January 18, 2008

Perfect Competition and Profit

Filed under: Economics — duncan @ 9:50 pm

In a theoretical ideal market, competition between sellers would drive down the price of a commodity until it exactly equals the cost of its production. In a perfect market, there are no profits.

That in itself should tell us that something is amiss in the idea of ‘perfect competition’. Because, of course, the raison d’etre of capitalism is the generation of profit. (You don’t have to be a Marxist to believe that…)

There are at least two meanings bound together in the idea of ‘competition’. On the one hand, competition reduces profits – it moves profitability towards the ideal zero state. On the other hand, competition is the attempt to maximise profits – capitalists compete to make more money than their rivals, by whatever means necessary. The latter is supposed to be the mechanism by means of which we approach the former – and this theoretical, unachievable utopia in which the two meanings coincide allows economists to claim that they coincide at all times, everywhere. Thus: the maximisation of profit benefits us all.

We need to destroy this claim in every one of its manifestations. No one should be able even to think this thought without being overwhelmed by retributive shame.


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