Best article to refute common economic fallacy

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Jayjay replied on Fri, Jun 19 2009 12:39 AM

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Gene Callahan's Economics for Real People, pp79 - 80:

PEOPLE OFTEN USE words from the arenas of games and war to describe the market. We hear that international competition will result in some nations being “winners” and others “losers.” We read a headline that some company has “crushed” its competition, or that the U.S. is at “economic war” with Japan or OPEC.

Employed as loose metaphors, such terms are useful. But the analogy does not extend very far. The key difference between a game and the market process is that, in the market, all participants gain from voluntary exchange. Kyle, Stephen, Rachel, and Emma were all better off after completing their trades than they had been beforehand.

Imagine that you and I open competing software companies. Over time, it becomes apparent that consumers prefer your product. I close my business down, and you wind up hiring me as your lead programmer. Now, in one sense, I lost and you won. But in a much more important sense, everyone won. I now have a role in fulfilling the needs of the consumers to which I am better suited than previously, you have a new lead programmer, and the consumers have a better software company. This stands in sharp contrast to sports, where the winner gets a “1” in the standings, the loser a “0,” and everyone goes home. It is also very different from war, where the winners may do what they want with the losers, including annihilate them.

To take the metaphors of games and war too literally in describing the market process is a misapprehension of its nature. Market competition is different than sports and war in crucial ways. It doesn’t exist to pick “winners” and “losers”: it exists to allow everyone to find a place in the scheme of production in which they can best satisfy the wishes of consumers.

It is just as mistaken to view international markets as pitting one nation against another as it is to view the domestic market as pitting employees against employers, or producers against consumers. In a market economy, whether it is domestic or international in scope, everyone’s standard of living can rise at once. America has not lost if Japan or China should become wealthier than the U.S. An increase in the standard of living anywhere benefits all people who are economically integrated with the area in question.

The discovery of the law of association was a great achievement of the classical economists. It points the way toward social harmony, showing that the powerful and the weak have a better way to relate to each other than through exploitation. The nature of the market as a network of voluntary exchanges means that each participant must feel he is benefiting from a trade, or he would not enter into it.

With the basics of multiperson exchange under our belts, we can move on to economic calculation, and the tool that made it possible—money.

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Jayjay replied on Fri, Jun 19 2009 12:48 AM

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Rothbard in Man, Economy, and State, pp660 - 661:

Let us assume for a moment that One Big Cartel could be established on the free market and that the calculability problem does not arise. What would the economic consequences be? Would the cartel be able to “exploit” anyone? In the first place, consumers could not be “exploited.” For consumers’ demand curves would still be elastic or inelastic, as the case may be. Since, as we shall see further below, consumers’ demand curves for a firm are always elastic above the free-market equilibrium price, it follows that the cartel will not be able to raise prices or earn more from consumers.

What about the factors? Could not their owners be exploited by the cartel? In the first place, the universal cartel, to be effective, would have to include owners of primary land; otherwise whatever gains they might have might be imputed to land. To put it in its strongest terms, then, could a universal cartel of all land and capital goods “exploit” laborers by systematically paying the latter less than their discounted marginal value products? Could not the members of the cartel agree to pay a very low sum to these workers? If that happened, however, there would be created great opportunities for entrepreneurs either to spring up outside the cartel or to break away from the cartel and profit by hiring workers for a higher wage. This competition would have the double effect of (a) breaking up the universal cartel and (b) tending again to yield to the laborers their marginal product. As long as competition is free, unhampered by governmental restrictions, no universal cartel could either exploit labor or remain universal for any length of time.

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bbnet replied on Fri, Jun 19 2009 3:55 AM

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Illustrated comic book for kids (and adults):

How an Economy Grows and Why It Doesn't by Irwin Schiff

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nirgrahamUK replied on Fri, Jun 19 2009 8:28 AM

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download Reisman's 'Capitalism' http://www.capitalism.net/Capitalism/CAPITALISM_Internet.pdf then from page 343

"The Nature of Economic Competition"

here are some Reisman quotes

“Whoever claims that economic competition represents 'survival of the fittest' in the sense of the law of the jungle, provides the clearest possible evidence of his lack of knowledge of economics.”

“The truth is that economic competition is the very opposite of competition in the animal kingdom. It is not a competition in the grabbing off of scarce nature-given supplies, as it is in the animal kingdom. Rather, it is a competition in the positive creation of new and additional wealth.”

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rockstar107 replied on Fri, Jun 19 2009 11:21 AM

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Here's one suggested by another source, for those of you who like to keep things like this in your toolbelt:

The Myth of the Level Playing Field (Why economics is not a Zero Sum Game)

http://www.lewrockwell.com/orig5/bostaph2.html