These days when someone extols the virtues of the free market we typically assume they have in mind a marketplace free of government regulation. The term, however, once focused more on evil doers in the private sector, typically aristocrats, land owners, and capitalists.
Dating back to Biblical times it has been recognized that some forms of economic activity are “bad” whereas others are “good.” The classical economists — Smith, Ricardo, Marx and their peers — tried to explain how this could be. To aid the explanation, they invented the concept of economic value. They sought to establish value as an objective reality to which reason could be applied.
Thus, for the classical economists some economic processes subtracted value from society whereas others added value. A market was said to be free when it carried no subtractive burdens and could therefore add value to society, purely, just as markets which conform to the transcendent laws of Nature should be expected to do. This approach ran into a snag, however, when careful analysis revealed that no such thing as objective value could be defined. There was a brief attempt by the neoclassical economists to solve the problem by inventing a scientific unit of value called the util, short for utility, but it soon became obvious that utils don’t exist in nature.
So, what of “good” and “bad” economic activity? The distinction remains intuitively compelling today but there is still no scientifically respectable basis for it. Some attempts to establish the desired foundation have been made. In 2011, for example, the United Nations adopted standards of happiness and well being to be used by member states as an economic indicator. Other economists — noting there is an observable correlation between energy consumption and prosperity — have tried to establish a BTU basis for economic value. Projects like these have, as yet, borne little fruit.
In the shadow of this history and predicament, the concept of a free market can be somewhat difficult to convey. Ideally, a free market is a type of market, primarily one that is not regulated, controlled or manipulated against the wishes of the participants. Some definitions help to clarify.
A market is a social domain in which people exchange goods.
A good is any object or thing, tangible or intangible, ownership of which can be transferred from one person to another.
A market in which exchanges are voluntary is called a free market. Voluntary has three main meanings in this context:
(1) The goods offered in the market are chosen by the offerors.
(2) The prices at which exchanges take place are chosen by the exchange participants.
(3) No one is compelled to participate (or to not participate) in any exchange.
Notice that these market freedoms can be infringed in various ways by private actors as well as by government, but that government inherently has a superior ability to preserve and protect them. For this reason, free markets are a political concept as much as an economic one. Where people are free, markets also will be free. The social benefits of free markets are really the benefits of freedom itself.