Free enterprise is a concept that promotes a lack of government interference in a society’s economic activities, allowing market participants to act in their own interests until an economic equilibrium is reached. Adam Smith’s book, The Wealth of Nations, discusses the “invisible hand of the market” and the efficiency it creates. However, some argue that government regulation is necessary to prevent abuse and side effects such as pollution.
Free enterprise, which is a concept that forms the basis for free market economies, enforces a lack of regulation and other government interference in a society’s economic machinations. Free enterprise considers the interactions between the laws of demand and those of demand and how they will lead to a “competitive market” with efficient pricing and productivity maximization if market participants are left to their own devices. This is a famous concept articulated by Adam Smith in his 1776 book entitled The Wealth of Nations. There are competing ideologies to those of free enterprise which argue that government regulation is needed to prevent the abuse of freedom within the marketplace.
The basis of free enterprise is market participants: sellers and buyers. The laws of supply and demand establish that if left free from interference, participants in a free market will act in defense of their individual interests, buying and selling goods and services, until an economic equilibrium is reached. Economic equilibrium is defined as the point at which the price of a good or service is fixed at a point where the supply of the good or service will satisfy the demand in the market. Without unequal supply or demand, the market will have reached its equilibrium and will operate at the maximum level of efficiency.
In 1776, Adam Smith wrote a book called The Wealth of Nations in which free enterprise was a central theme, even though the term art had not yet been invented. Smith writes at length about the “invisible hand of the market,” which is a mechanism that automatically adjusts the free market to facilitate maximum efficiency through market participants seeking to satisfy their own interests. Simply through human predisposition to seek the best and most efficient way, the invisible hand will lead to mutually beneficial cooperation within the market.
The other side of this argument is that market regulation is necessary to prevent the abuse of freedom within the market and many side effects. For example, the government promotes labor laws to prevent the abuse of lower-level workers by entrepreneurs who exert a lot of energy in the market. Additionally, there are side effects that are often overlooked in the free market, such as pollution, that need to be regulated and may result in the most efficient way of doing business being banned. Any outside intervention, be it laws, regulations or subsidies, goes against the principles of free enterprise. The need for such intervention is where most of the economic debates lie.
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