mck@ratex.UUCP (Daniel Kian Mc Kiernan) (01/25/85)
>It is hardly new to claim that in the theoretically perfect conditions of >a totally free market, that all would be wonderful. So the question is >1)how come it's not? This is a somewhat vague question, in that the "it's" could either refer to "all" or to "a totally free market". So I'll respond to both possible interpretations: 1a) How come we don't have a free market? Probably for about the same reason that most Frenchmen don't brush their teeth: a lot of people won't listen to reason. Progress comes in fits and starts, and often takes a great deal of time. 1b) How come our Fascist economy doesn't perform like a Free Economy is supposed to? Because it's not a Free Economy. >2)how does Mr. Mc Kiernan intend to achieve a totally free market economy, > one with no distortions of industrial monopoly power, local monopoly > power, etc.? To begin with, there's a fundamental flaw in your conceptual framework. No pro-laissez-faire economist that I know of advocates a world of Pure Competition or Perfect Competition. Such a world is not only unattainable (with or without government intervention) but contains a great deal that almost no one would advocate (I say "almost" because you can always find SOME ONE). Now, if you take a course on industrial organization, you'll learn that government intervention, including anti-trust laws, is the source of incredible distortions. Quoting from the judge's decision in *United States v. Aluminum Co.*: [Alcoa] insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization having the advantage of experience, trade connections, and the elite of personnel. Alcoa had tried to preserve its market share by outperforming the competition; such practices were found in violation of law. Now, on the other hand, Salt Lake City has one pie company, a local monopoly; when two national pie companies tried to enter the market, it sued for unfair competition and won. Of course, you may perhaps assert that all of this is the result of BAD anti- trust law, and that what you want GOOD antitrust law. If and when you learn about the Price System, I'll explain why there is no such thing. The Free Economy won't always get us to the Production Possibilities Frontier; it will simply get us closer than any other system (of course, this is only an economic fact, not ethical analysis). What's really ironic, incidently, is that some people want to eliminate oligopoly in, say, the breakfast cereal industry, and, to do so, they're willing to strengthen the biggest and most dangerous monopoly of all: the State. >3)is such a condition consistent with the current large concentrations of > wealth in the hands of a few? That's actually several questions in one. Most existing concentrations were arrived at unethically, but sorting out the guilty parties may be near impossible. Such relative concentration could not have come about in a Free Economy. Such concentrations could not persist in a Free Economy. > For example, earlier I pointed out that > economists who study development have concluded that a successful > agricultural system is more likely with many small independent farmers. > This of course promotes the underlying conditions which are necessary for > free market efficiency (many small producers, no one of which can > greatly affect either price or supply) I, and an ever growing body of economists (including Leftists like Thurow), reject the methodology with which such a conclusion is arrived at. Economic performance is maximized when: 1) the Price System is unhindered, 2) externalities are internalized as much as possible. > But then how does one bring this condition about in a country like > Nicaragua under Somoza in which one family owns 70% of the land? > Does one hold property rights absolutely inviolate or does one > redistribute such economic control? In countries like Nicaragua and El Salvador, land should be redistributed, NOT because ownership has been concentrated PER SE, but because Somoza et alii never established just ownership in the first place; like feudal barons, they used political power to gain economic power. >Could persistent inflation and unemployment have anything to do with >the fact that our current economy is dominated by relatively few >oligopolistic corporations? If government-induced concentrations did not persist, real GNP (and thus the real aggregate value of transactions) would grow faster. This could theoretically offset growth in the money supply ASSUMING that the government did not simply increase expansion of the money supply accordingly. Realistically, such an assumption is ridiculous; inflation is an unrecognized tax (on holdings of cash), and the government will levy such a tax as much as it can get away with. As far as unemployment is concerned, no, such concentrations do not induce unemployment UNLESS you include unions as oligopolistic corporations. > Under conditions of oligopoly the assumption >that prices are related to "true" value (whatever that is anyway?????) >is no longer valid. Wrong. First of all, for oligopolies to alter price from what it would be given competition, they have to engage in cartel-like behavior; if you're making such an assumption, you should state it explicitly. Second, cartels (while they persist) can change price, but they do so by reducing output such that the marginal value per unit increases; price continues to reflect 'true' value. > The government did nothing to make sure that there >were only 4 major auto companies in the US. They accomplish such >market control all by themselves. How did that happen? And why? Wrong again. The government may very well not have TARGETTED the auto industry, but there is all manner of legislation which impedes entry by competitors. The government interferes with the growth of small companies, and with the diversification of large companies. >Such conditions in which 3 or 4 firms control a majority of the market is >true in many industries in the US. And the number controlled in this >way grows every day. See my previous paragraph. >I praise Mr. Mc Kiernan's lucid exposition of monetarism and laissez faire. I hope that you're using the term 'monetarism' in the broad sense; I am no fan of Milton Friedman. >However, this is the real world in which oligopoly power grows daily.... Taken at face value, of course, this statement is unquestionably true; but if the implication is that, since we don't have a Free Economy there's no sense in striving for one, why not say the same about a cure for myasthenia gravis? As to your reference to me as a magician: I only use facts and logic; if that seems like magic to you, you're in sad shape. Drowing in a sea of disgust, Daniel Kian Mc Kiernan