Free Economy One

Free Economy One

Free Economy, one in which the main economic operations and processes are conducted by private enterprise free of direct govern-mental control and activity. It applies in varying degree to many industrial countries in the mid twentieth century. It is also of basic analytical importance for economic theory.

In most western industrial countries there has been a trend in recent centuries towards diminished government al control of economic activity. Gradually feudal and pre-industrial conditions were largely replaced by freely competitive capitalism. In more recent times there has been a general increase in the economic functions of government . Most western countries have a 'mixed' free enterprise economic system comprising both public and private institutions. In the U.K. there are nationalized industries as well as private enterprise; and there are tariffs and controls on imports but no restraints on internal trade. in the U.S.A.. U.K., Germany and other countries the economy is basically free, the private ownership of capital, competition and free consumer choice working in a framework of laws and institutions relating to property, contract, company organization and monopoly that operate broadly to maintain freedom for producers, consumers, workers, investors and others to exchange goods and services in markets without detailed supervision or direction by government s.

In economic theory Adam Smith was the first to analyse the working and characteristics of a free economy. In The Wealth of Nations he argued that every individual knows best how to employ his capital so as to maximize its earnings. His intention is not generally to promote public interest but his own security and gain; but he is led by an 'invisible hand' to promote an end which was no part of his original intention. By pursuing his own interest he promotes that of society more effectively than when he tries consciously to promote it. This type of argument has informed most of the theories propounded since the eighteenth century in defence of the free economy.

The concept of the completely free economy is frequently used as a tool in analytical economics. The theoretical model of a free economy assumes that there is a division of labour and private ownership of the means of production; that there is consequently a market exchange of goods and services not obstructed by arbitrary power or sectional interest, it also assumes that the Government tries to preserve the free economy. The economy is then free there is no interference by external factors with processes of trade and production. Starting from these assumptions, modern economic theory has attempted to analyse the working of a completely free economy.

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Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this site is therefore not a final statement of economic doctrine.

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