The beginnings of a free market system economy began in 18th century Europe. This economic market system evolved from the medieval and mercantile market systems. The free market was unchecked completely without any governmental regulations and restrictions. By the 19th century the European free markets had organized political support and were in full swing. The free market system model did cross over to the United States in the form of a market economy with minimal government regulation. The United States of America has never had a pure free market.
Investopedia defines a free market as “a term for an array of exchanges that take place in society. Each exchange is a voluntary agreement between two parties who trade in the form of goods and services.” In a free market there are no governmental regulations that keep the market from plunging to depression. There are no safeguards established to protect those participating or “bail out money” for companies as their stock drops and they lose profits in order to secure their existence. There is nothing to prevent a catastrophic depression. The closest the United States had to a free market system was the market economy before “The Great Depression” beginning in 1929. At that time the United States market economy had very little governmental regulations. After “The Great Depression” many safeguards were put into place in order to prevent another market crash. The Investopedia further clarifies that “in reality, this is the extent to which a free market exists since there will always be government intervention in the form of taxes, price controls and restrictions that prevent new competitors from entering a market. Just like supply-side economics, free market is a term used to describe a political or ideological viewpoint on policy and is not a field within economics.”
As with any economic ideology or viewpoint, there are pro’s and con’s to a free market. In Europe the free markets took on a laissez-faire approach which meant no government restrictions or interference, even against monopolies thereby allowing “free trade”. The French were the first to adopt and coin the phrase “laissez-faire” in the 1750’s (the exact date is unknown) in explanation of their free market choice. The French term “laissez-faire” means “let us do” or “let it be.” The French further came up with the term “free trade” to place further emphasis on zero government intervention within their free market. By the end of the 1890’s the European Free Markets no longer went unchecked, many countries (including France) had added their own version of protective mechanisms which changed their laissez-faire free market system to a social market economy, a free market system with regulations from the government that prevent market failure. The biggest problem with the laissez-faire free market system was the economic crashes that negatively impacted the European economy. The United Kingdom, however, is known to be the freer market, even compared to the United States market economy model, with the least government restrictions or regulations.
Advocates for a free market, a system unchecked by the government, with no checks or balances, no restrictions, regulations, or protective measures to prevent a market failure, are actually insisting on the right to have another “Great Depression” or out of control inflation where prices sky rocket to intolerable heights, either way every one loses and the market fails. The country does not matter, for where ever a free market exists, a market failure would be the end result. This fact became evident in the European free markets by the 19th century. Even in the United States with minimal government regulation or restriction (a market economy) there was a severe market downswing which caused the Great Depression in 1929 through early 1940’s. This type of crash had a very harsh economic impact affecting many people and businesses. This is why there are the numerous protective market federal laws that Wall Street, the financial district of New York, must comply. Why the current United States market system resembles a social market economy model even though it is still regarded as a market economy. Without these regulative measures, Wall Street would get away with a Great Depression like it did on Black Tuesday, October 29, 1929. There are times when the United States federal government, on behalf of its citizens and economy, must intervene and demand, “Not again.”
Free market, Investopedia website: http://www.investopedia.com/terms/f/freemarket.asp
Free market, Wikipedia website: http://en.wikipedia.org/wiki/Free_market
Great Depression, Wikipedia website: http://en.wikipedia.org/wiki/Great_Depression
Laissez-faire, Wikipedia website: http://en.wikipedia.org/wiki/Laissez-faire
Market economy, Wikipedia website: http://en.wikipedia.org/wiki/Market_economy
Wall Street, BusinessDictionary.com website: http://www.businessdictionary.com/definition/Wall-Street.html