Argument: A pure "free-market" is not a stable situation, but is rather merely a transitory phase preceding corporatism & authoritarian government.
1. In a free market economy, some win (retain profits) while others lose (go bankrupt)
2. In general, "it takes money to make money" - those who retain profits will benefit from "economies of scale," compared to smaller competitors. "Winners" will find it easier to keep on winning, while "losers" will find it easier to keep on losing
3. Given this, wealth and capital will gradually concentrate, as the most successful buy up the assets of less successful competitors, who then face increased barriers to re-entry into the markets
4. Unchecked, this will eventually result in monopolies or oligopolies in many sectors (as we see today). At this point, the concentrated power of the oligopolies will make them difficult for others to challenge legally and possibly make them increasingly unpopular. The need (and ability) to employ organized armed force to defend (or increase) elite property will generally be proportional to the concentration of wealth.
Once oligopolies have sufficient (political/military) power, they will no longer need to compete using only market mechanisms, but instead can instead rely on fees, taxation, rent seeking, "bailouts," or even conquest.
Conclusion: A free-market is an inherently unstable situation, which is not self-sustaining on its own.
Summary - A "free-market economy" resembles a large game of poker. It only lasts until one player has all the chips, which is inevitable, given the rules. A free-market could be sustained indefinitely, as a poker game could, but neither will do so spontaneously, on their own. To do either requires organization, planning, intelligence and will.
>In a free market economy, some win (retain profits) while others lose (go bankrupt)
Not true; a "winner" one day can be a "loser" the next, and vice versa: everything is in a state of endless change. I don't think your arguments are logical as you are making huge assumptions and simplifications at the very start.
Also, I think you're conclusion is empirically wrong: huge parasitical organizations like USSR do collapse. The market does not inexorably become less free, but rather seems to oscillate around some point. It is true that a perfect free market is an impossiblity, as nothing humans do is perfect.
ravochol,
But if you are serious about your claims, then you need to be more specific than saying an economy needs "regular maintenance and intelligent steering."
Let's be specific to your claim about the winners and losers. How exactly do you plan to make it more "fair" for both sides by using maintenance and steering?
My guess is that your suggestions to make things more fair will not only be unfair themselves, but will be extremely unlikely to be implemented successfully in practice.
***Also, you did not address my comment about your comparison of poker to the economy. This comparison is so inherently flawed that poker should never be compared to the economy at all. Wealth/standards of living are increased through trade, and not mearly shifted. More people throughout history have risen out of poverty by the metaphorical pie getting larger, rather than taking a piece from someone else (as Milton Friedman stated in so many words).
Schumpeter argued that.
I have yet to read Capitalism, Socialism, and Democracy, but I think that's where he breaks it down in detail.
On the other hand, your points integrate socialist fallacies, so they don't really lead correctly to such a conclusion.
Yes, but this is a beneficial process...there is more winning than losing, because capitalism is not a zero sum game. Overall, this process increases wealth for everyone. Also, note that in a real free market, there is an unstoppable flood of new entrants into any profitable category of venture, so that there is no serious consolidation.
No, the barriers to entry are almost purely from government, and would not exist in a free market. There is nothing to stop you from starting a bank out of your own house tomorrow, except government...and some such banks would succeed.
In a free market, monopoly, and even oligopoly, is nearly impossible. One of the fallacies of the socialist scenario presented in public schools is that it's literally impossible to get big enough to buy out all of your competition: The very act of buying out some competitors creates a new industry; starting a company and trying to get noticed and bought out. This also makes raising capital for a genuine new company in that industry easier, as the investors need only hope to succeed well enough to get bought out, instead of having to worry about whether the company succeeds purely on its own.
Also, you did not address my comment about your comparison of poker to the economy.
If you prefer, I could compare it instead to a game of Monopoly? (TM)
It is true, of course, that an economy is NOT a zero sum game.
Neither is the game Monopoly (TM).
In Monopoly (TM), there is more currency circulating, more houses and more hotels as the game goes on, (it's a positive-sum game) - but it doesn't matter, because the 'monopoly effect' crowds out the 'positive sum' effect - and most players end up going broke.
This happens in real economies too - wealth concentration can outweigh the "positive sum" effect of economic activity, making economic activity a "zero sum" game of stagnant living standards for most people, alongside super-enrichment for a few.
1 and 2 are false.
In a free market, monopoly, and even oligopoly are nearly impossible
Well, I 100% disagree, and I think to the contrary, that it can be logically demonstrated that in a purely free market - monopoly or oligopoly are nearly impossible to avoid in the long run.
The barriers to entry into markets DO NOT only come from government - they also come from capital costs and economies of scale.
Maybe, if there were no government prohibition, you could start a bank in your house. Still, it would be very small, unknown, and therefore very risky for depositors; you would probably have to get an insurance policy for your deposits from a large and trusted company. You, a tiny bank, would probably have to pay a high "retail" rate for your policy. A mega-bank, on the other hand, could buy the same policy at a lower, "whole-sale" rate. The same would be true of everything else you do - renting office space, buying ink for the printers etc. You would be paying a higher rate of overhead for *almost everything* you do, compared to the larger bank . Furthermore, you might be able to afford 1 or two ATMs, while your mega-bank competitor has dozens - you can advertise with flyers in laundromats, while they can buy catchy ads during the Superbowl. You might be able to compete with the megabank, if you are a genius and have a genius business plan - but, the odds are against you being able to pay a higher rate of interest to depositors while also being able to pay a higher rate of overhead for expenses.
In other words, *size* leads to efficiency and confers advantage in most industries in a capitalist economy.
It's true that you can grow corn and sell it in your back yard - but it's also irrelevant if the large farm next door can do it profitably for half of the price you can. You simply can't sell corn for $2 if corn of the same quality can be purchased for $1 nearby - and, you probably won't be able to produce corn profitably for $1 until you get nearly as big as your farming competitor.
This is a very real barrier to entry into markets which exists totally outside of government - it's part of the logic and practice of free markets themselves.
The problem is, markets stop being efficient if they get too concentrated - both on the top and on the bottom. At the top, too few companies will not compete efficiently - in part because they can turn to rent-seeking (or even outright taxes) instead of competition. At the bottom, people with good ideas can't try them out in the market, simply because the barriers to entry or risks are too high.
So, the main points are that economies of scale exist, that their existence encourages consolidation, and that continued consolidation ends in oligopoly: unless anyone can challenge these points, I don't think we can avoid the conclusion that totally free markets, left to themselves, crash into the wall of wealth concentration/oligopoly.
The 'intelligent steering' a free-market requires is the creation barriers to economic players becoming either 'too big', at the top, or 'too small,' at the bottom.
A good example of the latter is allowing individuals to go bankrupt, without putting them in debtors prisons (as lenders would surely prefer). This (non-market) protection makes the economy more efficient, by putting a floor under it which allows people to 'get back into the game,' even if they lost a round- if everyone who ever went bankrupt were put in a debtors prisons, many great companies and products wouldn't exist today - also, who would be brave enough to start a business?
Economic players must also be prevented from becoming too big at the top.
Obviously, this is an economic issue - monopolies are non-competitive and non-efficient. But even prior to that, it's political - if any entities get too big or too powerful, they will start acting like governments (or take over existing governments), simply because so much wealth and clout in their hands gives them the ability to.
You continue to comment as if big means efficient and lowest cost. This is false on its face. You write as if you have only read text books. Have you worked for a large company to see how inefficient most are? Have you ever competed against one? Have you seen how they are so slow to react to new competitors? Do you read actual events in the news? Of course, you have not, else you would stop with silly assertions.
Again, address Google in the face of Microsoft. Address Hyundai in the face of General Motors. You ignore these because they don't fit your textbook.
Ravochol, please respond to this post of mine.
The keyboard is mightier than the gun.
Non parit potestas ipsius auctoritatem.
Voluntaryism Forum
ravochol, i would also appreciate it if you repsonded to this part of my post
: But if you are serious about your claims, then you need to be more specific than saying an economy needs "regular maintenance and intelligent steering." Let's be specific to your claim about the winners and losers. How exactly do you plan to make it more "fair" for both sides by using maintenance and steering? My guess is that your suggestions to make things more fair will not only be unfair themselves, but will be extremely unlikely to be implemented successfully in practice.
ravochol:So, the main points are that economies of scale exist, that their existence encourages consolidation, and that continued consolidation ends in oligopoly: unless anyone can challenge these points, I don't think we can avoid the conclusion that totally free markets, left to themselves, crash into the wall of wealth concentration/oligopoly.
You are presenting this as if people can only spend as much on business ventures as they have in their wallets. If that were the case, then indeed companies could get big enough for nobody to be able to come up with the funding to compete with them, and wealth would concentrate. But one of the fundamental aspects of capitalism is that it offers access to funding. New businesses can be financed with credit. That defeats the economies of scale argument. Any business can have any scale from day one.
Sorry, I'd intended to head off that logical fallacy, and must have forgotten.
The socialist educators who commit that fallacy are taking capital costs and economies of scale as if they are magically isolated from all of the factors that can nullify them.
For example, there is always demand for an alternative, simply for the sake of being an alternative. SOME people will always hate Microsoft. It wouldn't matter what they did...they're big, and appear monolithic. They're not even a monopoly, yet they already manifest a backlash that only grows with market dominance.
Capital costs and economies of scale, too, only apply to an existing version of a good or service. Gatorade and Snapple were such completely unique products that economies of scale were irrelevant. No amount of savings on the part of Pepsi or Coke was going to stop those new companies.
Nor would buying them. of course, because in a free market the purchase of small companies creates an industry of making small companies to be purchased.
Maybe, if there were no government prohibition, you could start a bank in your house. Still, it would be very small, unknown, and therefore very risky for depositors; you would probably have to get an insurance policy for your deposits from a large and trusted company.
What do you mean "have to"? The whole point of an actual free market is that nobody has to. Nobody has to get an insurance policy, and nobody has to deposit in my bank. But if there is an oligopoly of big, unresponsive banks, SOME people will deposit in my bank, because they hate those big banks. Initially, it'll be people who know me personally, but then my reputation will grow.
You might be able to compete with the megabank, if you are a genius and have a genius business plan - but, the odds are against you being able to pay a higher rate of interest to depositors while also being able to pay a higher rate of overhead for expenses.
There will always be people willing to pay a premium for what they prefer, like an anti-oligopoly alternative, knowing the bank owner personally, et cetera.
Actually, I can sell corn for $2 a head while the agribusiness sells it for $1 a head:
First, I'll sell bi-colored corn. Or tri-colored. Or organically grown corn, or corn only fertilized by free-range rabbit poop.
There will always be a niche market for things that the big businesses don't WANT to provide. And some of those will grow in popularity until the economy of scale is comparable.
You also forget that, without government, there is cross-industry competition.
For example, Microsoft was kept out of the banking/finance industry by the US government. Entry is so expensive that the most wealthy company in the world could not pull it off. In real life, there would ALWAYS be new competition, not only from new entries, but from other large businesses that see a demand for an alternative when one business dominates an industry too much.