Hayek, Adam Smith, command economy, socialism, communism