Free Enterprise

Free Enterprise

Free Enterprise, a system in which the non-human factors of production are owned privately and are used to earn profits for their owners by producing goods and services to sell directly or indirectly to consumers. The two distinctive features of free enterprise are the private ownership of property and the bearing of the risks and uncertainties of production by entrepreneurs. The system is free' from detailed state regulation and direction but is subject to a framework of laws on property, contract, sale of goods, companies, restraint of trade, patents, copyright and so on designed to create and main-thin the institutions of private property, decentralized initiative, free markets, competition and consumer choice.

Economists who advocate a system of free enterprise take the view that private ownership of property is an essential element in economic progress, contributing to the growth of output and therefore claiming a share of it. It is apparent that investment increases the productivity of the worker; without machinery, for example, the worker's output would be much less. This capital is rarely provided free and ready for use by nature; land, for example, may require improvement before it will yield the fullest results. It is essential to the growth of an economy that its full exploitation by the employment of capital should take place; although some of the extra productivity will accrue to capitalists in the form of profits, the workers will probably still be better off. Countries with the highest amount of capital equipment employed per worker tend to have the highest average standard of living. But the accumulation of capital is not automatic; for it requires action by individuals, the entrepreneurs of the free enterprise system.

The role of the individual entrepreneur within operation of the system of free enterprise has been the subject of much debate. A guiding principle of many modern theories has been the rebuttal of the Marxist estimation of the capitalist as an exploiter performing merely an historical, transitional role. The justification of the entrepreneur in most of these theories has been based on specific functions he is held to perform not historical and institutional, but 'absolute', since they would have to be performed by someone in any conceivable economic order. The main function thus isolated is that of bearing risks which would have to be borne by the community as a whole in a socialist or public enterprise economy.

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