- published: 30 Jan 2016
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A market economy is an economy in which decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system. The major defining characteristic of a market economy is that investment decisions and the allocation of producer goods are mainly made by negotiation through markets. This is contrasted with a planned economy, where investment and production decisions are embodied in a plan of production.
Market economies can range from hypothetical laissez-faire and free market variants to regulated markets and interventionist variants. In reality, market economies do not exist in pure form, since societies and governments regulate them to varying degrees. Different perspectives exist as to how strong a role the government should have in both guiding the market economy and addressing the inequalities the market produces. Most existing market economies include a degree of economic planning or state-directed activity, and are thus classified as mixed economies. The term free-market economy is sometimes used synonymously with market economy, but it may also refer to laissez-faire or free-market anarchism.
Adam Smith (16 June 1723 NS (5 June 1723 OS) – 17 July 1790) was a Scottish moral philosopher, pioneer of political economy, and a key figure in the Scottish Enlightenment.
Smith is best known for two classic works: The Theory of Moral Sentiments (1759), and An Inquiry into the Nature and Causes of the Wealth of Nations (1776). The latter, usually abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics. Smith is cited as the father of modern economics and is still among the most influential thinkers in the field of economics today.
Smith studied social philosophy at the University of Glasgow and at Balliol College, Oxford, where he was one of the first students to benefit from scholarships set up by fellow Scot, John Snell. After graduating, he delivered a successful series of public lectures at Edinburgh, leading him to collaborate with David Hume during the Scottish Enlightenment. Smith obtained a professorship at Glasgow teaching moral philosophy, and during this time he wrote and published The Theory of Moral Sentiments. In his later life, he took a tutoring position that allowed him to travel throughout Europe, where he met other intellectual leaders of his day.