Free-Market Capitalism Analytical Essay

Looks at the rationality of free-market capitalism as an economic system for society.
# 150148 | 1,600 words | 3 sources | APA | 2011 | NZ
Published on Jan 29, 2012 in Economics (Macro) , Political Science (Political Theory)

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This paper explains that, in theory, free-market capitalism is usually a rational economic system because it is based on the natural right to property that is the foundation of liberty; however, in practice, government intervention is sometimes necessary to address market failure and mitigate the negative effects of power imbalances. Next, the author relates, by using recent examples such as the Lehman Brothers' failure, that free-market capitalism can cause inequality, exploitation and alienation. The paper concludes that free-market capitalism is not perfect; nonetheless, a rational person would select it as the economic system for their society given that it is fairly regulated to ensure it works properly.

From the Paper:

"Free-market capitalism sounds good in theory when all the assumptions that Adam Smith set out (such as perfect markets and perfect rationality) are adhered to. However, these assumptions often do not hold in practice. For example, it assumes that people are rational and will follow their own self-interest. But if people are as rational as assumed then undue influence through advertising would have no effect. Consumers are expected to make economic decisions based on complete rationality but often they suffer from a power imbalance relative to influential industries such as the financial industry. They are often preyed upon due to their vulnerability and relative lack of knowledge. This was especially true regarding subprime mortgages and complex financial products during the global financial crisis. Lehman Brothers' involvement in the subprime mortgage market until August 2007 meant that it took advantage of people by easily lending mortgages to people who were too risky (but needed a home) and charging them exorbitant interest rates. They and other banks could afford to do this because they could offload the risk by selling the mortgages to other financial institutions that would then repackage them into mortgage backed securities."

Sample of Sources Used:

  • Kenner, R. & Schlosser, E. (Producer/Director, Co-producer) (2009). Food Inc. Australia: Roadshow Entertainment.
  • Shaw, W., B. Barry, & G. Sansbury. (2009) Moral issues in business, (1st Asia Pacific ed.) Melbourne: Cengage
  • Smith, G. & Tuft, M. (Producer/Director, Co-producer) (2009). The Love of Money: The Bank that Bust the World. UK: BBC

Cite this Analytical Essay:

APA Format

Free-Market Capitalism (2012, January 29) Retrieved March 05, 2024, from

MLA Format

"Free-Market Capitalism" 29 January 2012. Web. 05 March. 2024. <>