Is Capitalism Perfect?

Miscellaneous Newbies
1

I was having one of many in-class debates with my Keynesian economics professor the other day. I was responding to his claims of “market failure” in the financial crisis by pointing out that having the Fed as the lender of last resort creates the moral hazard that leads to the problems that he blames on insufficiently regulated markets.

He ran his usual shtick—defaming me as a corporatist evil greedy capitalist pig that cares nothing for the plight of the common man. He never does this when we are debating one-on-one because he knows it is utter nonsense, but when the entire class is listening he likes to play up the class warfare rhetoric because they eat it up. It makes for good show.

I responded by pointing out how corporatism is a feature of mercantilism, the antithesis of capitalism. “When you criticize corporate welfare,” I said, “you criticize a coercive redistribution of wealth made under the threat of violence from the state. This is a feature not of capitalism, but of interventionism, a system you advocate. You decry the very policies that result from the system you advocate.”

Meanwhile, he was shaking his head vigorously and rolling his eyes. Before I could continue beyond what I have quoted above, he interrupted me with the question, “Is capitalism perfect?”

This man could never get away with his loaded questions in front of the people who frequent this forum, because you are all familiar with the perfect competition market structure models that they teach in mainstream economics courses. You know that it is a fictional model used to justify intervention.

Perfect Competition is desirable.

Perfect Competition does not exist in the real world.

Therefore we need the government to intervene.

They may not phrase it this way, but this is what they are insinuating.

But the people in my Intro to Micro course aren’t as well-read as you all. Most of them are just taking it as a prerequisite to social(ist) work. They lap up this crap.

So what is the best response to the aforementioned question when in the company of laypeople?

2

In the real world, yes, capitalism is perfect. In some fantasy land, we’d be better off with the Garden of Eden.

3

It’s not a meaningful question. Perfect what?

Perfect banana? No, capitalism is not perfect banana.

4

Well I would have responded by saying that perfect competition is nothing more than chimera of modern micro, it is supposed to be a thought experiment to help us understand more about economic phenomena, not an ideal state to be reached. What is perfect about product homogeneity anyway, some people like frosted flakes some people like wheaties, some people like count chocula we can expect to see products as diverse as the people buying them.

Perfect in what aspect? I don’t think perfection exists but Capitalism is the best we have come up with.

5

This (1988 lecture by Israel Kirzner): http://fee.org/media/competition-and-entrepreneurship/

6

The unhampered market economy is the best system of social organization for the satisfaction of effective demand which is possible for the non-omniscient to achieve.

7

Is capitalism perfect? No, capitalism is DYNAMIC. The free market is not perfect, nothing 'twixt heaven and Earth is. However, capitalism constantly changes and adjusts to the constantly altering situations in reality. Error is inevitable, but errors are eliminated through a rational process of profit and loss, whereas bureaucracy has no rational means of picking out the most efficient processes or allocation of resources.

8

It would be undesirable for perfect competition to exist. Perfect competition means you are in some sort of equilibrium where products are homogenous and equally priced. This resembles a cartel. Actual competition is an ongoing process of dis-equilibrium… slashing prices and innovating on old products.

9

Nirvana Fallacy

10

Excellent response - I agree fully!

11

Straw man. Is socialism perfect? Is interventionism perfect? Is anything perfect? What does his question involving perfection have to do with your demolition of his interventionist arguments? Your professor knew he was beat, he was desperate to prop up a straw man.

His argument seems to be “Since Capitalism isn’t perfect, we must use intervention to make up for its imperfections”. He does not define “perfect”, which is the crux of his argument.

Here is Isreal Kirzner demolishing the mainstream idea of “perfect competiion”. As he points out, when the mainstream is talking about “perfect competion”, they don’t mean this at all. They really mean “no competition”. The correct concept to build upon is “no barriors to entry”, not a flawed idea of what “perfect competition” means. Watch this from the beginning, but he really gets into it at the 10:00 minute mark: Kirzner and Competition. (This video is also in my signature, below, because I think it is so effective.)

I think this is a good refutation of your professor’s position since he starts with “perfect competiion” and ends with “interventionism is justified”. If we blow up the idea of “pefect competition”, we have blown up the stated justification of interventionism.

12

Z, you beat me to it! As I stated above, that is a very powerful lecture, and Kirzner is a great teacher.

13

That’s OK. There’s a chance got it from you to begin with. ;^) Z.

14

That was fast. Thanks for all the responses guys (and gals). I shall integrate them into my consciousness. [;)]

And I’ll check out Kirzner’s lecture too.

15

To the OP:

When someone fires this type of garbage at you, fire it right back:

Statist: Problem X needs to be dealt with…

You: I agree problem X is important, however I don’t advocate pointing guns at people as a solution. Do you?

16

Aquila, just remember: Your professor will never be convinced. He will come from a different direction each time you make your case. Think of it as trying to make your case to the class, not him. But, of course, don’t be rude, you need to get an “A”. You are at a permanent disadvantage with your professor. I think this dialog may be more appropriate in a forum other than a classroom setting. It’s more important for you to learn economics, not beat your professor in an argument. Ask him questions, but don’t become a thorn in his side. Good luck.

17

Oops! I got a little excited. Yeah, don’t say this to your teach…

18

True, but I’ve already taken many economics courses at and above this level (for free courtesy of LvMI!). So it is the third and forth time I am hearing what he is teaching. I’m just taking this course because universities don’t give college credits for the lectures I download over the tubes (which is a shame because Rothbard is a hell of a lot better than Tucker). My grade in this course is a given, I just need the credits/prerequisite.

@Matthew: Lol,

That approach has great entertainment value with the added bonus of demonstrating that government action is inherently coercive. Most people refuse to acknowledge the gun in the room when the aggressor happens to be wearing a badge and a funny hat.

19

Nothing is perfect. The question, imo, is: are the costs of capitalism worth the benefits? Or it could be asked another way: are the costs of socialism worth the benefits?

Depending on how one values the costs and benefits of each, one will come to different conclusions about which system one prefers. But neither is perfect.

20

Impudent fool! Capitalism can surly create the perfect banana!

Capitalism in the form of free markets is overall the most perfect system possible because it allows freedom of competition, freedom of IDEAS, and freedom of action as well as a motivating factor for all of these things. By its very nature free markets are the best way to effectivly utilize resources.

In the context of the argument however you can simply say “is interventionism perfect” and then if he says “yes” then you can talk about some utterly ridiculous regulatatory system and then when he says “no under reasonable conditions where the government was rational” then simply say “then capitalism is perfect under conditions where people act rationally” and so on.