orb@whuxl.UUCP (SEVENER) (06/04/85)
> From me: > >When Mr. Sykora admits that he has never heard of the "cobweb effect" by > >which a free market can develop wild oscillations (all following the > >theoretical formulations of neoclassical "free market" economics) > >then I wonder about his understanding of the "free market" that he touts > >as the answer to all economic problems in general. > > From nrh: > *I* have heard of the "cobweb effect". I believe it is a hypothetical > economic effect, thoroughly demolished in this forum by Daniel Mck., as > depending upon (as I recall) farmers not realizing their greater > economic interests..... 1)Daniel Mck did *not* "demolish" the cobweb effect - he conceded its theoretical possibility but then said it could never happen for precisely the reason you state: "farmers not realizing their greater economic interests". 2)That avowed "rebuttal" to the cobweb effect (the cobweb effect is when prices and supply oscillate wildly rather than moving towards a stable equilibrium. It occurs unders situations of inelasticity of demand coupled with high cyclical elasticities of supply - the classic case is agriculture with high demand for food no matter what the price, while the amount of crops put in the ground a given season vary greatly depending upon price the previous season) shows a)that Daniel Mck. was willing to throw away one of the key assumptions underlying the avowed efficiency of free markets when it led to a result he didn't like b)that you don't know what that key assumption is The key assumption is that *regardless of their collective economic interests* producers in the free market will produce according to the market price which they cannot determine individually. Certainly if all the farmers got together they would see that they might make far more money by actually producing *less* of an essential commodity (namely food) and forcing people to pay higher prices for what they need to live. But there is a name for that situation: it is called *monopoly*. Yet *monopoly power* is exactly what cannot hold sway in order to have a free market in which supply meets demand freely. Instead a free market assumes a number of producers each of which cannot control overall production. Since they cannot control overall production each farmer must take crop prices as a given and maximize their marginal return based upon the market price. In which case it makes no difference what may be good for *all* farmers - each farmer is forced to consider only her *own individual interests*. When they begin to see they have a collective interest then you get: *politics* *social movements* to wit in this country *Agrarian Populism* In fact this is precisely what happened in the 30's when agriculture collapsed during the Great Depression. Farmers formed cooperatives, got government price supports and supported other collective measures to insure they could survive and produce more food than any other country in the world despite the ravages of the free market and the cobweb effect. I find it ironic that Libertarians have so little understanding of their own economic theory which they so *blindly* adhere to. tim sevener whuxl!orb
mms1646@acf4.UUCP (Michael M. Sykora) (06/06/85)
Given this assumption, you now need to show that under such circumstances, a statist system is more likely to perform better than a free market one. Mike Sykora