Unregulated Capitalism Can Be Reduced to Absurdity, Persuade Me Otherwise

MayCaesar

Nothing like this has ever happened in human history, and for a good reason: free market means harsh competition from millions individuals and companies, and in those conditions nobody can claim a monopoly.

Lasting monopolies only arise on crony government-controlled markets, where the government introduces legislations increasing the barrier to the market and even sometimes outlawing competition (via zoning laws, antitrust laws, patent laws and so on), so everyone who wants to compete with the monopoly is forced to pay billions to the government to even be able to enter the market.

If someone does manage to buy up the majority of means of production somehow, then at that point their company will be so large, bureaucratised and inefficient, that they will be forced to sell their production at astronomical prices, and nobody will buy from them and favor smaller emerging companies instead.

Instead of talking about hypothetical scenarios that have never happened and have no reason to ever happen in reality, how about talking instead about real scenarios with plentiful of historical evidence of the government abusing its power on the market it controls? This is what should scare you much more, than some abstract possibility that "might" happen in very specific circumstances, but also might not.

Ampersand

It can't be reduced to absurdity because it is already on it's very face absurd.

It takes the position that every single impediment to Capitalism we've created like "Hey, lets make it illegal to put poisonous ingredients in baby food" is repealed and instead you have to allow people to create and sell anything - no matter how harmful it is - and then expect that in a online worldwide marketplace where you have access to tens of millions of items, every consumer will magically be able to keep track of which items are good and safe and which aren't.

MayCaesar said:

Nothing like this has ever happened in human history, and for a good reason: free market means harsh competition from millions individuals and companies, and in those conditions nobody can claim a monopoly.

No, it's because nowhere on earth has anyone decided to ever implement unregulated Capitalism because doing so would be insane.

Unregulated Capitalism is a childish notion which in my experience is generally supported by the economically uninformed who rely on simplistic unevidenced narratives, like the one MayCeaser presents above, to make up utopian ideas of how their imagined free market capitalism would work.

대왕광개토

Unregulated capitalism would be a nightmare if it existed. Under such kind of circumstance, people will not have a powerful
entity(government) that could stop companies from exploiting their employees. Private companies will do whatever it takes to achieve high profit, and many workers will find themselves working under bad condition. In addition, companies will not care about environmental problems as much as they did when government was present. As a result, there will be more pollutions that will put people's lives at risk. Moreover, powerful companies will take over the market and set high level of price for goods and services they produce(though I am not sure if they can set any price as they wish).

Thomasius

@MayCaesar

In this hypothetical experiment, logically speaking, how come a monopoly likely won't eventually arise from a totally free market? Can‘t an enterprise utilize strategy within the parameters of financial resources and market competition to eventually chip away at competition around them and eventually assume all the economic territory?

I’m not sure I follow your line of reasoning as to how this hypothetical, absolute monopoly would be forced to sell its goods and services at ‘astronomical’ prices. Explain how this happens on a step-by-step basis.

Lastly, I don’t have any interest in debating governmental relations to the market economy because the subject pertaining to this exact debate is discerning whether or not you recognize that this outcome would likely occur in an absolutely free market.

MayCaesar

@Thomasius

Look at any free market of ideas, say, the community of mathematicians. It is clear that some mathematicians are more successful and knowledgeable than others, and some are just plain geniuses, far beyond anything anyone else can hope to be like. Do you see any monopoly there? Of course not: while top mathematicians can be 1000 times as productive as average mathematicians, every mathematician has something to do.
Same on a free competitive market: there could be huge corporations holding a large market share, but there will always be countless competitors they will have to face. Buying up everything is impossible, and not everyone is going to willingly sell what they have just because they were offered good money.

It is a pretty well-known effect: that as any organised entity grows in size, it becomes less and less efficient. There is no need to explain it on a step-by-step basis; all you need to realise is that the more people are involved in something, the harder it is for them to coordinate their actions. Unless a corporation can automate absolutely everything - which will never happen - it will lose in efficiency to smaller companies.
That means that its profit margins are going to be less and less as it grows. At some point, the profit margins are likely to become negative, so the company will be forced to increase the prices of its goods and services - and it will have to do so more and more as it grows. At some point, the prices will become so high that nobody will buy anything, and then the corporation will simply collapse.

Currently, a lot of corporations can circumvent these problems because the government funds them, covering for these effects. On a free market, where the government does not have any effect on the economy, this will not be the case.

Thomasius

@MayCaesar

It is not impossible for monopolization to occur, whether it is just one or a few monopolies. To say something is impossible means it necessarily can never occur, and there is no absolute barrier that prevents this. Monopolies can either buyout competition OR out-compete them with vast resource advantage. So, it is in fact very easy since an entity can easily begin a cycle of economically conquering competition and taking those victories to expand upon and further reach more consumers, until, in the end, one or just a few private entities control nearly all if not completely all of the means of production, distribution and exchange.

To your second paragraph, if your point is that bigger size means decreased efficiency, and that this decrease in efficiency means a decrease in profits, meaning a rise in the cost of its goods and services, then I’m very confused. Bigger size can mean deficiency, but poor management can exist in smaller systems too, so these things aren’t just relative to size but also to structure. I fail to see how, even if management problems existed, how this would necessarily affect profits because, even if poor management exists in some areas, it doesn’t mean that the commodities themselves or how they’re marketed and delivered will decrease. Again, these matters depend on structure, not just size. So, overall, no, your point does not hold up.

MayCaesar

@Thomasius

In economics, we do not deal in physical absolutes; we deal with reality, with real human beings, with all their flaws and strengths. We can say pretty confidently that on a real free market, one monopoly swallowing everything can never arise. That it can arise in principle in the sense that the physical reality does not prohibit it is pretty irrelevant. Many things are not prohibited by physical reality, for example, one person taking a knife and exterminating humanity by butchering everyone - but you will never come up with a realistic scenario of that happening.

We are interested in questions like, "If the market starts functioning this way, what will realistically happen?" We are not interested in questions like, "If the market starts functioning this way, and all humans suddenly have their brains reformed so they start acting in the most unexpected way possible, what will happen?" Those questions are better left to science fiction writers.

Poor management can exist in any system, but large systems experience serious logistical difficulties even with a very good management. You see, for example, that larger states, like the US, China or India, have much more serious logistical issues, than something small like New Zealand, and they always have slow bureaucracy, incredibly inefficient budget spending, and slow reaction to changes in the world. It is the same as far as private organisations go: logistical issues with the company growth are unavoidable.
And when you have to compete with thousands smaller companies that do not experience these issues and can focus their resources and attention entirely on creation of products and services, not bothering with all the bureaucracy, multi-level managers' hiring, training and funding, lawsuits from thousands private individuals and companies, etc. - you are going to lose. The only way not to lose is what most major companies do nowadays: to organise mutually beneficial partnership with them. You see companies like Google or Facebook constantly contracting startups to exchange developments and mutually outsource some work. Everyone benefits from such partnership, including customers.. 

Thomasius

@MayCaesar

Indeed, many things that are technically possible are not probable. However, the likelihood of a person exterminating humanity with a knife is far less likely than a monopoly arising from a market economy. How is a monopoly unexpected? Isn’t it natural for capitalists to want to seek as much profit as possible? How does the increase in hiring and training of new personnel add to its losses? If the structure of the system is sufficient, then it can utilize its human resources to increase its labor and management efficiency. As for things like lawsuits, both small and big entities can’t escape these things, and I fail to see how there will be so many lawsuits and such other related things that they’ll be financially in ruin because of this.

Thomasius

@Ampersand
I understand the point you're making and agree. I'm just demonstrating this absurdity for free-market advocates on their own terms.

MayCaesar

@Thomasius

Like I said, when everybody seeks as much profit as possible, you have a lot of market players. Hence one market player taking over everything is, indeed, pretty much equivalent to one person with a knife exterminating humanity.

That logistics become more complicated and costly as any entity grows is an observable fact based on common sense. I am not sure how anyone can disagree with the fact that it is harder for 100,000 people to coordinate their actions, than it is for 10 people.

Thomasius

@MayCaesar ;
How are these two likelihoods comparable? The person attempting to assassinate humanity with a knife would have to evade the military, law enforcement, successfully travel continents, always win every fight no matter the opponent’s arsenal, fight potentially multiple people, and somehow find a way to live long enough to successfully kill the entire billions of humans in the world. That is astronomically rare and might even only be possible if attaining the elixir of life or something like that. Then, you have an absolutely free market where people do at least start out competing with one another to assume as much wealth as possible, but then it is easy to understand from such an economic layout how a snowball effect can occur where one or a handful of companies can use their successful economic conquests through buying out or out-competing other private entities as increased leverage to more likely buy or out-compete future competitors until they've amassed at least nearly all aspects of the market economy. The likelihood between these two scenarios is laughably incomparable due to the vast gulfs of struggle between them.

As to your point on logistics and size, I’m not disagreeing that it is very likely that 100,000 people are harder to manage than 10 people. However, structure is just as important as size as structure will dictate business implementation, the ways and degrees in which troubles within size will be mitigated, what aspects of business will be more hindered than others, et cetera. You can definitely argue that you can have businesses with 10 people that fail due to poor business layout and have businesses with 100,000 people that are way more successful due to their business structure. At what exact point can a business be a successful big business versus being a business that is so big that it has an inverse profit relationship? Are monopolies just where you draw the line, if so, how big does a monopoly have to be to reach this exact point in your line of reasoning that it will lose its profits? I don’t think you’ve thought this point out well, but feel free to prove me wrong.

MayCaesar

@Thomasius

And on a free market, the company would have to evade millions competitors, billions customers with constantly changing preferences, thousands lost devastating lawsuits, thousands failed investments, dozens minor recessions, thousands independent innovations, and so on and so on. I actually think that a guy with a knife has a better chance, as he is, at least, fully in control of his actions - while large corporations are likely to start crumbling from the inside, unable to bear the costs of their own existence.

You keep missing the point: I am talking about systematic effects. It is true that some small companies fail, and some large businesses succeed - however, large businesses are inherently handicapped by the effects I talked about. With the same business model, a smaller company is going to be more efficient. It is inevitable that on a free market profit margins shrink as the business grows, and that is even observed on the modern crony markets. 
As the company grows, its revenue grows linearly, but its expenses grow exponentially. I do not think there is a point at which absolute profit starts decreasing, but relative profit decreases all the time. And when the profit margin becomes low enough, below, say, 10% (which is the case for a lot of corporations already; in the S&P 500, for example, the average profit margin is around 8%), then growth becomes simply unsustainable, as any minor crisis is likely to bankrupt the company. Most of the companies' assets are non-liquid, which means that even one quarter of slightly negative profit can decimate the company.

Now, in the modern economy companies have workarounds. For one, the government always bails out domestic companies that are failing; this is something that will not be the case on a free market, hence a failing company will be gone. Then, companies make deals with the government that give them tax credits, which allows them to shrug the competition away and rarely get into negative profit margin, even when they make serious business mistakes. Finally, while their assets are generally non-liquid, they are able to leverage antitrust laws in a way that allows them to trade them as if they were liquid - it is a strange scheme, but effective, and I suspect that it was the original idea behind the antitrust laws.

I am not sure how many people around here have attended a directorate board meeting at a large-profit company, but I encourage everyone to do so. It can be very illuminating. Once you see from the inside what kind of issues companies face on the everyday basis, you will realise just how far away from reality the idea of a sustainable free market monopoly is.

Thomasius

@MayCaesar

A company would not have to evade millions of competitors, but instead out-compete and buyout these competitors. A company and shift and/or diversify its brand and products to match the changing preferences of consumers. A company, if profitable, is likely to successfully endure lawsuits and failed investments, given if these things happen at a natural pace, as well as endure potential recessions that may or may not come to pass. If you honestly think that a single person trying to murder the entire human population has a better chance at achieving his or her goal than a company or set few companies being able to exploit a free-market system and monopolize upon, then I don’t think you understand how to figure out likelihood.

To your second point, in terms of objectivity, if a company grows the size of its labor and management, all while incorporating these things into an effective business model, then it can utilize this increase in its workforce to correspondingly bring in even more profit by using these workers as investment for its enterprise. If an entity is able to continually out-compete and buyout other enterprises, more workers will come to them and so both these defeated companies and their workers will be added in as new investment to the enterprise, creating an easy snowball effect in which will lead to a monopoly that is able to meet the future expenses its size will incur by having expanded effectiveness and outreach until it reaches the point of being a monopoly.

On your last point, problems are faced by businesses of all sizes. Again, if your argument is that if company X increases, it will become handicapped by negative effects, then should businesses fear growth? If not, what’s this exact point in which businesses should fear growth? If you can’t answer this exact point, then that necessarily means that these issues are relative to other things outside of size that cause a company’s downfall.