A market economy depends upon the interplay of supply and demand to determine how capital is invested, what is produced, and how goods are priced. For example, when there is too much supply of a product, then the sellers of the product are inclined to invest less capital to produce or purchase it and lower their prices in order to sell off the excess stock they have. On the other hand, when there is high demand for a product and little inventory, then prices will probably go up due to its scarcity and more capital may be allotted to increase its production. This is a simple picture of how supply and demand operate in an open market.
Although theoretically there should be little or no government interference in the operation of such markets (hence the term “free markets”), most economies in the world regulate their markets to some extent through different policies and regulations. Whether due to the manipulation of powerful economic forces or defective government intervention, market failures are produced, which result in detrimental economic disparities, social problems, and environmental degradation.
Through its policies of economic democracy, a Progressive government would seek to avoid market failures by decentralizing the economy and empowering localities and regions with the task of economic development. This approach neither overburdens the economy with price controls and centralised planning, nor does it allow non-local economic players, such as large corporations to dominate the market for their own profit. Rather, localities are able to meet local needs by using market mechanisms to fulfil local consumption. Through localised economic planning, communities can meet their current and future demands by ensuring the necessary supply of goods and services while, at the same time, addressing social and environmental conditions.