A free market is a market without economic intervention and regulation by government except to outlaw and prosecute force or fraud. It is the opposite of a controlled market, where the government regulates how the means of production, goods, and services are used, priced, or distributed. This is the contemporary use of the term "free market" by economists and in popular culture; the term has had other uses historically. A free market economy is an economy where all markets within it are free. This requires protection of property rights, but no regulation, no subsidization, no government-imposed monopolistic monetary system, and no governmental monopolies.
The theory holds that within the ideal free market, property rights are voluntarily exchanged at a price arranged solely by the mutual consent of sellers and buyers. By definition, buyers and sellers do not coerce each other, in the sense that they obtain each other's property rights without the use of physical force, threat of physical force, or fraud, nor are they coerced by a third party (such as by government via transfer payments) [1] and they engage in trade simply because they both consent and believe that what they are getting is worth more than or as much as what they give up. Price is the result of buying and selling decisions en masse as described by the theory of supply and demand.
Free markets contrast sharply with controlled markets or regulated markets, in which governments directly or indirectly regulate prices or supplies, which according to free market theory causes markets to be less efficient.[2] Where government intervention exists, the market is a mixed economy.
In the marketplace the price of a good or service helps communicate consumer demand to producers and thus directs the allocation of resources toward consumer, as well as investor, satisfaction. In a free market, price is a result of a plethora of voluntary transactions, rather than political decree as in a controlled market. Through free competition between vendors for the provision of products and services, prices tend to decrease, and quality tends to increase. A free market is not to be confused with a perfect market where individuals have perfect information and there is perfect competition.
Free market economics is closely associated with laissez-faire economic philosophy, which advocates approximating this condition in the real world by mostly confining government intervention in economic matters to regulating against force and fraud among market participants. Some free market advocates oppose taxation as well, claiming that the market is more efficient at providing all valuable services of which defense and law are no exception, that such services can be provided without direct taxation and that consent would be the basis of political legitimacy making it a morally consistent system. Anarcho-capitalists, for example, would substitute arbitration agencies and private defense agencies.
In social philosophy, a free market economy is a system for allocating goods within a society: purchasing power mediated by supply and demand within the market determines who gets what and what is produced, rather than the state. A free market may refer narrowly to national economies, or internationally; specific reference to international markets is referred to as free trade (for goods) or lack of capital controls (for money). Early proponents of a free-market economy in 18th century Europe contrasted it with the medieval, early modern, and mercantilist economies which preceded it.
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