Capitalism Will Bring World Peace

Yes, it needs government interference. But this is a special case.
Most products don't have such physical barriers to entry.

And most importantly this barrier to entry does not come from free market forces. Maybe it is even a government law that declares this company the sole water deliverer.

Its got nothing to do ith present government authority its historic. It should never have been taken from public ownership.

Let me give you another example, close to me. The ferry company that operates between the south west of England and France, is another historic monopoly. Its charges are twice as high as the ferry companies that have competition. In a perfect world someone else would open up in competition but the infrastructure is owned by the ferry company and to even attempt to compete would be economic suicide. The ferry companies that did compete secretly made agreements with each other, to price fix. The government found out and subsequently penalised them. So the ferry companies, carved up the market and gave each other certain routes where they would not compete with each other. This has created local monopolies where the companies have no competition. The point Im making without government controls and even with them, monopolies will develop and act against the idea of free trade. You may find this acceptable but local trade between France and England has suffered because only high profit companies can afford to export or import. I personally have stopped trading with my french customers because of the high ferry charges.

I don't know, you're pointing out such special cases.

If ferry prices are so high, why wouldn't someone build a ferry terminal to get some of that high profit rate?

I have just said they have a monopoly on the ports in France and the initial outlay for a ferry and the associated costs are too prohibitive. It has been looked at by different consortiums but the start up cost are to high. Those who are in the business have created a legal cartel by locating certain routes to each other. They dont agree prices, just don't compete for the same business. Another game we could play...

Im given you real examples because it appears you live in imaginary world where reality is only a concept. You think I'm not for trade or free enterprise, I am but it does need protection from the unscrupulous.

I think a quick summary will help in this discussion.

You claim that:

1) In a free market, monopolies will not exploit their position from fear of having too a high a return which will attract competitors. If they do try to exploit their position, please see point 2.

2) In a free market, monopolies who try to exploit their position will attempt to set up barriers to entry. Barriers are not effective as flocking investors will naturally overcome them.

3) Where this doesn't happen, the monopoly must be a natural monopoly and thus society benefits by having only one supplier.

1) I reject this because it is completely contradictory to the rules of optimum pricing. You are saying that a profit maximising company will actually not behave in a profit maximising way. So essentially, I reject what you claim to be the behaviour of a monopoly. A company will charge as high as it can, and then react to anyone who tries to take its market share. What it will not do, is keep the prices down in case someone is attracted to the high returns. This is like trying to hide the potential return on a market, a game of hide and seek.

2) Here, I reject what you claim to be the behaviour of investors. A monopoly that has a high profit margin will attract the attention of investors, no doubt. But investors are not mindless cyborgs, who march towards profit without looking at the pitfalls.

I asked you a question ealier, which I'll ask you again: would you invest in my product knowing that I was taking on a monopoly who will slash their prices when I try and launch it?

The answer is no, unless your some kind of idealist. And the point is, you wouldn't be alone. Other investors would stay well clear of such a product. And where investors dare not approach, not only does the monopoly not face any competition, they also free themselves of your supposed 'threat of competition'.

If your flocking investors theory was as easy and effective as you claim, there would be no dominant companies anywhere today. There are no barriers to stop investors flocking to the Operating System market and fund some new OS to topple Microsoft. Where are the flocking investors to break the profits of Coca Cola and Pepsi?

3) I see no logical reason why this would be the case. Just because one company emerges as a winner, it doesn't follow that it must be best for society that it won.

I disagree with the way you claim players of the game will behave in a completely free market. The US is more capitalist than most other nations, yet you don't see flocking investors toppling the huge oligopolies. This might be due to government intervention, but in most cases I imagine it's the inability to win any market share.

But if you're convinced that behaviour does change in a market with no regulation, then we'll have to agree to disagree.

More or less, yes.



No, I'm saying that a profit maximizing company will exactly behave in a profit maximizing way. Companies don't blindly march towards profit. They keep an eye out for what's an overall advantage for them.
It might be a better financial choice to just squeeze the golden goose a little bit, than to squeeze it to death and be out of business.
To illustrate this, we could ask why a company that's somehow protected from competition doesn't just demand astronomical prices if they are profit maximizing. I think that's exactly because then the investors come in and take away business and prices would fall below what the company is currently getting.

But also I don't just mean that individual managers are weary of having to high profit rates, so they don't raise prices in order to keep investors away as a conscious choice. What I'm saying is that in the overall economy the mechanisms have that effect for society as a whole. Companies that chose to full exploit their protection will get driven out by competition and those that for whatever reason don't, will not. So the effects I describe are what the overall economy ends up with, not the results of choices of individual people, but mechanisms that happen in the economy as a whole.

It's like you paint a dot on each page of a book, and then you flip the pages quickly, it appears as if there is one dot that's moving. But it's not the same dot that's moving, it's many different dots each remaining where they are. So you would be right in saying that it's not the behavior of dots to move.
But as a whole it appears as if it's one dot that is moving.



And in a way you are right. The individual company doesn't have to behave in that way. But as for the overall economy, we see mechanisms working that way. And that might be because some companies go bankrupt and new ones emerge, not because individual companies have to act that way.



What I meant was not that investors will look for the highest rate of return and just overlook the dangers that are associated with the particular investment. What I meant was that the dangers of a particular investment are a factor that for the investor has the effect as if he received a lower rate of return. So the investor looks at a rate of return for the average of large amount of investments. He doesn't care whether he gets a 30% rate of return and two thirds of his investments will be lost, or whether he gets 10% and none will be lost.
You probably know that the more dangerous a loan is, the higher the interest rate for it will be. That is because the investment has to make up for the higher rate of investments that will be lost.
Those of the dangerous investments that do yield a return have to compensate for those who are lost. In that way, danger for the investor merely means he must get higher rates of return for the investment to be worth the risk. So a 5% return with a 95% chance of getting the money back might have the same value to the investor as a 6% rate of return with 90% chance of getting the money back. The numbers don't add up, it's just an example, but the point is that danger for the investor "costs" a part of the rate of return. It's not something that protects companies from investors.

So would I invest in a market where I can expect a price fight? Sure, if the rate of return is accordingly. And as I explained before, 'predatory pricing' isn't something that actually works, as the predator is unlikely to regain it's losses.

But it's a similar point than the last one. We're not looking at one investor making one decision. We're looking at the average of the entire economy. My position doesn't not require individual investors to act in accordance with these principles. Only that this will happen for investors as an average. An investor might not act in accordance with those principles, then he might fail and others prevail.



But we do not live in the utopian free market that I speak of. There are government laws and red tape that protect companies. Many of those government protections are quite hidden or disguised as a policy for something else. Actually I think western governments do little else than to give sapecial privileges to their corporate buddies these days. You can barely find a member of the Obama or Bush cabinet who hasn't worked for Goldman Sachs. That's not free markets, that's state capitalism, like Stalinism.
If you can't see the results of free markets manifest in the contemporary economy, that's because we don't have a free market economy.

And even in free markets there would be dominant companies, but as I will address in the next paragraphs that's not a bad thing.



Maybe people just like brown sugary water with a brand name on it? I see lots of no-name brand Cola everywhere, if people want to buy it they certainly can. There's no lack of ability to compete with Coca Cola.
If the customer perceives a label from Coca Cola or Pepsi to be something that's worth more money, who are you to tell him that that's a bad way to spend his money? Isn't he the one cosing to spend it on that?
And why stop there, if we can say that buying something with a label is a stupid expense, why can't we tell him that buying brown sugary water is a bad way to spend his money as well? So maybe we should require people to use their money for healthy food, because we know that's better for them?

I think the central concept that some people with - dare I call them socialisty mindsets - have to grasp about the economy, is that nobody knows better what people will get joy out of than what that person choses to give his money for. Even if we might think that is an inefficient allocation of their resources.
There is really no rational way to determine what market share a company ought to have. Kind off, what you're doing in a way is expecting other people to spend their money according to your personal preferences.



I think it does follow. But let's look at the same concept in a simpler incarnation to make this easier. If people buy something, does it follow that this product was the best or cheapest? I certainly think not. Is that negative? I think not. They might just be victims of misguided brand loyalty, or they might not have the information or time to research the best and cheapest product. I often buy stupid stuff because the way it makes me feel.
What people spend their money on, must be what they perceive to be the most joy they can get for that money.

You know this story? It's about a dog-food company, and their manager asks: "we use the best raw materials, the best packaging, have the best advertising, why don't people buy our dog-food?". And some low level manager says: "Dogs don't like it".
So just because one company emerges as a winner, does it follow that it must be best for society that it won. Yes, I think that per definition we must define 'best for society' as what people chose to spend their money on. Not what we (or some elite) think they ought to spend their money on.

I know a person that sells self-made art, and she told me that when she demands a higher price people buy more of it. For some reason people seem to think that if the paintings are more expensive they must be better, and cheapo paintings can't be good. So even the privilege to pay more for something is a commodity that's worth a price.



Yes, I think in the end it amounts to that. How things actually play out is something that not even economists can agree on. So how could we?
I am fully convinced that things work the way I explained. And principles and behaviors we can debate, as we have done. But in the end there is no way to know what actually happens in real life.

---------- Post added 02-03-2010 at 04:48 PM ----------



How come they have a monopoly on ferry terminals in France? Government...

So why isn't everybody unscrupulous, what keeps them from doing the same?

I dont think you will ever see the concept of monopolies as counter to the good of everyone, no matter what we say or give examples of. You ignored my examples and Josh has adequately explained why they are counter productive. Your imagined world is not the real world Nero.

I think we all live in our world cq image. Capitalism (an economical theory) can't be compared with Socialism (an Ideal). You can measure economic out-put but not the cultivation of the working-class, and middle-class surviving

............ ??? the thesis in the money makers is to end the private monopoly of printing money by private and unaccountable central banks like the federal reserve, the bank of england and the world bank, and bring back fiat currencies printed by elected governments with no interest payments involved. Are you for that?

but besides........ did i not make my general position clear?

The fact is that 'greed,' as you call it, has attained its ends WITH government controls. Furthermore, it would have been impossible for greed to attain many of its specific ends WITHOUT government 'controls' (i.e. interventions in the economy). For example, how could wallstreet/city-of-london have made the enormous profits speculating in the recent housing boom without: 1) the Fed and BoE (government granted monopolies on the creation of credit) artificially depressing interest rates and expanding the money supply, 2) the 'government-sponsored enterprises' in the U.S. creating a market for sub-prime and other mortgage-backed securities, 3) the inherent moral hazard in the very existence of the Fed and Boe as 'lenders of last resort?' Answer: they couldn't have.

Economic manipulation via reckless speculation can occur in a free market of course, but when such unsound practices lead to disaster, as they always do, a free markets will purge the system of the people responsible. Those people won't be in business any longer when they bankrupt themselves.

In a free market system, wealth will tend to accumulate in an upper class, but the membership of that class will be constantly in motion, as enterprises boom and bust. That is an expression fo growth and prosperity. On the other hand, in a 'socialist' (read: corporatist) system, wealth will also tend to accumulate in an upper class, but the periodic interventions of the government will ensure that the membership fo that class remains static, regardless of the increasing corruption and incompetance of the people in question. That is an expression of a parasitic arrangement that causes decay and stagnation.



What are the safe guards in an ideal socialistic system?

Government regulation to prevent corporations from doing the reckless things that cause economic disasters? What prevents those corporations from manipulating the government and preventing those regulations from being enforced? Note that this is exactly what has happened...the regulations either aren't enforced at all or are selectively enforced to to hurt the less well-connected competition.

Or maybe the existence of a government institution to maintain 'price stability' and 'full employment' through kenysian stimulation and to act as lender of last resort to prevent bank failures? O wait, we have that too! Those are the Fed's official mandates, and how has the central bank used those powers? To assist in the creation of asset bubbles from which private corporations benefit, and then to bail them out at public expense when the bubble bursts.

What kind of safeguards would an ideal socialist system have to prevent these problems?

On the other hand, the safeguard of a free market system is nothing other than the free market itself, which ensures that incompetance and excessive risk taking is punished with bankruptcy. Further, it prevents much of that behavior in the first plave by simply NOT allowing for fiat currency and central banking.

---------- Post added 02-10-2010 at 11:48 PM ----------



There have been very few examples of fiat currencies printed by governments, as opposed to private central banks. Mostly in history, the money has either been issued by private banks or the currency was based on hard assets, or actually was a hard asset. Given the extent to which the U.S. government and most governments in the world are controlled by a handful of corporate interests, simply abolishing the private central banks and handing their power over to those corrupt governments would accomplish little other than to create a false sense of success. Fundementally, the same interests would still control the currency, albeit in a more round-about way. Yes, there would be no more interest on the creation of currency, but that's only a small part of the game. If you despise the current monetary system and what it has done to the world, the only real solution is abandoning fiat currencies altogether and returning to a metallic standard of some kind.

The prime objection to this among Keynesians is the idea that hard currencies are somehow inflexible. Well, the value of the currency is indeed inflexible, and that's the point, but such a state of affairs in no way dampens economic growth as they suggest. It only prevents massive Keynesian stimulation of an economy via printing money, which is exactly the sort of 'growth' (read: borrowing from the future to invest resources inefficiently) that we want to avoid. Keynesian spending, possible only with fiat currencies, stimulates consumption over investment, and therefore provides short-term benefits at highly disproportionate long-term costs. This is the reason that Keynesianism is so popular with politicians (who think short-term), and one of the reasons that most western nations have deindustrialized and are verging on bankruptcy.

Along with this is the equally flawed notion that hard currencies appreciate over time, prices fall, and this leads to economic contraction. The former two statements are true, hard currencies do appreciate during periods of growth and therefore prices do fall, but why must falling prices cause economic constraction? The Keynesians have the causation backwards. Falling prices can in some cases be a sign of economic constraction, in that demand and employment are falling in a downward price-wage spiral. But this does not mean that in a period of growth falling prices would lead to such a contraction; on the contrary, falling prices create demand and drive growth.

NOTE-1: the Keynsian idea that rising prices (due to monetary inflation) drive higher employment and therefore higher demand and growth is based on fallacy - rising prices are always accommpanied by equally rising wages. In the last 30 years in the U.S., this has certainly not held; real wages have remained flat, while real prices have risen considerably. This is not surprising, given that inflation does not occur one once and equally across the economy. The people who get the money first do not see any decreased purchasing power, while those that get it last (workers) see the most loss in purchasing power.

NOTE-2: it would be interesting to apply the idea of unequally rising prices/wages to a hard currency system. If prices and wages are constantly falling, how would the rate of change for each compare? If the deflationairy dynamic was a mirror of the inflationairy dynamic, that would mean that prices would fall faster than wages fell. If that were true, that means that while the inequality of the march of inflation through an economy causes declining purchasing power, the march of deflation through an economy would cause rising purchasing power: i.e. prices would be falling faster than the amount of money one had to spend decreased. This would be another auto-catalytic stimulus for real economic growth.

The other, even sillier objection is that a hard currency simply does not work logistically in a world of growth, in that as the economy grows, the value of a currency unit declines, and eventually smaller economic transactions cannot be made for lack of small enough denominations of currency. As if I actually needed to explain, the solution to this 'problem' is for the government to periodically issue smaller denominations of currency; this does not entail finding more gold or silver in the world, but only reducing the number of notes in the highest denominations and creating an equivilent value of lower denomination notes. If governments in Weimar Germany, the former Yugoslavia, Zimbabwe et al can manage to add higher currency denominations every few weeks, there's no reason that a government can't issue lower denominations every few years or decades.

Another wonderful advantage of hard currencies comes to mind. When one major nation adopts a hard currency, all international trade adopts that nation's currency as the medium of exchange, due to its reliability. This is why the U.S. dollar replaced the British pound as world reserve currency after WWII, as the pound was taken off the gold standard and devalued heavily to pay war debts. International trade conducted in hard currencies precludes the possibility of sizable trade deficits and imbalances, which means that nations cannot rely on importing an excessive proportion of their goods and services unless they actually have the hard cash to do so. This might be another example of what Keynesians would call 'inflexibility.' But, as with the other instances, this inflexibility is a wonderful thing. If nations cannot rely on cheap imports purchased on credit or with printed money, then those nations don't go without - they start producing the goods and services themselves! Our modern economists hate, in principle, the idea of domestic production for domestic markets and label it as protectionism, as if that were a dirty word. No! they really hate it because it prevents the international banking housing from profiting as middlemen in transnational trade. It is both more economically efficient (i.e. less transport cost) and more conducive to real prosperity (as opposed to a debt-fueld consumption economy) for nations to produce themselves a greater proportions of what they themselves consume.

EDIT: Regarding note-1 and note-2 above, after a little thought I've come to the conclusion that the possibility explained in note-2 is probably correct. If inflation causes the increase in wages to lag that of the price of goods because it begins in the market with new demand for goods, then deflation should cause wage decreases to lag price decreases because it too begins in the market: with new supply of goods.

---------- Post added 02-11-2010 at 12:39 AM ----------



I'm not sure what company you're talking about, but I imagine it's the one that runs from Dover to Calais? If so, then you might find it interesting that Calais and Dover were always state owned 'port trusts' and not private entities. Calais has in recent years been sold to a private French corporation, which is now also trying to buy the port of Dover. The proceeds of the sale, if it happens, will go directly to the British Treasury.

My point is that, if this is the ferry company you're talking about, it's monopoly is very likely a result of an exclusive relationship it had with the French and British governments that owned the two ports, not any inherent monopolistic advantage gained in the free market.; as in, those governments agreed that only this one company would be allowed to operate out of its ports.

Its not Dover Calais that has competition and the rates are reasonable. Its the ports controlled by either P and O or Brittany ferries. The route in question is Plymouth to Roscoff . This is maintained with out government interference to act against them would be illegal.

I have given two examples of monopolies that have formed because governments are unable to create the necessary competition. How different would it be with your open system.

What exactly do you mean? It would be illegal for who to act against who?



As all classical economists admit, there are certain instances in which natural monopolies can form: i.e. when there is an extremely limited and irreplaceable resource. In this case, that resource is an invisible line between two coastal cities and associated real estate at either end. So it may not be any different in a free market system.

However, if I recall correctly, didn't you say that at one point some competitors of this company tried to join together in fixing prices to defeat the monopoly, but the government used anti-trust laws to prevent those activities? Have you considered that maybe, without that government intervention, this company would have had to drop its prices and actually compete with those other companies?

I believe in a humanistic turn/a/round

Firstly you cant make competitors fight for the same market, to do so would be illegal within the frame work of the law.

Water as a natural resource should be held by local or government control or ownership. The principle that has ben applied is capitalistic , it has created a monopoly that is detrimental to everyone except the owners of this water company.

The ferry companies had priced fixed with the result there was no competition. Now if we had stuck to that principle and let them continue with the combined monopoly of supply they had created, it would still be detrimental. They were not fighting for custom, so the need to be competitive was not there. They also between them controlled the franchise, it was a monopoly by agreement. Im not saying any system is better than the other but with monopolies only undemocratic measures can control them.

well maybe its because the two sides that are battling it out in this thread are so passionate about their understanding of the problem and how to solve it, that since i don't trust either solution (and see the faults in both through their commonality of structure), i am variously painted as an allie one moment and a member of the opposing camp the next!

No i do not trust private central banks run by an unnaccountable invisible small group who charge us interest for printing our own money and can expand and contract the money supply to increase their own personal wealth (and causing terrible suffering at times).

No i do not trust politicians and invisible state beaurocrats to print our money responsibly and match it to the wealth of their country as best they can. I expect them to expand and contract the money supply to increase their own personal public status and get reelected. Usually to expand the money supply of course, and postpone suffering in time for the next lot to inherit.

Good grief! Can nobody here see the similarities of government and corporate beaurocracies? Obviously not ..... else each of you wouldn't be so ready to promote one side as being so much better than the other.

I kind of disagree with that. At least theoretically. I don't think that in a free market system, wealth will tend to accumulate in an upper class consisting of an ever-changing flow of different people. I think wealth tends to flow down (to those who have less) in a truly clean free market system, like water finding it's own level. Or rather, everybody gets richer.
Wealth tends to flow to those who have the least, mainly because those who have little are more willing to do the same effort for less than those who have more. Just imagine that you need someone to dig a hole in your yard. Obviously you want that done for as little pay as possible. Someone who has little wealth will require a lower pay to do that job, someone who has more wealth will want a higher pay for it to be worth his effort. The job will go to the one demanding less. So this wealth will flow to the person who has less of it, not the one who has more, making them more equal. In all cases where this doesn't happen, it is the free choices and priorities of the people. So it would never the fault of the system that someone is poor or rich.
This is just a simplistic example, but I believe that this works on all levels of capitalistic interaction. It just gets more complicated and counterintuitive when we get into investment and the greater flow of money.

Some might say that it is unfair that some have to do hard work for low pay, while others are free of that necessity. But sadly the universe wasn't created to fit our needs; there is no system that can create free lunch.

---------- Post added 02-11-2010 at 06:54 PM ----------



Funny you should mention that term. But it is accurate, I have never thought about it that way. But since ww2, western society has deindustrialized; we're not manufacturing anything any more, we're just shifting around paper.

This is not closely related, but it reminds me of the end of ww2, when nazi armies demobilized. At that time it was usual for infantry to be driven around in trucks, but at the end of the war what fuel the nazis had was needed for planes and tanks, so that the infantry had to march on foot to where it was needed.
I think I mention it because I see a parallel; it's a sign that we're just before the ultimate crash. We're sort off in an age where our economy doesn't function on it's real assets any more. We're just injecting paper to create this speculation bubble economy.

Germany didn't so much. It's still nr.2 exporter in the world. PRC is first as we are all aware off. What are USA main export-products?

I find these considerations more and more meaningless. We figured out how it all works in a free market, but it doesn't matter how the free market works. Things are not controlled by free market mechanisms, they are controlled by an oligarchy. We might as well debate how fast horses were if they could fly, it has no application to reality.
Free markets are impossible, unless you somehow magically manage to get a large segment of the unwashed masses to grasp economic principles and demand free markets, instead of caring about amateur singing contests. Which the commies in the media and school system are doing a great job of preventing.
Recently Glenn Beck had on his program that all nations combed have a GDP of 50 trillion Dollars (that includes the "value" of the bubbles), the shadow economy is 600 trillion Dollars. The people in control of that money run things. Many people think that our politicians are acting the way they do (i.e. in anti-capitalistic ways) because they are bought by big corporations, the unions and lobbyists. But those lousy millions and billions only matter on a small scale compared to the trillions of the shadow economy.
I remember some old movie, where the rich guy only had to show his huge-Dollar-bill to get hotel rooms and dining for free. The hotel owner knew that if he pisses off that rich guy, the rich guy might just buy his hotel and put him out of work. It's like that; at some point great wealth means that you don't have to spend your money to buy things any more, because you get everything just because of the power that follows from having all that money.
That's what runs things, which means that all our free market and small-scale political considerations are meaningless.

---------- Post added 02-11-2010 at 07:35 PM ----------



Speculative bubbles and sadness.

I think germany still is the nr.1 exporter.

Hope this works. If it didn't please ignore the attempt.