PDA

View Full Version : What Are the Arguments or Theory for the Influx of Capitalism?


Hanna
Saturday, June 21st, 2008, 09:41 PM
I have some sort of theory about behind the thoughts why capitalism fails or failures behind capitalism .My arguments based on free market capitalism, which is been thought by most school of economics. The theory argues max efficiency that is being produce by the free market will automatically, provides = demand and so on. The confusion is, how could profit promotes efficiency because this will only increases the growth of the companies? Anyone have a better theory on this?

lei.talk
Sunday, June 22nd, 2008, 05:39 AM
I have some sort of theory…
Anyone have a better theory on this?as one of the many proof-readers
for this book (http://www.capitalism.net/),

nearly a year was spent
sourcing (as close to primary as possible) each statement of fact
and parsing each formulation

to ensure no errors (http://en.wikipedia.org/wiki/Fallacy) of integrating (http://en.wikipedia.org/wiki/List_of_fallacies) those facts
in to ineluctable descriptions of reality
lingered in the manuscript.

Cuchulain
Sunday, June 22nd, 2008, 06:13 AM
I have some sort of theory about behind the thoughts why capitalism fails or failures behind capitalism .My arguments based on free market capitalism, which is been thought by most school of economics. The theory argues max efficiency that is being produce by the free market will automatically, provides = demand and so on. The confusion is, how could profit promotes efficiency because this will only increases the growth of the companies? Anyone have a better theory on this?


Companies cannot continue to grow infinitely providing the same product or service, as eventually their production will exceed their market share (the demand they satisfy). Once they exceed the point where their production = their market share, excess expenses (i.e. producing and storing goods/too much advertising of services) will cut into their profits, giving them a competitive disadvantage. In a free market system the company will either correct their error or suffer the consequences when another firm takes advantage of it. (for example undercutting the erring firms price to capture a larger portion of the market). If a company wishes to expand further after fulfilling the demand for all of the products and services it currently provides, it will have to fill demand in a market for another product or service. If a company is not capable of doing this to the satisfaction of consumers, its new venture will hurt profits and management will put a halt to the new operations. If they can successfully fill the demand, they will see an improvement in profits and continue providing the product or service which the consumers have given their approval for by purchasing enough of it to make it profitable. In socialism, the government attempts top anticipate demand for products and services and tries to plan for their provision in the correct amounts in the most efficient manner possible. In the free market system, the planning is replaced by the consumers "voting with their checkbooks". Many capitalists would argue that the free market system is inherently more efficient because resources (money and man hours) are not squandered in the beaureucratic(yeah i can't spell that) planning and regulation of the economy- And also that the constantly flowing, dynamic system of the free market is more efficient at accurately fulfilling demand than is the trial and error socialist style. It is worth noting that pre existing companies are often more successful at efficiently providing goods and services in emerging markets due to advantages such as (pre-existing shipping systems, seasoned management and business relationships, access to bulk raw materials etc. [google: economies of scope].

Cuchulain
Sunday, June 22nd, 2008, 06:30 AM
Companies cannot continue to grow infinitely providing the same product or service, as eventually their production will exceed their market share (the demand they satisfy). Once they exceed the point where their production = their market share, excess expenses (i.e. producing and storing goods/too much advertising of services) will cut into their profits, giving them a competitive disadvantage. In a free market system the company will either correct their error or suffer the consequences when another firm takes advantage of it. (for example undercutting the erring firms price to capture a larger portion of the market). If a company wishes to expand further after fulfilling the demand for all of the products and services it currently provides, it will have to fill demand in a market for another product or service. If a company is not capable of doing this to the satisfaction of consumers, its new venture will hurt profits and management will put a halt to the new operations. If they can successfully fill the demand, they will see an improvement in profits and continue providing the product or service which the consumers have given their approval for by purchasing enough of it to make it profitable. In socialism, the government attempts top anticipate demand for products and services and tries to plan for their provision in the correct amounts in the most efficient manner possible. In the free market system, the planning is replaced by the consumers "voting with their checkbooks". Many capitalists would argue that the free market system is inherently more efficient because resources (money and man hours) are not squandered in the beaureucratic(yeah i can't spell that) planning and regulation of the economy- And also that the constantly flowing, dynamic system of the free market is more efficient at accurately fulfilling demand than is the trial and error socialist style. It is worth noting that pre existing companies are often more successful at efficiently providing goods and services in emerging markets due to advantages such as (pre-existing shipping systems, seasoned management and business relationships, access to bulk raw materials etc. [google: economies of scope].

An answer to your question would be that a company can only continue to profit as long as it is providing useful +something to society because other wise noone will buy it. If the company is inefficiently charging to much money for what it provides (say it costs $40 to produce 1 unit and the company charges $100) another company will steal their customers and therefore their profits, by producing an equivalent units and charging less money. In a free market such competition will push the price close to the cost of production. The more competitive the market, the closer to the cost the price will be. Agricultural products tend to be the most competitive market around, and therefore have very low profit margins. If a company has an advantage (DeBeers had almost exclusive access to mined diamonds for decades, many companies hold patents which give them exclusive rights to produce a product) it will be able to realize better profit margins. This is why most capitalist countries have anti-trust laws, to fight against this undermining of market efficiency. Some argue that even though patents undermine the economic efficiency of the market, that they are still good because they provide an incentive for firms to create new products which they otherwise wouldn't have.

Oops i meant to add that to my other post if someone feels like splicing them.

Hanna
Sunday, June 22nd, 2008, 11:25 AM
This is why most capitalist countries have anti-trust laws, to fight against this undermining of market efficiency.

But its a wider statement from a capitalist school, I mean its a general statement ,because no-one have any theory at which stages the business become most efficient? How do you know the SAAB cars no longer needed by the market, I hope you understand what I meant.

Cuchulain
Sunday, June 22nd, 2008, 04:10 PM
But its a wider statement from a capitalist school, I mean its a general statement ,because no-one have any theory at which stages the business become most efficient? How do you know the SAAB cars no longer needed by the market, I hope you understand what I meant.



Saab knows they are producing too many cars when when they have an overstock of cars. They then have to pay to store and maintain the extra cars (as well as foot the bill for producing them in the first place.) This added expense cuts into their profits, and makes them vulnerable to strategic moves from their competitors, if they don't learn from their error and adapt quickly to the market demand, they will suffer for it.

There are theories about when a business becomes most efficient. For example of you graph on a cartesian grid the average cost to produce per unit, and the average price per unit, the profit maximizing quantity will occur where the graphs intersect. To the left, the average cost will be lower than average price, so selling more units will increase profits. To the right, average cost will be higher than average price, so selling more units will decrease profits. Big firms have an economist (likely a team of them) who are much more skilled than i, and perform sophisticated analysis of the market to tell their bosses just exactly what is the right amount of goods and services to supply.

Hanna
Sunday, June 22nd, 2008, 05:12 PM
There are theories about when a business becomes most efficient. For example of you graph on a cartesian grid the average cost to produce per unit, and the average price per unit, the profit maximizing quantity will occur where the graphs intersect. To the left, the average cost will be lower than average price, so selling more units will increase profits. To the right, average cost will be higher than average price, so selling more units will decrease profits. Big firms have an economist (likely a team of them) who are much more skilled than i, and perform sophisticated analysis of the market to tell their bosses just exactly what is the right amount of goods and services to supply.

You're giving examples in which market reaching a max efficiency, am I not right? However those companies which aren't enthusiastic by profits wouldn't be needed. The fact is, companies are encouraged to grow their market but not to reduce it, I'm afraid to say that capitalism never reach it max efficiency by per definition through free market,do you agree on this theory?

Cuchulain
Sunday, June 22nd, 2008, 05:48 PM
You're giving examples in which market reaching a max efficiency, am I not right? However those companies which aren't enthusiastic by profits wouldn't be needed. The fact is, companies are encouraged to grow their market but not to reduce it, I'm afraid to say that capitalism never reach it max efficiency by per definition through free market,do you agree on this theory?


I am explaining several of the most important mechanisms by which a free market approaches efficiency.

Lets examine a sample non-profit entity to see how it still functions efficiently within the free market system. We will use a fictional Hurricane relief charity in the US. Firstly, the fact that the organization has funds which with to operate means that someone has given them money, which in turn means that that person has gained something through the donation (for some it is truly the satisfaction of helping other, for some others it may be the vain satisfaction of their peers knowing that they did it, likely a combination of both for most.) The point is, the organization is still fulfilling a demand for something. Now consider the competition aspect- prior to Hurricane Katrina, our charity had a 1 million dollar annual budget. Afterwards, donations dramatically increased (too a large degree at the expense of non-hurricane related charities) to yield a 10 million dollar budget. This change was essentially reflective of a change in market demand which was related to a change in the needs of society. In addition, NPO's also stimulate the economy by engaging in trade with businesses and employing people.

Businesses are usually see growth as good, because the economy is usually growing as the population and our standard of living increase. This is indicative of the success of the free market system actually. Over the course of time though, there will naturally be times when the economy is not growing but getting smaller, during these times businesses will not be encouraged to grow, many will fail and other will shrink in order to avoid the unnecessary cost of overproduction. Continuing to grow would threaten the profitability and survival of the company, so a company that knows what it is doing will avoid growth.

Free market capitalism will never reach 100% efficiency, but 100% efficiency is simply not attainable in any system. That is actually a mathematical truth which applies to all systems, not just political ones. The free market gets us closer than anything else though, in the opinion of those who advocate it, for the reasons mentioned in my first post.

Hanna
Sunday, June 22nd, 2008, 07:34 PM
Businesses are usually see growth as good, because the economy is usually growing as the population and our standard of living increase. This is indicative of the success of the free market system actually. Over the course of time though, there will naturally be times when the economy is not growing but getting smaller, during these times businesses will not be encouraged to grow, many will fail and other will shrink in order to avoid the unnecessary cost of overproduction. Continuing to grow would threaten the profitability and survival of the company, so a company that knows what it is doing will avoid growth.

Cuchulain,what you have mentioned above is simply the impact behind state controlled capitalism which per-definition refers as Corperatism or Mercantilism, where these two does not really challenge the theory behind free market.


Free market capitalism will never reach 100% efficiency, but 100% efficiency is simply not attainable in any system. That is actually a mathematical truth which applies to all systems, not just political ones. The free market gets us closer than anything else though, in the opinion of those who advocate it, for the reasons mentioned in my first post.

True I agree with you,max is nearly impossible, but I have a feeling that most of Americans taken to believe capitalism per-definition some sort of state formation instead just of economic system. Perhaps I'm wrong in this matter.

Cuchulain
Sunday, June 22nd, 2008, 07:39 PM
Cuchulain,what you have mentioned about is simply the impact behind state controlled capitalism which per-definition which refers as Corperatism or Mercantilism, where these two does not really challenge the theory behind free market.


I think what I said applies to the free market. Could you elaborate?


True I agree with you,max is nearly impossible, but I have a feeling that most of Americans taken to believe capitalism per-definition some sort of state formation instead just of economic system. Perhaps I'm wrong in this matter.

I think most Americans with an adequate understanding of capitalism think that its an economic system which requires certain state functions, such as maintaining personal property rights.