Free Market – Definition, History, Functions, Characteristics, Strengths, Disadvantages, Impact, Objectives, Experts

Definition of Free Market

A free market is a market where sellers and buyers have complete freedom in deciding trade and business issues. It can also be said, in a free market economic system, sellers and buyers really have complete freedom in carrying out their trading activities.

But even though the name is a free market, it is not really free, there are certain rules that must be obeyed by both parties. There is also another definition of a free market, namely a process whereby economic activities are carried out in the absence of artificial regulations or barriers imposed by the government in trade between individuals and companies located in different countries.

In the absence of an obstacle imposed by the government in carrying out trade, of course there is a freedom of rules, methods and also the types of goods sold. Thus, a very tight trade competition emerged, both between individuals and companies located in different countries, namely what we know as exports and imports or the process of selling and buying between countries.

Free Market History

The current era of globalization has become a reality that must be faced by every country, including Indonesia. The process of interaction and mutual influence, even the friction of interests between nations, occurs very quickly and involves increasingly complex problems.

State territorial boundaries are now no longer a barrier to the interests of each country. In the economic and political fields, competition such as the free market is getting tougher, making it more difficult for poor countries to position themselves.

Free trade is a process of economic activity carried out in the absence of artificial barriers (barriers imposed by the government) in trade between individuals and companies located in different countries.

In the absence of barriers imposed by the government in carrying out trade, of course, there is freedom of rules, methods, and types of goods sold. Thus, tight trade competition has emerged, both between individuals and companies located in different countries, namely what we know as exports and imports or the process of buying and selling between countries.

As a member of the world community, Indonesia certainly cannot and will not isolate itself from international relations, especially in free trade. Even if isolated, of course, Indonesia will not be able to meet all its own needs. This means, that in international relations there is a relationship and dependence between one country and another.

In this regard, of course, puts global pressure on developing countries such as Indonesia in particular. Which will have a positive or negative effect or impact. And from these impacts, an anticipation is needed so that the state of the Indonesian political economy experiences stability and does not experience further setbacks.

Therefore, the author will discuss and examine the impacts of free trade on the political economy and how to anticipate them, where some of these anticipatory methods or efforts have been realized to be implemented and some have not, in a paper entitled “Free Markets”.

Definition of Free Market According to Some Experts

1. Adam Smith

The free market is a place to accommodate something that is produced by everyone who comes from the understanding of freedom provided to economic actors to carry out economic activities according to their wishes without any interference from the government.

2. David Richard

Free trade is a foreign trade system in which each country carries out its trading business without any obstacles from the country itself.

Free Market Functions

The free market has a function in the country’s economy, among them as follows:

1. Serves to provide information and is also more precise about prices and also the number of requests for goods.
2. Serves to provide incentives to entrepreneurs so they can develop their businesses.
3. Serves to provide incentives to entrepreneurs so they can get modern skills.
4. Serves to provide and also stimulates the use of goods and production factors in a more efficient way.
5. Function to give full freedom to the community so that they can carry out economic activities.

Free Market Characteristics

1. Sources of production and tools can be owned and managed by a person, community, or company.
2. There is a division of classes in society, namely the working class and the capital owner class.
3. There is a competition between entrepreneurs to get optimal or maximum profit (profit motive).
4. There is no interference from the government in the market. Then intervention from the state is limited to various things that cannot be managed by the private sector but are a condition for the implementation of a free market, for example state security.

Advantages And Disadvantages Of The Free Market

Advantages of Free Market Economic System

1. Everyone is free to have wealth and production resources.
2. Creativity and initiative from the community can be developed.
3. The existence of a competition between producers which resulted in the creation of various kinds of quality products.
4. High efficiency and effectiveness because its actions are always on the basis of economic principles.

Lack of Free Market Economic System

1. The occurrence of an exploitation of people whose economy is weak by those who are economically strong.
2. Can lead to a monopoly that can harm society.
3. The emergence of economic disparities between strong economies and weak economies.
4. There can be economic instability.

Free Market Impact

However, in a free market system, there will be some bad effects or bad consequences. This impact requires government intervention to overcome the existing bad impacts. These adverse effects are as follows:

1. If in a free market system, the government is completely “hands-off” then unlimited freedom will exist. This will oppress the weak economic group, especially if it occurs in basic commodities.

2. Economic activity is unstable and there is no certainty. In a perfectly free market system without government intervention, prosperity can be achieved quickly but can immediately experience serious decline. This is done to change the price of goods and services so that producers and market owners can increase their profits many times over.

3. The system of free market mechanisms will lead to monopoly power which can result in a loss for all parties except the monopoly party. However, the little people will experience difficulties.

4. In providing several types of goods simultaneously, the free market mechanism cannot perform efficiently. The activities of consumers and producers will result in externalities that can be good or bad but still detrimental.

Free Market Destination

The aim of the free market at first glance is indeed positive, namely so that the economy of a country can be more advanced and develop. Various studies show that world trade will increase with the enactment of a free market system. An increase in trade volume means an increase in production, which means an increase in employment and ultimately an increase in income and welfare.

The free market is wrapped with the aim of moving the wheels of the economy in order to increase economic growth and at the same time protect the interests of workers and small groups of people because the state in a mercantilism system with market intervention actually harms society, said Adam Smith, so in a free market system, government intervention is minimized as much as possible.

Strictly speaking, for the initiators of the free market, the free market concept is a panacea for developed countries to improve the welfare of mankind as a whole, especially the developed countries themselves.

Developed countries that are already full of industry, clearly need market land that does not have many barriers. No matter how efficient the industrialized countries are, either because of high technology or good management systems, if they are faced with protection policies, they are bound to be distraught. Their products will be more expensive in the hands of consumers. So, it is not surprising that their voices are so strong and persistent in fighting for the era of the free market.

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