Free Market Economy
By the very nature of a free country like the United States, one would come to think that we, of all countries, would have a free market economy. However, due to various government influences, such as the prohibition of alcohol in 1920, the United States has become a mixed market economy. Allow me to explain what a free market economy is and how it works, and then compare this to a mixed market economy.
Free Market Economy, by definition, is a system of economy in which there is no government influence in the sale and production of goods and services("Free Market." Wikipedia. Wikimedia Foundation, 12 Apr. 2013. Web. 06 Dec. 2013). For example, if I wanted to sell dead leaves from my lawn, I would be able to do that. If I wanted to buy a 10-pound bag of flour, I could do that. This is all legally of course; the law can't force you to do or not do these things, but the store may not allow it. Free market economy is a characteristic of a capitalism form of government, where the primary goal is to make a profit, be successful, and win up against your competition("Capitalism." Wikipedia. Wikimedia Foundation, 12 June 2013. Web. 05 Dec. 2013). This makes sense because in free market economy, the government cannot control what is produced or consumed, so everyone should be able to make a profit the way they choose. This type of economy might be considered by some to be a parallel to a direct democracy, where total power resides with the people, the government has little influence, and the majority rules.
Supply and Demand
The idea of supply and demand has been around almost as long as people have been selling things. The basic idea of supply and demand is that, when demand goes up, supply goes down, and when demand goes down, supply goes up("Economic Basics: Supply And Demand Sophia. N.p., n.d. Web. 10 Dec. 2013) . The idea of Free Market is that supply and demand is influenced by the people and the people only. This process has a huge effect in the sale and prices of goods and services. If my business is making 100 cookies per hour, but people are only buying them at 90 cookies per hour, I will have a surplus of 10 cookies per hour, so the price goes down, to get people to buy more. If people then start buying them at 110 cookies per hour, then my supply goes down and I have to raise the price so that people will buy less.
Over time, the United States has gradually become a Mixed Market Economy. What this means is that most of all marketing decisions are made by the people, but the government does impose afew limits and regulations of what can be sold or bought. Like I said before, the Prohibition of Alcoholic Beverages in 1920 is a good example of how the government influences with the sale and production of goods in the United States. There is a long list of things that you can’t sell in the US such as: illegal and prescription drugs, endangered animals, highly toxic chemicals, and several other things. However, the United States government does not restrict these things just because they can. They restrict these items for the safety of the citizens. If the United States was a total free market economy, this would make us a pretty unsafe country with all the harmful and dangerous substances floating around.
The main way that the government influences with the sale and production of goods and services is with taxes. If the government believes that a certain item is more essential than another, they will lower and raise taxes accordingly. The reason the government started doing this was to try to get businesses to sell the things that the government felt that the country needed more at that time, such as wheat in the 1800’s. Also, in order to create a business in the United States, you have to go through a lot of paperwork and legal stuff. This influence of the government changes our type of government to a mixed market economy.
As you can clearly see, through various government influences over time, the United States has become a mixed market economy. However, like a direct democracy, free market economies do not last very long on their own because it could potentially be unsafe because people may not know what exactly they are buying. Overall, the government does not influence the market that much and that is important to our democratic society. If we did not have even some sort of free market economy, we could not be considered too be much of democracy because the government would be controlling every aspect of our trade.