What Exactly is a Free Market?

What do we mean by “free markets” or even “capitalism” for that matter? It’s probably not what you think. For many people, these terms conjure images of Wall Street bankers and multinational corporations. Perhaps they also bring to mind small businesses and scrappy startups. All of those are part of free market capitalism, but they’re only one piece of the puzzle.

To understand the whole picture, you need to start with a single individual.

Start with yourself. You have hopes and dreams, talents and passions. You want to build a life that brings you and the ones you love happiness and excitement even as you achieve independence and stability. Ultimately, you want to build a life with meaning, filled with purpose. Everyone of us wants that for ourselves. And for each one of us, that life looks as unique and diverse as we all are. For all the things we share as a community and a society, there is no getting around the fact that each of us values different things at different times in different ways. One person’s trash is another person’s treasure. No one can know you as well as you know yourself. The same is true for every one of us.

So here you are, a unique individual, out in the world trying to figure out life. Doing it the “free market” way means following three pretty simple rules.

The first and most important rule: don’t hurt other people or steal their stuff. Human history is filled with plundering tyrants hurting other people and stealing their stuff. That’s not what free markets are about. In a free market, every transaction should be voluntary and based on mutual consent. There’s nothing “free market” about slavery or subjugation, which is why some of the original promoters of free markets, people like Adam Smith and John Stuart Mill, were also passionate abolitionists. Free markets aren’t about money, they’re about replacing violence with voluntary exchange.

The second rule is simple: keep your word. Free markets are about people reaching agreements with each other to work, trade or invest with mutual consent. It’s a system based on trust, from a handshake agreement to a formal contract. At the heart of free markets is human relationships and respect for each other. Private property is built on the promises you make in peacefully creating it or acquiring it from someone else. Corporations, nonprofits and other organizations in a free market are nothing more than the collection of agreements between all of the people involved in the enterprise. They can’t exist without the consent of the people that create them and contribute to them.

The final rule, assuming you’ve followed the first two: no permission required. Put another way, you’re free to try, you’re free to buy, and you’re free to leave. This is the essential “freedom” in free markets. If you’ve got an idea for a new company, a new medicine, a new school or new way to deliver the mail, nobody has the right to stop you. You don’t need to seek permission from the king, the president or post office. This is also the key to holding other people accountable. If your work isn’t up to snuff, your workplace is oppressive, your prices are too high or your product isn’t good, your competitors and your customers aren’t going to let you get away with it for very long.

Those are the rules of the free market: so long as you don’t hurt other people or steal their stuff, and so long as you keep your word, you’re free to do whatever you want. You’re free to work for whoever you want. You’re free to love and marry whoever you want. You’re free to worship whoever or whatever you want. You’re free to trade with whoever you want.

And with this freedom, you’re empowered to take on any problem you want to. Free markets destroy the problems in our society because they empower free people to destroy those problems and offer new solutions. Free markets empower everyone, but especially underdogs, upstarts and immigrants to take on the status quo precisely because they don’t need to seek permission first. Free markets don’t respect traditions unless those traditions are maintained peacefully. Free markets are the most radical, revolutionary force for change humanity has ever discovered. And the reason is simple. Free markets are nothing more and nothing less than each of us and all of us having the right to try our best at improving everything for each other.