Competition and the Market Economy

The free market, capitalism, is often described as a competitive system. Most economists appear to hold this view. Is competiton really a feature of capitalism or is it something else? I finally read Jared Diamond's Guns, Germs, and Steel and have been considering how humans went from a familial socialist economy to market oriented trade. One thing that struck me, with all the subtlety of a brick through Bastiat's window, was how competition existed prior to markets.

Consider two early stoneage people of different tribes encountering each other in the woods. Each exist solely on what they can gather or hunt, they have no real surpluses to trade. If either one is able to forage successfully in the area, the other's foraging efforts are diminished. It is in the best interest of each to try to eliminate the other. Neither represents an opportunity for the other, they are in direct competition for the food in the immediate area.

Competition is a matter of nature no matter what societal organization we have. Even the definition of economics - the study of the allocation of scarce resources - alludes to competition. Whether a society is organized as a market economy or a socialist economy, there is a competition for scarce resources. What differentiates market economies from other economies is that in market economies individuals voluntarily cooperate to increase wealth and allocate resources.

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You're right. a market can

You're right. a market can exist if there's "this for that" happening, even if there is no competition at all. The earliest trade was probably via wandering single traders. No competition there because the next beads-and-flints vendor might not come along for a year or two. Trade and a market were still possible.

I think your equation in

I think your equation in your first sentence of the free market system and capitalism obscures more than it illuminates. Free markets long predated any recognizable capitalism.

If you can stomach the modest quantity of annoying Marxist vocabulary in it, let my highly recommend Fernand Braudel's "Civilisation and Capitalism" trilogy. I've come to think of it as in many ways the sequel to _Guns, Germs and Steel_, bridging the gap between where a world economy begins to appear and Diamond's story peters out in the 14th century and where the modern world starts to be recognizable in the 18th century.

One of the things that's striking in Braudel's analysis is the extent to which the signal properties of free markets -- price variation as a means of information flow, decentralization of production and consumption decisions -- have been ubiquitous since long before the advent of capitalism. While history has focused on the feudal and mercantilist silliness of the upper classes, the lower classes have, again and again and again, built the infrastructure and institutions of a market economy. It's enough to make one take seriously Marx's critique of economic organization as essentially a class phenomenon.

I think your equation in

I think your equation in your first sentence of the free market system and capitalism obscures more than it illuminates. Free markets long predated any recognizable capitalism.

You are right. My only point was that "market economies" are no more competitive than other economies. As opposed to what Samuelson & Nordhaus claim in Economics.

Contrast this to the view of

Contrast this to the view of government regulators--especially in the antitrust agencies--who have long held the view that "competition is the foundation of our society" (I can actually point to FTC officials who have used that exact phrase to justify government intervention.)

If either one is able to

If either one is able to forage successfully in the area, the other's foraging efforts are diminished. It is in the best interest of each to try to eliminate the other. Neither represents an opportunity for the other, they are in direct competition for the food in the immediate area.

Hogwash. The optimal strategy is exactly what lower animals do: define a finite territory and defend it. That's completely different from wandering around looking for competitors to kill. Doing so only wastes time and calories. Clan-sized populations in distinct territories lead to a stable equilibrium, unless and until there is some exogenous shock (e.g., drought).

Not my area of expertise, but my understanding is that the anthropological and paleotological evidence suggest that this is exactly how early man lived -- they simply didn't go running around clunking each other on the head while the food ran away or withered on the vine.

It was only after man stopped starving (i.e., through tools, domestication, irrigation, etc.) that he could focus on killing his neighbor, usually for reasons other than stealing his food.

Hogwash. The optimal

Hogwash. The optimal strategy is exactly what lower animals do: define a finite territory and defend it.

I think you read to much into what I wrote and missed my point. The point is that when two people are not related, have nothing to trade, and that all economic goods are gathered direct from nature, then when encountering a total stranger it may make sense to kill him, chase him off or otherwise prevent him from foraging in that area. Nowhere did I say that it makes sense to go around looking for people to kill. Whether either of them is defending property is moot for what I am demonstrating.

Clan-sized populations in distinct territories lead to a stable equilibrium

My skepticism meter just went off scale high. Stable equilibriums when discussing humans and nature are rather unbelievable. Warfare between nomadic stone-age tribes is well documented, even without exogenous shocks. I am not saying what the frequency was.

It was only after man stopped starving (i.e., through tools, domestication, irrigation, etc.) that he could focus on killing his neighbor, usually for reasons other than stealing his food.

I would agree that warfare takes on a whole new dimension and importance amongst societies after they are wealthy enough to support a political class.