The State of our Free Market Economy!

Recent trends imply a disaster for the current state of the economy. What is fundamental task for the U.S. Free Market Economy? Are there new rules or laws to play the game?

The central economic task for a society, in relation to the free market economy, is to secure cooperation among people in using what is available (when scarcity & surpluses exists) to obtain what is wanted. The ‘Rules of the Game’, according to Heyne, Boettke, & Prychitko, help facilitate the economic process, in which the rule and law and property rights are components. For example, the resolution of the competition for use of a scarce resource depends on whether property rights are well defined, well enforced, and readily transferable. What does this have to do with banks failing, businesses going under, and major Government bailouts? This means that all management decisions in a free market economy should be lawful and ethical, or the economy will not function properly. Economically, the most important feature of the rules of the game is clearly defined property rights and a rule of law that recognizes them.

Property rights are essential features of the free market economy because they encourage market coordination, rather than chaos (when imposing extensive market control); and create opportunities for net (comparative) advantage when scarcity exists. In fact, “a market economy is based upon private property rights – rights associated to specific individuals in the form of legal ownership”. They define and specify who owns what. These rights can be voluntarily traded or exchanged for similar rights to other goods and services, which is part of the economizing process when scarcity imposes constraints. Essentially, private property rights form an important part of the rules of governing most of the social interactions in which people regularly engage, and provides members of society with incentives and dependable information. In the economic way of thinking, Heyne, Boettke, & Prychitko (2003) contend that “the emergence of clearly defined and enforced property rights does encourage the effective use of already existing scarce resources… and the discovery of new resources”.

How does the scope or role of Government shape the wealth of nations? Consider that some level of government spending is necessary to ensure that the basic structures of society function smoothly enough to facilitate economic activity.

According to Adam Smith, a successful economic system is developed in a well-governed society. Private property rights and the rule of law provide an infrastructure that allows and ensures the protection of people and: (1) their future investments, (2) organization of useful projects, or (3) the initiation of other costly undertakings. The freedom to exchange reasonably secure property rights are necessary conditions for the evolution of a successful commercial society, in which people cooperate effectively in creating and using resources to serve one another’s wants, so that economic growth occurs and prevents poverty. “A rule of law recognizes private property rights, which allows the freedom to exchange and provides incentives for individuals to specialize in the activities of their comparative advantage”. This is secured by the rule of law, which encourages wealth, and prevents the subjection of people to the tyranny and exploitation of others. Therefore, a commercial society can develop successfully when there is the rule of law.