There are many different definitions of a market economy, some of which allow for government intervention. In a laissez faire free market economy, the government plays no role in economic decision-making. Many would consider the United States to be a market economy, despite its heavy levels of government control and regulation.

In a certain sense, a government can intervene in a market economy up to the point that it is no longer considered a market economy. Elements of capitalism still exist as long as private individuals are allowed to own property and profit from its use.

Types of Economic Systems

Economic systems are divided into three broad categories: free market, mixed and command. The determining factor comes down to who owns and controls property and the factors of production. In a free market economy, private individuals or groups are in control. The government is in control in a command economy. Mixed economies have elements of both. Most economies in the world today are mixed, though some are command.

An example of a command economy would be communist North Korea. The North Korean government owns and controls all property, production decisions and allocation of resources. The old Soviet Union was also a command economy. These cannot be considered market economies.

The purest free-market economy would conceivably lack a monopolistic government and coercive taxation. Historical evidence struggles to come up with concrete examples of a government-less free market systems. The closest well-documented examples in modern history would be Hong Kong in the 1950s and the U.S. during the 19th century (excluding the Civil War period).

Clearly, even the most free market economies by historical standards have some level of government influence. Some libertarian and free-market proponents, known as minarchists, suggest that a true market economy would only have three government functions: courts, police and military.

  1. What are the advantages and disadvantages of a command economy?

    Learn about the basic tenets of a command economy and what its inherent advantages and disadvantages are versus a free market ... Read Answer >>
  2. What are some advantages of a market economy over other types of economies?

    Learn what a market economy is, the main assumption behind a market economy and some important advantages it has over other ... Read Answer >>
  3. Is the United States a Market Economy or a Mixed Economy?

    The United States is a mixed economy, it combines elements of a true free market economy with governmental, economic controls. Read Answer >>
  4. What goods and services do command economies produce?

    Learn about command economies, how they operate, how they handle surplus production and unemployment, and why they fail. Read Answer >>
  5. What are some common features of a mixed economic system?

    Look at a brief overview of the defining features of mixed economies and its perceived advantages and disadvantages Read Answer >>
  6. How does capitalism work in a mixed economy?

    Read about how the forces of capitalism change in a mixed economy, and why governments intervene in voluntary exchanges to ... Read Answer >>
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