Where is the Logical Fallacy?

Economics Economics Questions
1

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.

2

Please provide your definition for “economies of scale”.

Regardless of this definition, however, how is it necessarily the case that winners will always find it easier to keep on winning and losers will always find it easier to keep on losing?

As far as I can tell, your argument falls apart at this step. The logical fallacy is a simple non sequitur.

3

Regardless of this definition, however, how is it necessarily the case that winners will always find it easier to keep on winning and losers willalways find it easier to keep on losing?

Well, it is true that it is nearly always easier to start a business venture or a career with more funding as opposed to less.

So those who start with more will always have an easier time of making more, than those who start with less.

Of course, this isn’t a guarantee that every individual on a micro scale with an advantage will succeed - but that doesn’t need to be true to prove that advantages, and disadvantages accumulate, which over time results in extreme concentrations of wealth.

4

If it takes money to make money, how did anyone ever become wealthy in the first place?

5

Economy/business/exchanges in the free market should NEVER be compared to poker. In poker, everything is a zero sum game. The only way someone can benefit is by increasing their chips at the expense of other players losing exactly that amount in chips.

In free market exchanges/ business ventures, trades only occur when both parties value what they receive more than what they are giving up to receive it. It is NOT a zero sum game.

Yes, in a market economy it will be easier for someone who has a lot of money to start a new business and be successful than someone with less money (all other things equal). But do you actually have a suggestion as to how better allocate resources for engaging in business ventures than the free market?

You should be aware of the nirvana fallacy, which occurs when someone compares an idea to perfection (or usually their idea of perfection) and because that idea falls up short, they then believe that the idea is flawed and/or not the best idea available.

6

If it takes money to make money, how did anyone ever become wealthy in the first place?

The same way the Boston Red Sox (who have less money) can sometimes beat the New York Yankees (who have more money).

It happens, it just doesn’t happen usually, because the Yankees larger payroll confers a significant advantage.

If those were soap factories instead of baseball teams, the Yankees would have simply bought up and incorporated the Red Sox long ago.

7

"do you actually have a suggestion as to how better allocate resources for engaging in business ventures than the free market? "

No - let’s assume that the free-market is the Lamborghini of economies - the best, most efficient, etc.

My point is that, like a Lamborghini, it needs regular maintenance and intelligent steering.

A person guided by an assumption that ‘Lamborghinis manage themselves,’ they will soon be left with a worse-than-useless pile of junk.

8

Yes, some win and some lose. But the game is not zero sum. Beyond this, I do not understand the value of this statement.

It is difficult to give examples of results in a free market, as there are none certainly today. However, examine the US automotive industry against this assertion and see if your statement holds any water. Or try web browsers. Or try to explain Google coming from nowhere against Microsoft.

As your number 2) above fails, this statement has no legs.

As your number 3) fails, this statement has no legs.

There is nothing about “BIG” that ensures success in a free market. For anyone that has worked at a “BIG” company, this is only too obvious. They are almost always the slowest, most cumbersome organizations, with no hope of competing against the next idea.

“BIG” only matters because of access to government pull, the exact opposite of a free market.

9

Now you seem to be equivocating. In your OP, “starting a business venture or career” wasn’t what you apparently meant by “winning”, nor “failing to start a business venture or career” what you apparently meant by “losing”. So I must ask at this point, what are your intended definitions for “winning” and “losing” for this thread?

As far as I can tell, this conclusion fails to hold for at least two reasons:

  1. “Nearly always” isn’t the same as “always”.
  2. More importantly, starting a business venture or career isn’t the same as succeeding in said business venture or career.

A deterministic assertion means that there can be no other way. Even one outlier is enough to cast the entire assertion into doubt. While you claim that your assertions in the OP are deterministic, you have not yet demonstrated this logically. Empirical evidence doesn’t matter here.

10

How did the Yankees get a larger payroll?

What I got from your statement is that wealth is not created, merely shifted. If that’s the case, why isnt’ everyone living in a cave and eating berries and small rodents? You seem to buy into the zero sum idea of wealth, which doesn’t make sense theoretically and doesn’t jive with history.

11

nice predictions, I agree to some extent, but the conclusion very poor. Basically, it is just your opinion. An assertion.

12

spot on. One has only to be productive to make money. Or have entrepeneurship skills so to speak.

13

The logical fallacy is that the statement seems to assume that being “unstable” is a bad thing.

14

It’s the central fallacy of Marxism and much of left-wing economic thought, the assumption that the owners of capital have a monopoly on it. This is just not factually accurate, these theorists forget that anyone can borrow money. Developed financial markets offer access to funding to anyone with productive capacity. And the owners of wealth therefore don’t have any inherent competitive advantage, and wealth does not naturally concentrate.

15

Actually, I don’t believe that to be the case. What matters in a free market is producing value at a lower cost than the next guy. How does having more money in any way make one more productive? If the rich run inefficient businesses and subsidize it with their fortune, they will run out of money eventually.

16

>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.

17

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).

18

**

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.

19

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? ™

It is true, of course, that an economy is NOT a zero sum game.

Neither is the game Monopoly ™.

In Monopoly ™, 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.

20

1 and 2 are false.