Editing Free market (section)

== Economic systems ==
=== Capitalism ===
{{Capitalism sidebar|expanded=concepts}}
Capitalism is an [[economic system]] based on the [[private ownership]] of the [[means of production]] and their operation for [[Profit (economics)|profit]].<ref>{{cite book |first1=Andrew S. |last1=Zimbalist |first2=Howard J. |last2=Sherman |first3=Stuart |last3=Brown |url=https://archive.org/details/comparingeconomi0000zimb_q8i6/page/6|title=Comparing Economic Systems: A Political-Economic Approach|year=1988|publisher=Harcourt College Pub|isbn=978-0155124035|pages=[https://archive.org/details/comparingeconomi0000zimb_q8i6/page/6 6–7]|quote=Pure capitalism is defined as a system wherein all of the means of production (physical capital) are privately owned and run by the capitalist class for a profit, while most other people are workers who work for a salary or wage (and who do not own the capital or the product).}}</ref><ref>{{cite book|last1=Rosser|first1=Mariana V.|title=Comparative Economics in a Transforming World Economy |url=https://books.google.com/books?id=y3Mr6TgalqMC&pg=PA7 |last2=Rosser|first2=J Barkley|year= 2003|publisher=MIT Press|isbn=978-0262182348|page=7|quote=In capitalist economies, land and produced means of production (the capital stock) are owned by private individuals or groups of private individuals organized as firms.}}</ref><ref name=":1">Chris Jenks. ''Core Sociological Dichotomies''.  "Capitalism, as a mode of production, is an economic system of manufacture and exchange which is geared toward the production and sale of commodities within a market for profit, where the manufacture of commodities consists of the use of the formally free labor of workers in exchange for a wage to create commodities in which the manufacturer extracts surplus value from the labor of the workers in terms of the difference between the wages paid to the worker and the value of the commodity produced by him/her to generate that profit." London; Thousand Oaks, CA; New Delhi. Sage. p. 383.</ref><ref>{{cite book|last=Gilpin|first=Robert|title=The Challenge of Global Capitalism : The World Economy in the 21st Century|year=2018|publisher=Princeton University Press |isbn=978-0691186474|oclc=1076397003}}</ref> Central characteristics of capitalism include [[capital accumulation]], [[competitive market]]s, a [[price system]], private property and the recognition of [[Property rights (economics)|property rights]], [[voluntary exchange]], and [[wage labor]].<ref>Heilbroner, Robert L. [http://www.dictionaryofeconomics.com/article?id=pde2008_C000053 "Capitalism"] {{Webarchive|url=https://web.archive.org/web/20171028232506/http://www.dictionaryofeconomics.com/article?id=pde2008_C000053|date=28 October 2017}}. Steven N. Durlauf and Lawrence E. Blume, eds. ''The New Palgrave Dictionary of Economics''. 2nd {{abbr|ed.|edition}} (Palgrave Macmillan, 2008) {{doi|10.1057/9780230226203.0198}}.</ref><ref>Louis Hyman and Edward E. Baptist (2014). [http://books.simonandschuster.com/American-Capitalism/Louis-Hyman/9781476784311 ''American Capitalism: A Reader''] {{Webarchive|url=https://web.archive.org/web/20150522065957/http://books.simonandschuster.com/American-Capitalism/Louis-Hyman/9781476784311|date=22 May 2015}}. [[Simon & Schuster]]. {{ISBN|978-1476784311}}.</ref> In a [[capitalist market economy]], decision-making and investments are determined by every owner of wealth, property or production ability in [[Capital market|capital]] and [[financial market]]s whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.<ref>{{cite book|last1=Gregory|first1=Paul|title=The Global Economy and its Economic Systems|last2=Stuart|first2=Robert|publisher=South-Western College Pub|year=2013|isbn=978-1285-05535-0|page=41|quote=Capitalism is characterized by private ownership of the factors of production. Decision making is decentralized and rests with the owners of the factors of production. Their decision making is coordinated by the market, which provides the necessary information. Material incentives are used to motivate participants.}}</ref>

[[Economist]]s, [[historian]]s, [[political economist]]s and [[sociologist]]s have adopted different perspectives in their analyses of capitalism and have recognized various forms of it in practice. These include ''[[Laissez-faire capitalism|laissez-faire]]'' or free-market capitalism, [[state capitalism]] and [[welfare capitalism]]. Different [[forms of capitalism]] feature varying degrees of free markets, [[public ownership]],<ref>{{cite book|last=Gregory and Stuart|first=Paul and Robert|title=The Global Economy and its Economic Systems|year=2013|publisher=South-Western College Pub|isbn=978-1285-05535-0|page=107|quote=Real-world capitalist systems are mixed, some having higher shares of public ownership than others. The mix changes when privatization or nationalization occurs. Privatization is when property that had been state-owned is transferred to private owners. [[Nationalization]] occurs when privately owned property becomes publicly owned.}}</ref> obstacles to free competition and state-sanctioned [[social policies]]. The degree of [[Competition (economics)|competition]] in [[Market (economics)|markets]] and the role of [[Economic interventionism|intervention]] and [[Regulatory economics|regulation]] as well as the scope of state ownership vary across different models of capitalism.<ref name="Modern Economics 1986, p. 54">''Macmillan Dictionary of Modern Economics'', 3rd Ed., 1986, p. 54.</ref><ref>{{cite magazine|last=Bronk|first=Richard|date=Summer 2000|title=Which model of capitalism?|url=http://oecdobserver.org/news/archivestory.php/aid/345/Which_model_of_capitalism_.html|url-status=live|magazine=[[OECD Observer]]|publisher=OECD|volume=1999|issue=221–22|pages=12–15|archive-url=https://web.archive.org/web/20180406200423/http://oecdobserver.org/news/archivestory.php/aid/345/Which_model_of_capitalism_.html|archive-date=6 April 2018|access-date=6 April 2018}}</ref> The extent to which different markets are free and the rules defining private property are matters of politics and policy. Most of the existing capitalist economies are [[mixed economies]] that combine elements of free markets with state intervention and in some cases [[economic planning]].<ref name="Stilwell">Stilwell, Frank. "Political Economy: the Contest of Economic Ideas". First Edition. Oxford University Press. Melbourne, Australia. 2002.</ref>

[[Market economies]] have existed under many [[forms of government]] and in many different times, places and cultures. Modern capitalist societies—marked by a universalization of [[money]]-based [[social relations]], a consistently large and system-wide [[class of workers]] who must work for wages (the [[proletariat]]) and a [[capitalist class]] which owns the means of production—developed in Western Europe in a process that led to the [[Industrial Revolution]]. Capitalist systems with varying degrees of direct government intervention have since become dominant in the [[Western world]] and continue to spread. Capitalism has been shown to be strongly correlated with [[economic growth]].<ref>{{cite journal|last=Sy|first=Wilson N.|date=18 September 2016|title=Capitalism and Economic Growth Across the World|location=Rochester, NY|doi=10.2139/ssrn.2840425 |ssrn=2840425|s2cid=157423973 |quote=For 40 largest countries in the International Monetary Fund (IMF) database, it is shown statistically that capitalism, between 2003 and 2012, is positively correlated significantly to economic growth.}}</ref>

=== Georgism ===
{{main|Georgism}}
For classical economists such as [[Adam Smith]], the term free market refers to a market free from all forms of economic privilege, monopolies and artificial scarcities.<ref name="Popper 1994"/> They say this implies that [[economic rent]]s, which they describe as profits generated from a lack of [[perfect competition]], must be reduced or eliminated as much as possible through free competition.

Economic theory suggests the returns to [[land]] and other [[natural resource]]s are economic rents that cannot be reduced in such a way because of their perfect inelastic supply.<ref>[[Adam Smith]], ''[[The Wealth of Nations]]'' [[s:The Wealth of Nations/Book V/Chapter 2|Book V, Chapter 2]], Part 2, Article I: Taxes upon the Rent of Houses.</ref> Some economic thinkers emphasize the need to share those rents as an essential requirement for a well functioning market. It is suggested this would both eliminate the need for regular taxes that have a negative effect on trade (see [[deadweight loss]]) as well as release land and resources that are speculated upon or monopolised, two features that improve the competition and free market mechanisms. [[Winston Churchill]] supported this view by the following statement: "Land is the mother of all monopoly".<ref>House Of Commons May 4th; King's Theatre, Edinburgh, July 17</ref> The American economist and social philosopher [[Henry George]], the most famous proponent of this thesis, wanted to accomplish this through a high [[land value tax]] that replaces all other taxes.<ref>Backhaus, "Henry George's Ingenious Tax," pp. 453–458.</ref> Followers of his ideas are often called [[Georgism|Georgists]] or geoists and [[Geolibertarianism|geolibertarians]].

[[Léon Walras]], one of the founders of the [[neoclassical economics]] who helped formulate the [[general equilibrium theory]], had a very similar view. He argued that free competition could only be realized under conditions of state ownership of natural resources and land. Additionally, income taxes could be eliminated because the state would receive income to finance public services through owning such resources and enterprises.<ref>{{cite book |last= Bockman|first= Johanna |title= Markets in the name of Socialism: The Left-Wing origins of Neoliberalism|publisher= Stanford University Press|year= 2011|isbn= 978-0804775663|page = 21|quote= For Walras, socialism would provide the necessary institutions for free competition and social justice. Socialism, in Walras's view, entailed state ownership of land and natural resources and the abolition of income taxes. As owner of land and natural resources, the state could then lease these resources to many individuals and groups which would eliminate monopolies and thus enable free competition. The leasing of land and natural resources would also provide enough state revenue to make income taxes unnecessary, allowing a worker to invest his savings and become 'an owner or capitalist at the same time that he remains a worker.}}</ref>

=== ''Laissez-faire'' ===
{{main|Laissez-faire}}
The ''laissez-faire'' principle expresses a preference for an absence of non-market pressures on prices and wages such as those from discriminatory government [[tax]]es, [[Subsidy|subsidies]], [[tariff]]s, [[Regulatory economics|regulations]], or [[Government-granted monopoly|government-granted monopolies]]. In ''The Pure Theory of Capital'', [[Friedrich Hayek]] argued that the goal is the preservation of the unique information contained in the price itself.<ref name="hayek_pure">Hayek, Friedrich (1941). ''The Pure Theory of Capital''.</ref>

According to Karl Popper, the idea of the free market is paradoxical, as it requires interventions towards the goal of preventing interventions.<ref name="Popper 1994">{{cite book|last=Popper|first=Karl|title=The Open Society and Its Enemies|publisher=Routledge Classics|year=1994|isbn=978-0415610216|pages=712}}</ref>

Although ''laissez-faire'' has been commonly associated with [[capitalism]], there is a similar economic theory associated with [[socialism]] called left-wing or socialist ''laissez-faire'', also known as [[free-market anarchism]], [[Left-wing market anarchism|free-market anti-capitalism]] and [[Market socialism|free-market socialism]] to distinguish it from ''laissez-faire'' capitalism.<ref>Chartier, Gary; Johnson, Charles W. (2011). ''Markets Not Capitalism: Individualist Anarchism Against Bosses, Inequality, Corporate Power, and Structural Poverty''. Brooklyn, NY:Minor Compositions/Autonomedia</ref><ref>"It introduces an eye-opening approach to radical social thought, rooted equally in libertarian socialism and market anarchism." Chartier, Gary; Johnson, Charles W. (2011). ''Markets Not Capitalism: Individualist Anarchism Against Bosses, Inequality, Corporate Power, and Structural Poverty''. Brooklyn, NY: Minor Compositions/Autonomedia. p. back cover.</ref><ref>"But there has always been a market-oriented strand of libertarian socialism that emphasizes voluntary cooperation between producers. And markets, properly understood, have always been about cooperation. As a commenter at Reason magazine's Hit&Run blog, remarking on [[Jesse Walker]]'s link to the Kelly article, put it: "every trade is a cooperative act." In fact, it's a fairly common observation among market anarchists that genuinely free markets have the most legitimate claim to the label "socialism." [http://c4ss.org/content/670 "Socialism: A Perfectly Good Word Rehabilitated"] {{Webarchive|url=https://web.archive.org/web/20160310111716/https://c4ss.org/content/670 |date=2016-03-10 }} by [[Kevin Carson]] at website of Center for a Stateless Society.</ref> Critics of ''laissez-faire'' as commonly understood argue that a truly ''laissez-faire'' system would be [[anti-capitalist]] and [[Libertarian socialism|socialist]].<ref>Nick Manley, [http://c4ss.org/content/27009 "Brief Introduction To Left-Wing Laissez Faire Economic Theory: Part One"] {{Webarchive|url=https://web.archive.org/web/20210818131348/http://c4ss.org/content/27009 |date=2021-08-18 }}.</ref><ref>Nick Manley, [https://c4ss.org/content/27062 "Brief Introduction To Left-Wing Laissez Faire Economic Theory: Part Two"] {{Webarchive|url=https://web.archive.org/web/20210516192528/https://c4ss.org/content/27062 |date=2021-05-16 }}.</ref> American [[individualist anarchists]] such as [[Benjamin Tucker]] saw themselves as economic free-market socialists and political individualists while arguing that their "anarchistic socialism" or "individual anarchism" was "consistent [[Manchesterism]]".<ref>Tucker, Benjamin (1926). ''Individual Liberty: Selections from the Writings of Benjamin R. Tucker''. New York: Vanguard Press. pp. 1–19.</ref>

=== Socialism ===
{{main|Socialism}}
{{See also|Socialist economics}}
Various forms of [[socialism]] based on free markets have existed since the 19th century. Early notable socialist proponents of free markets include [[Pierre-Joseph Proudhon]], [[Benjamin Tucker]] and the [[Ricardian socialist]]s. These economists believed that genuinely free markets and [[voluntary exchange]] could not exist within the [[Exploitation (Marxism)|exploitative]] conditions of [[Capitalist mode of production (Marxist theory)|capitalism]]. These proposals ranged from various forms of [[worker cooperative]]s operating in a free-market economy such as the [[Mutualism (economic theory)|mutualist]] system proposed by Proudhon, to state-owned enterprises operating in unregulated and open markets. These models of socialism are not to be confused with other forms of market socialism (e.g. the [[Lange model]]) where publicly owned enterprises are coordinated by various degrees of [[economic planning]], or where capital good prices are determined through marginal cost pricing.

Advocates of free-market socialism such as [[Jaroslav Vanek]] argue that genuinely free markets are not possible under conditions of private ownership of productive property. Instead, he contends that the class differences and inequalities in income and power that result from private ownership enable the interests of the dominant class to skew the market to their favor, either in the form of monopoly and market power, or by utilizing their wealth and resources to legislate government policies that benefit their specific business interests. Additionally, Vanek states that workers in a socialist economy based on cooperative and self-managed enterprises have stronger incentives to maximize productivity because they would receive a share of the profits (based on the overall performance of their enterprise) in addition to receiving their fixed wage or salary. The stronger incentives to maximize productivity that he conceives as possible in a socialist economy based on cooperative and self-managed enterprises might be accomplished in a free-market economy if [[employee-owned companies]] were the norm as envisioned by various thinkers including [[Louis O. Kelso]] and [[James S. Albus]].<ref>[http://www.ru.org/index.php/30-economics/357-cooperative-economics-an-interview-with-jaroslav-vanek "Cooperative Economics: An Interview with Jaroslav Vanek"] {{Webarchive|url=https://web.archive.org/web/20210817073532/http://www.ru.org/index.php/30-economics/357-cooperative-economics-an-interview-with-jaroslav-vanek |date=2021-08-17 }}. Interview by Albert Perkins. Retrieved March 17, 2011.</ref>

Socialists also assert that [[free-market capitalism]] leads to an excessively skewed distributions of income and economic instabilities which in turn leads to social instability. Corrective measures in the form of [[social welfare]], re-distributive taxation and regulatory measures and their associated administrative costs which are required create agency costs for society. These costs would not be required in a self-managed socialist economy.<ref name="The Political Economy of Socialism 1982. pp. 197–198">''The Political Economy of Socialism'', by Horvat, Branko (1982), pp. 197–198.</ref>

Criticism of market socialism comes from two major directions. Economists [[Friedrich Hayek]] and [[George Stigler]] argued that socialism as a theory is not conducive to democratic systems<ref>{{Cite journal |last=Hayek |first=F. |date=1949-03-01 |title=The Intellectuals and Socialism |url=https://chicagounbound.uchicago.edu/uclrev/vol16/iss3/7 |journal=University of Chicago Law Review |volume=16 |issue=3 |pages=417–433 |doi=10.2307/1597903 |jstor=1597903 |issn=0041-9494 |access-date=2022-10-27 |archive-date=2022-10-27 |archive-url=https://web.archive.org/web/20221027052633/https://chicagounbound.uchicago.edu/uclrev/vol16/iss3/7/ |url-status=live }}</ref> and even the most benevolent state would face serious implementation problems.<ref>{{Cite journal |last=Stigler |first=George J. |date=1992 |title=Law or Economics? |url=https://www.jstor.org/stable/725548 |journal=The Journal of Law & Economics |volume=35 |issue=2 |pages=455–468 |doi=10.1086/467262 |jstor=725548 |s2cid=154114758 |issn=0022-2186 |access-date=2022-10-27 |archive-date=2022-10-27 |archive-url=https://web.archive.org/web/20221027052632/https://www.jstor.org/stable/725548 |url-status=live }}</ref>

More modern criticism of socialism and [[market socialism]] implies that even in a democratic system, socialism cannot reach the desired efficient outcome. This argument holds that democratic majority rule becomes detrimental to enterprises and industries, and that the formation of [[Special interest group|interest groups]] distorts the [[optimal market outcome]].<ref>{{Cite journal |last1=Shleifer |first1=Andrei |last2=Vishny |first2=Robert W |date=1994 |title=Politics of Market Socialism |url=https://scholar.harvard.edu/files/shleifer/files/politics_market_socialism.pdf |archive-url=https://web.archive.org/web/20140202181443/http://scholar.harvard.edu/files/shleifer/files/politics_market_socialism.pdf |archive-date=2014-02-02 |url-status=live |journal=Journal of Economic Perspectives |volume=8 |issue=2 |pages=165–176|doi=10.1257/jep.8.2.165 |s2cid=152437398 }}</ref>