A capitalist economy relies on free-markets to determine, price, incomes, wealth and distribution of goods. A socialist economic system is characterised by greater government intervention to re-allocate resources in a more egalitarian way.

A market economy has freedom of choice and free enterprise. Private entrepreneurs are free to get and use resources and use them to produce goods and services. They are free to sell these goods and services in markets of their choice. Competition is another important characteristic of a market economy.

How market economies work

• Freedom of choice.
• Motive of self-interest.
• Limited government.
• Competition.
• Private property.
• System of markets and prices.

It is possible to have a capitalist economy without complete free enterprise, and possible to have a free market without capitalism. Any economy is capitalist as long as private individuals control the factors of production.

By assuming the autonomy of the individual, capitalism grants dignity to the poor. By affirming people’s right to their own labor, regardless of their position on the economic ladder, capitalism offers the poor the means to improve their own well-being.

The lack of government control allows free market economies a wide range of freedoms, but these also come with some distinct drawbacks.

• Advantage: Absence of Red Tape.
• Advantage: Freedom to Innovate.
• Advantage: Customers Drive Choices.
• Disadvantage: Limited Product Ranges.
• Disadvantage: Dangers of Profit Motive.

The United States is considered the world’s premier free-market economy. Its economic output is greater than any other country that has a free market. 1 The U.S. free market depends on capitalism to thrive. The law of demand and supply sets prices and distributes goods and services.

A free market economy is characterized by the following:

• Private ownership of resources.
• Thriving financial markets.
• Freedom to participate.
• Freedom to innovate.
• Customers drive choices.
• Dangers of profit motives.
• Market failures.

What are the six major characteristics of a pure market economy? Private property, competition, profit incentive, united role of government, freedom of enterprise, and freedom of choice.

Free-market ideology claims that to help society, we must help ourselves. If we all act selfishly, the thinking goes, the invisible hand will make everyone better off. Free-market ideology, I propose, is a double lie.

Yes, over the last two centuries free markets and globalization have had a positive effect on aggregate economic growth, contributing to better living conditions and the reduction of extreme poverty across the world.