A free market exists when goods and services are bought and sold in open markets at prices determined by supply and demand. Free markets are supposed to allocate resources efficiently. This is the capitalism economics of Adam Smith. Did it ever exist? Is it a good thing? Smith also focused on self-interest which works great because of the magical "invisible hand." A village market can be visualized where produce and hand made goods are brought in and people exchange goods. In such a system, government does not exist, there is no smuggling, no black market, no underground economy. This structure breaks down quickly when government is introduced, where money is required for exchanges, and where certain people have more economic power and authority than others. In other words, pure free markets are rare (or don't exist ever). As with most economic models, the concept is useful to determine how markets work in general and what favorable outcomes are possible relative to other systems, such as an entirely state-controlled system. The results from many markets act as if they were free. It becomes potentially harmful as an ideology or used as propaganda.
When designing a market system, the need for rules, a monetary system for efficient transactions, and various governmental functions included taxation and a banking/credit system become necessary. We can come close to free markets on low cost consumables (food and clothes for instance) where there can be many buyers and sellers, rules are basic and understandable, and little if any need for intrusive government interference. Real estate transactions are a nightmare by comparison. Fairness, enforceable contract rights, rule of law, and standardized transaction cost are basic requirements. With non-standard packages of land and buildings, the concept of market price is more nebulous--beyond saying that the agreed upon price establishes market price. The stock market is often looked at as the obvious free market, with many buyers and sellers, presumably with equal access to relevant information, standard transaction costs, means of transferring ownership, and legal mechanisms for enforcing contract rights. Prices are instantly available. Early on, the New York Stock Exchange determined its own rules free of government.Sounds great, but this was a system rigged for insiders, the members. Considerable government regulation now exists, mainly to overcome outrageous behavior of the members and other insiders, manipulators, speculators and miscellaneous crooks. Its a system that works reasonable well, in part because of massive government regulation (including financial reporting and audit requirements). There have been periods of deregulation, such as the 1920's, 1980's, 1990's, and early 21st century, without exception resulting in financial chaos. Financial innovations also result in chaos such as derivatives, securitization, or special purpose entities. These are great ideas and have considerable beneficial effects such as increasing liquidity, diversification, and spreading risk. The greedy and the crooks (often determined to be the same people) seem to move in quickly, the gullible seem to always exist. Note that the crooked and greedy usually consider themselves brilliant risk takers, using common practices, and/or behaving less bad than the other guy.