An economic ideal dependent on free choice, private property, and the minimization of government intervention.
Synonymous with laissez-faire, a French term meaning “allow to act,” the concept of the free market assumes that the collective, yet independent, decisions of individual buyers and sellers will determine the most efficient and just allocation of resources for a society. Free markets operate through freedom of choice and private ownership of the means of production and consumption: Owners of private property freely determine what is produced, how it is produced, who consumes what is produced, and at what price. Advocates of the free market consider this system not only just (because buyers and sellers exchange property at freely negotiated prices) but also economically efficient (because sellers meet buyer’s needs by producing only demanded goods, services, and resources). The free market thus creates efficiency by encouraging a conflict between self-interested buyers and sellers. For instance, sellers compete to offer and produce goods, services, and resources for buyers who seek to obtain them at the lowest cost. Moreover, a free-market system functions most effectively when decisions remain decentralized and coordinated through markets rather than the government; government should be limited to maintaining the legal system and protecting property rights.
Although the United States has never had a completely free market, its economy remains free of government intervention compared with most other nations. Still, federal and state governments since the American Revolution have variously tried to regulate and encourage economic activity in hopes of improving economic justice or efficiency. For example, beginning in 1816, Secretary of the Treasury Alexander Hamilton tried to shield American businesses by promoting exports and establishing tariffs to protect native industries (textile mills, for example) and other manufacturers. On the other hand, taxation, immigration restriction, and fetters on domestic trade in the early American republic remained relatively minimal. Many Americans regard the nineteenth century as the height of laissez-faire or free-market economics. Yet, during this period, both the federal and state governments often directly interfered with markets. Governments invested heavily in transportation infrastructure and internal improvements, for example, the building of the Erie Canal in 1825. Moreover, the federal government temporarily erected protective tariffs and encouraged economic growth by distributing nearly 300 million acres of land to citizens and businesses in the form of land grants. Land grants occurred primarily between 1861 and 1900, although some land grants continued until 1976 in remote areas such as Alaska. In the late nineteenth and early twentieth centuries, both federal and state governments hoped to regulate perceived economic injustices and inefficiencies by establishing sometimes competing and overlapping regulatory laws and agencies, such as the Interstate Commerce Commission (1887), the Sherman Anti-Trust Act (1890), the Federal Trade Commission (1914), and the Federal Reserve Act (1913). In the 1930s, the federal government’s expansive New Deal used the crisis of the Great Depression to justify a great number of programs that variously tried to impose greater market efficiencies; protect various interest groups such as farmers, unions, and businesses; and redistribute wealth. The high point of federal involvement in the economy occurred during the 1960s with President Lyndon B. Johnson’s Great Society, which provided for distribution of wealth through such programs as Medicaid, food stamps, Aid to Families with Dependent Children, and Head Start. Since then, Americans have increasingly debated whether the free market or government provides the more just and efficient way to order the economy. As a rule, Republicans prefer less government intervention and Democrats push for more government programs.
