Intro to free market economy

The market economy as a basic form of economic order characterizes an economy that regulates itself through the market. It results from the interplay of supply and demand.

History of the market economy

At the end of the 18th century, economists founded the market economy. They called it a system that converts individual selfishness into a social benefit. The principle of the market with its regulation by supply and demand was recognized. In the classical model of the market economy, the greatest prosperity for society is achieved by practicing economic behavior through and complete competition.

The classic theory of the market economy is closely linked to the social theory of liberalism. Liberalism is a school of thought and a way of life that advocates autonomy, responsibility and free development of the personality.

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Market economy

Private ownership of the means of production is an essential feature of the market economy. Entrepreneurs who own the means of production or rights of disposal are also called “capitalists”. You decide on the production method. The individual plans are regulated by the market, which represents the meeting of supply and demand.

From the free market economy to the social market economy

The market economy is an economic order. Often it is also referred to by other terms, such as

  • Free economy,
  • Competitive economy,
  • Transport industry,
  • Capitalism or money economy.

Main characteristics

  • The existence of a market and competition among themselves
  • Private property
  • A money-driven economy

A market economy is an economic order in which production and consumption are determined by the price freely established in the market.

Individual economic subjects decide on the provision of services and consumption.

The markets are the coordination centers, where supply and demand are matched. This form of market economy is the ideal of liberalism. In this free market economy, state intervention becomes superfluous when interests are balanced and the maximum supply of goods is automatically achieved.

However, the restriction of competition through cartels and the formation of monopolies led to crises and an unsocial distribution of power. If the system was basically affirmed, the demand for state intervention grew stronger and stronger.