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Expository Essay on Principles of the Free Market

The main idea on which the whole free market economics was formulated by Adam Smith in his Wealth of Nations: it is the principle of the so-called “invisible hand”, according to which the people when nobody controls their economic behavior, tend to achieve much better results when compared to the situation when some kind of control is imposed on them.

It is much more profitable for the state to let people freely cooperate with each other, because in this way their cooperation will organize, control and direct itself, leading to maximum output and satisfaction of the needs of all participants. The usual example of how this system works is a classroom with a certain number of chairs that is entered by a group of students. Every student chooses a chair according to his liking, and all of them end up sitting here and there, although nobody controlled this process. If somebody tried, it would lead to students sitting where they don’t want to sit and all of them wasting time.

Another idea behind the free market is the credibility of information. When the price of a commodity changes, it means that either demand has increased or supply has decreased; if there is a law defining the price of a commodity, there is no way to get any information from it. Moreover, the fixed price leads to the appearance of alternative prices: i.e., what a seller cannot get in the form of money, he would get somehow, by selling preferably to his friends, or receiving favors and suchlike, which means that the principle of market continues to work even if we try to stifle it, although in other forms.

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