To What Extent Do You Agree That a Free Market Economy Is the Only Approach to Bringing About Economic Growth

To what extent do you agree with the view that only a free market approach to running the economy can bring about sustainable high levels of economic growth and development?

The basic economic problem is that we, as consumers, have unlimited wants and scarce resources. (Anderton, 2008, p.1) Due to this, the questions of what shall be produced, how it will be produced, and who gets the product, arise. (Sandford, 1977, p.42) Therefore, economic systems exist to allocate resources and solve these problems. There are three main economic systems, which include the free market economy, command economy and mixed economy. (Grant and Vidler, 2000, p.19) This essay will explore whether or not a free market approach to running the economy, would bring out sustainable high levels of economic growth and development.

The degree of government intervention is what distinguishes the different types of economic systems from one another. For example, a free market economy contains no government intervention, yet on the other end of the spectrum, the command economy is total government control over the market. (Grant and Vidler, 2000, p.19) The discussion of whether a free market economy can bring about economic growth can be demonstrated through illustrating the advantages and disadvantages of both extremes.

In a pure free market economy, or capitalist economy, the allocation resources is determined by consumers and producers through the forces of demand and supply. (Ferguson, 2002, p.3) In 1777, prestigious economist Adam Smith likened this process to an ‘invisible hand’, which guides producers and consumers to desirable market outcomes. (Mankiw, 2011, p.11) For example, if consumers wish to purchase more of a certain commodity, the price will tend to rise due to the rationing mechanism, and this in turn will signal to firms that more of this good needs to be produced. This also provides an incentive for more factors of production (land, labour, capital, and enterprise)...