Difference Between Similar Terms and Objects

Difference Between Capitalism and Free market

Capitalism vs Free market

In simple terms, Capitalism is defined as an economic environment comprising basically of two sets of people, owners and workers. An essential feature of this kind of economic system is private ownership. The owner has full control of the means of production and profits are due to him. Production is determined by the free market, as well as the prices for goods and services, plus distribution.

A free market is one that is not regulated by government, but rather driven by demand and supply. The free market theory contends that an ideal free market is where entities are exchanged voluntarily after a seller and buyer mutually agree on a price, without any intervention from external influences.

Capitalism and Free market economy are somewhat entwined as one is an integral part of the other. However, in their true definitions they differ .While capitalism refers more to the production of wealth, the term free market dwells more on the exchange of wealth in various methods. Capital is an essential basic element for both capitalism and free market economies. However, free competition is not an essential element of capitalism but of ‘free markets’. This is because in capitalism, capital owners have a lot of dominance over the means of production and as such may yield unfair influence.

It is basic knowledge that land, labor and capital were largely considered to be the classic elements of production but with the growth of the industrial age, the importance of capital became a big determining factor in production because industrial capital gave increased productivity. It was thus feared that inevitably, capital owners would become so powerful that they would be able to profit from the unfair exchange terms they impose.

Free markets do not define capitalism, although they are an essential part of it. Because there’s minimal or no influence at all in a free market economy, capital is employed to optimal use. Whereas in capitalism, the free market will determine the price. The concentration of capital and means of production in a handful of individuals or companies distorts the supply side of the free market model.

Summary
Free market is mainly concerned with wealth exchange while capitalism leans more on wealth creation.
Free markets are a key component of capitalism although they do not fully define what capitalism is.
A free market is driven by ‘demand and supply’ leading to free competition without interference while in capitalism, capital owners can at times influence the terms of trade.


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5 Comments

  1. A free market can exist in the trade of slave produced goods. Yet capitalism cannot include slavery. This article fails to include in the description of Capitalism, the prerequisite of voluntary exchange. A free market is a prerequisite of Capitalism. Wouldn’t it be nice to actually have one? I am for Liberty.

    • Wrong. A “Free Market” includes both the free exchange of capital plus labor.

      By the way, there have been far more “White Slaves” than “Black Slaves”, regardless of the lies and deceptions as told by the Jew controlled Mass Media and Marxist political correctness.

  2. Who wrote this. It’s blatantly wrong.

    “A free market is one that is not regulated by government….” is not true. A well regulated free market is not an oxymoron.

    A free market must have regulation against monopolies, collusion, and the flow of pricing information in the market. Think SEC and stocks, highly regulated to produce a free market where there is price transparency and suppressed collusion.

    Also, free markets are not essential in capitalism. Fixed markets or collusion can exist in capitalism.

    This article definitely gives an incorrect perception of these ideas due to a lack of understanding.

    • A well regulated market is not a free market, it’s a regulated one. How can something be free if it’s rules are manipulated by one group of people?

      • You are wrong. A free market requires maximum freedom between actors. Regulation is not set in place to require behavior, but rather ensure that the behavior of one actor does not diminish the freedoms of others.

        Capitalism and its tendency to concentrate market power in the hands of increasingly few players is much more of a threat to a free market than regulations that prevent misuse of market power.

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