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The free market is the idea that the economy works best when the government interferes as little as possible. This concept was first espoused and explained by economist Adam Smith, based on Enlightenment ideals posited by classic liberals in the 18th and 19th centuries, but is more embraced by conservatives and doctrinaire libertarians in the 20th and 21st.
"Free market fundamentalism" is the term sometimes given to a strain of libertarianism that proposes that government can do no right when it comes to commerce, and that market pressure will weed out any bad products or corrupt businesses (the term used is laissez-faire, translating from the French approximately as "let it happen"). Liberals have largely abandoned laissez-faire capitalism as a dead end, believing the idea to be too easily abused by the amoral and dishonest.
It's worth noting that Adam Smith's works, like other texts invoked by fundamentalists, are rarely read in their entirety by those who expound the doctrine they think it outlines. Smith did see a place for governmental regulation in a healthy marketplace. For example, without government regulation, companies such as British Airways would have had free rein to collude with their rivals and fix prices when setting their fuel surcharges, and Microsoft could continue its anti-competitive practices in Europe, thereby allowing it to maintain artificially high prices for its Office products.
In a true free market, the price of goods and services will reach a natural equilibrium with no bureaucracy needed. A truly free market, however, is virtually unattainable in a modern economy.
If there are several competing businesses in a market based on voluntary trade, a customer can refuse to buy from a business that provides worse service or shoddier goods than the others. This acts as an incentive for companies to keep service (or at least to appear to do so). Nevertheless the quality of service is generally higher under these conditions than when a firm has a natural and/or legal monopoly (whence the common phrase, "going postal").
A free market puts minimal restraints on innovation: if you have a bright idea and can finance its development, or get any one of the large number of venture investors to do it for you, you can develop your bright idea without being stopped by harrumphing or political meddling from a regulatory bureaucracy. If patents (another form of government regulation) are removed, you don't even have to worry about patent trolls; however, mega-corporations will be free to copy your idea and out-compete you.
All these upsides rest on the critical assumption that businesses have the ability to compete with each other; cases in which this is not true are discussed below.
Labouring is included in the idea of a free market; however, in the present day, it is much easier to compete if you are offering jobs than seeking them. This oversight led to the formation of Trade Unions, which are wholly and thoroughly populated by Communists and libruls.
There is an interesting and lethal effect known as the "business cycle", where the economy expands too rapidly (and finds it cannot sell enough goods to pay to maintain its expansion) then goes into recession. John Maynard Keynes solved that one by getting governments to take money out in a boom and put money back in a recession. While definitely not Communist, this is still a dangerously liberal idea and should be disregarded in favour of doing absolutely nothing; because eventually it will all sort itself out.
Also, in many cases the assumption that a free market means free competition does not hold up. There are many industries that are recognized as "natural monopolies" — public utilities, for example — in which an unrestrained market will lead to or maintain a monopoly for one supplier. Even in industries where there is no natural monopoly, it may be dominated by a cartel or oligopoly that make competition impossible and hold the consumer by the balls, if not permanently then at least for a few years.
Ironically, maintaining a maximally free market without such monopolism, and the abuses that follow from it, requires either
the personal intervention of Satan competent governmental regulation (provided by farsighted, patient, and completely rational people of uncompromising self-restraint and discipline, committed to the maintenance of stability and sustainability even at the expense of short-range profit) or a business community (comprised, without exception, of farsighted, patient, and completely rational people of uncompromising self-restraint and discipline, committed to the maintenance of stability and sustainability even at the expense of short-range profit).
 Free Market Mythology
While there's mountains of historical evidence that the free marketeers can point to to show the successes of the free market, like true fundamentalists, they can never accept cases where the market failed. So they have to churn out piles of revisionist history and misleading statistics to cover up the times when the
infallible market screwed up. With the election of Barack Obama, the wingnuts needed a new set of talking points and free market fundamentalist myths seem to have gone into overdrive lately. Usually, some bogus study or press release is cooked up by a conservative or libertarian think tank, which wingnuts like Glenn Beck or Michele Bachmann then boil down into easily digestible talking points. Here are some articles covering this bullshit:
- Austrian school (as an economic authority)
- Ben Steinery (ditto)
- Chicago school (ditto)
- Collectivism (as a snarl word)
- Depression of 1920 (as a triumph of the market)
- Financial Crisis Inquiry Commission (Republican bullshit about the financial crisis)
- Health care rationing (death panels!)
- Herbert Hoover (as a socialist)
- New Deal denialism ("FDR made the Depression worse!")
- Privatization (always a good thing)
- Reaganism (Gummint can never do anything right.)
- Reaganomics (Trickle-down bullshit)
- Roosevelt Recession (never happened, or was due to labor unions)
- Rugged individualism (fundamentalist mantra)
- Rush Limbaugh's Thanksgiving (Thanksgiving as socialism vs. capitalism)
- Socialism (as a snarl word)
- Sound money (see Paul Ryan)
- Tax cuts, Church of
 See also
- Wealth of Nations by Adam Smith at Project Gutenberg