In its purest form, free market capitalism is a society in which an open market sets prices for the sole purpose of profits. This type of society operates on the principles of supply and demand. Prices are set, and goods are bought and sold based on the demand of the people.
The Meaning of Free Market Capitalism
Free market capitalism is an idealistic model for a society that operates without intervention. Government regulation isn't necessary; the market is the solution to all ills and solves any problems. Competition, free trade and supply and demand will sort out any issues that arise. In reality, this hasn't ever really worked out. Think of the Great Recession: Without sufficient regulation, big banks and mortgage companies took advantage of consumers and damaged the entire economy. The United States operates on a revised version of the free market model, adopting its ideals while attempting to regulate and improve the model's inherent flaws.
Key Features of Free Market Capitalism
Competition: In a free market society, businesses compete for customers. This competition is supposed to inspire companies to do their best work and offer reliable products in order to secure customers.
Private ownership: In the United States, people can own their own property and their own businesses. This isn't true everywhere in the world. Owning your own property will ideally motivate you to improve it and keep it well maintained.
No price regulation: All buyers and sellers have access to the same information about pricing, creating a fair market.
Motivated by profit: Companies do not exist just to satisfy people's needs in a free market capitalist society; they exist with the primary goal of making money. If they fulfill the needs of customers while making a profit, the system works.
Minimal restrictions by the government: Pure capitalist societies would operate with no intervention from the government. The belief is that the markets, if left to their own devices, will sort themselves out based on profit and competition.
History of Free Market Capitalism
As far back as people began trading with each other, free markets were formed. Trading goods and services has been in practice for a very long time. Even before human beings had money, they engaged in trade with one another stretching back to ancient times. Along with trade, private property ownership is a key component of a free market society. While people owned property long before written history, compelling arguments in favor of a private system of ownership weren't made until the English philosopher John Locke in the 17th century.
How Free Market Capitalism Affects Your Business
Owning a business in a free market allows you to set your own prices and operate with the primary goal of making a profit. In a purely free market society, you would have no interference from the government at all. However, the United States, which is based on a free market capitalist society, does have regulations that businesses must follow. In comparison to many other countries, however, those rules are minimal.
Heather Skyler is a business journalist and editor who has written for wide variety of publications, including Newsweek.com, The New York Times and Delta's SKY magazine. She has a bachelor's degree in English from Miami University and a master's degree in writing from the University of Washington in Seattle. Before writing for a variety of publications, she taught business writing in Seattle.