So what are free markets?
World-renowned economist Murray N. Rothbard has this explanation:
“Free market” is a summary term for an array of exchanges that take place in society. Each exchange is undertaken as a voluntary agreement between two people…Thus, when I buy a newspaper from a newsdealer for fifty cents, the newsdealer and I exchange two commodities: I give up fifty cents, and the newsdealer gives up the newspaper.
He goes on to state:
Trade, or exchange, is engaged in precisely because both parties benefit; if they did not expect to gain, they would not agree to the exchange.
The Library of Economics and Liberty has Rothbard’s full definition of the Free Market.
Essentially, a free market is a state where people are free to exchange with each other without interference from the government in the form of regulations, taxation, occupational licensing, quotas, price-fixing, trade barriers and other forms of intervention.
As mentioned in a previous section, the Cato Institute’s Economic Freedom of the World Report for 2015 found that markets have been becoming freer around the world since 1980. It also found that almost without exception, the freer markets are, the more prosperous the country is.
This is because free markets give entrepreneurs the latitude to invent new products, start new businesses and discover better ways of doing things. From entrepreneurs who own businesses worth billions of dollars, to someone who runs a local pizza shop, to someone selling bananas on the street of a developing country, free markets unleash entrepreneurship.
Click here for the Library of Economics and Liberty’s full definition of entrepreneurship.
The developing world is full of entrepreneurs and the spirit of entrepreneurship. Over 400 million people in developing countries are owners or managers of new firms. For more inspirational photos of entrepreneurs in the developing world like the one below, click here.
This developing world entrepreneur has trained birds to fish for him providing himself and his family
with a steady income.
Given the link between free markets, entrepreneurship and prosperity, it is imperative that markets in the developing world become freer. Unfortunately, many markets in developing countries are still subject to quotas, price-fixing, licensing and other forms of government intervention. Whilst these are often intended to help poor people, they usually make things worse. This IPA article published in the Cape Times in South Africa talks about how the South African government’s public housing and land re-distribution schemes have only succeeded in keeping poor people poor.
One crucial way that markets can become freer in the developing world is to reduce trade barriers between developing nations and between developing nations and the developed world. According to Danish economist Bjorn Lomborg, eradicating trade barriers would lift 160 million people in the developing world out of extreme poverty by 2030.
But the benefits of free markets are not just increased material well-being. Free markets make people more tolerant. A study by researcher Swaminathan S. Anklesaria Aiyar found that freer markets in India had struck a blow against India’s discriminatory caste system.