Capitalism: Competition, Conflict and Crises, Lecture 5: Theory of (Real) Competition

[@RushuFriends]

As an Accounting student, this way of studying economics seems so much more closer to actual business and consumer behavior as we see it from a management and financial accounting pov. Im looking forward to complete this course and buy the book.

[@biagiopetruccelli8389]

I just found out about this, and I am amazed that such content is freely available and not watched nearly enough by the public. This is just incredibly useful knowledge, nothing less.

[@michaelm8265]

These lectures of Prof Shaikh's ideas and framework to view the economy are not just interesting for themselves, but they feature a true treasure trove of history of ideas of standard and non-standard economic theory. For instance that there is a difference in the view of what 'competition' is between Classicals (Smith, Ricardo, Marx) and those after Walras. Fascinating!

[@asenaemre]

If only one could force all von Mises-worshippers, anarco-caps and all LIBERTARDARIANS to watch this and previous lectures...AND force them to paraphrase the content. We would be free of them at last.

[@jsbart96]

asenaemre hahahaha

[@nickolasrobert7340]

True.

[@fahim102]

Could the channel please enable CC (closed captions) for all the videos in this lecture series?

[@danwylie-sears1134]

"You cannot count profit as part of your cost." (31:12) Well, yes and no. Profit is defined as the return on at-risk capital. If managers are contemplating an expansion of a firm's capacity, and they consider issuing shares to pay the initial costs, the return they'll have to pay on those shares is counted as a cost, and rightly so. If they have to pay a higher return than the expansion generates, then it's a bad deal for existing shareholders, so managers are supposed to decide not to do it. They well may do so anyway, which is a well known principal/agent problem in corporate governance. -- "R - i = profit rate of enterprise: this is the return to enterprise, meaning entrepreneurship or risk-taking or whatever." (35:00) You're eliding some distinctions here. First, there's entrepreneurship. It's normally described as a type of labor: the work involved in setting up a completely new firm. (Of course, in terms of class, it's done by capitalists, rather than by members of the working class. But it's still an activity that people do in order to get money, rather than being an asset that they own and get paid a return on.) Second, there are risk premiums. They're normally described as the difference between the interest rates on otherwise-similar assets with different default risk. Third, there are forward interest rates. If you issue a (zero-coupon) bond with shorter duration, and use the proceeds to buy one with longer duration, that's equivalent to making the decision now that you'll buy a bond in the future at an interest rate that's determined now. That rate is called a forward interest rate, and they're often not the same as the interest rate you'll get if you buy the bond later. When a firm undertakes a project, it commits to future expenditures, so the differences between current and forward interest rates are relevant. Finally, there's "economic profit", the additional return that a firm generates by being lucky or well-run. That's the one that firms are supposed to try to maximize, and it's the one that's theoretically zero on average. After all, the average firm has average luck and average management. Just being highly leveraged, or having your business require future expenditures that are equivalent to a forward bond that pays a higher rate than an otherwise similar bond today, doesn't mean you're generating economic profit. "Turbulence" (47:42) is a lousy term for hysteresis and overshoot. It sounds kind of like "turmoil", which helps you keep insinuating that there is no such thing as competition, and the only "real competition" is conflict. Also, absence of crossing doesn't mean there's no equalization. Asymptotic approach is equalization, even though the two curves never cross. "Equalization of price is dis-equalization of profit margins" (56:16) It was never profit margin (profit per unit of goods) that people suppose to be equal among firms. It's return (profit per dollar of market capitalization). Those differences are made up for by change in the value of the firm. Of course, market capitalization is supposed to be determined by expected profit over the entire future of the firm, not by any single year's profit.

[@Diamat1917]

17:35 Marx: Capital is a social form of wealth, driven by the profit motive. It is social use of the porduct that makes it capital

[@mariachavez1629]

Please, could one of the administrators activate the automatic subtitles, it helps a lot for people who don't know English

[@Diamat1917]

24:00 Nobody sets a price in postmarxian theory.

[@danwylie-sears1134]

You don't assume that firms are all alike in perfect competition. You assume that they all have the usual shape to their production curve, but they have different actual curves. If they were all exactly the same, the model would implode when price falls and some firms leave the market: instead of having some firms leave, as needed to adjust to changes in demand, you would no firms leave initially, until suddenly they all do. -- Firms don't respond to demand individually. That's why it works. No one needs to know anything about the overall market, only about the prices of the stuff they're interested in buying or selling. When demand falls, what they see is a lower price. -- Yes, when firms set prices, it means there's imperfect competition. Yes, when firms take other firms taking other firms into consideration, it means there's imperfect competition. But no, there are different firms, with different assets that enable them to make different profits, which determines the value of their assets in the current use, and the comparison with the liquidation value of those assets determines when firms leave the market. -- No physicist dogmatically claims that there really is no air, threatening to burn you at the stake if you point out that there is air. That's not how it works. The simple version from high-school physics is a starting point. Assuming that there's no air enables you to get started, and have a description of falling objects that helps you understand stuff. If you need to do engineering where air resistance is important, physicists have no problem with that. You just use fluid dynamics, which is a lot harder. Same for the simple version from Econ 101. No economist ever offers to burn you at the stake for noticing that Econ 101 is not a yes-there's-air kind of model of reality. Professors will flunk you if you take Econ 101 and refuse to answer the test questions showing that you understand the basic model. But physics teachers will do the same thing for the there's-no-air model of high-school physics. -- There's no central computer or wizard behind the curtain in general equilibrium. It's inventory. When sellers see their inventory rise above what they can conveniently stock, they lower their prices slightly below what they perceive as the going price. When users of a good see their inventory fall below what's convenient for them to keep on hand to be able to use the good when and as they want to, they become willing to pay slightly more than the going price. These differences are assumed to happen smoothly enough that the situation can be simplified down to saying that the price has always already adjusted to the market-clearing level. Everyone understands that it's a simplification. No one thinks it takes some sort of central planning. -- Everyone hears about oligopoly and monopolistic competition, if they take a sophomore-level economics course. So yes, the econ-for-business-majors class is very likely to leave students with the idea that perfect competition is the only concept of competition that economics can formulate. A badly taught Econ 101 course might do so, although it shouldn't. But if this is an audience of economics grad students, they'll all know perfectly well that there are other notions of competition that economic theory can handle. -- No, real competition is not conflict. Real competition answers a question for everyone: how good is good enough. When you run a course by yourself, training to be a faster runner, you have some indication of whether you're running fast or slow: you can compare one day's time to the previous day's time. But maybe you're pushing yourself too hard, heading for an injury; or maybe you're slacking off, convinced that what you're doing is the best that can reasonably be expected when in fact you're capable of much more. If you run a race, though, you just try to run as slowly as you can without losing. Everyone else is also trying to avoid losing, which means that you have to run just a hair faster than the next-fastest person is willing to go. It doesn't get you to perfect objective knowledge of how good is good enough, but it lets you effortlessly pool the knowledge you do have. Effortlessly in terms of pooling the knowledge, anyway. Competition is what runners in a race do, not what combatants in a war do -- even when the runners aren't perfectly self-aware, or the course isn't perfectly even. And yes, they don't explain this in Econ 101. But if you'd had a competent Econ 201 teacher, you would understand this. And just as real competition in a foot-race finds its equilibrium with everyone either running their best or giving up and letting faster runners claim the victory, so real competition among firms finds its equilibrium with each earning a return on its assets that corresponds to the overall marginal product of capital. Going after market share too hard is a losing proposition, under real competition, if it means that you have to produce inefficiently, such as by deferring maintenance or by merging operations in ways that just generate overhead instead of providing economies of scale. Likewise if you simply sell below cost, taking a loss on each item. Sure, it harms the other firms. But competition means you don't care about that, just as runners don't compete by having their spouse hire someone to break their opponent's knee. That was a figure skater, in 1994, but the idea applies just as well to runners: No one calls that "competition". It's something that a loser does when they don't think they can win by competing. "Defensible" isn't the relevant criterion either. Even if the runner could "defend" their win by continuing to maim all their rivals, it still wouldn't be competition. Likewise, even if a firm can win by harming other firms to destroy existing rivals and deter new ones, it's not competition. You'll probably "win" this debate. You'll probably convince people that competitive foot-races don't exist. Or that if they do, the real winners are the ones, no matter how rare, who "compete" by hiring people to break their rivals' knees. But it's still wrong. The fact is, foot-races do exist, and the competitors understand what they're doing. -- "A well-known hole". (24:31) No! It's inventory. Everyone knows that, who takes a sophomore-level economics course. Or at least they did thirty years ago. Maybe the discipline has collapsed since then. -- "A conflict between the success of a firm, and the success of labor". (27:10) Yes. This is a well-known limitation of markets. Markets can't tell the difference between efficiency and successful predation on suppliers, not only of labor but also of natural resources. But it's not competition. It's a conflict between capital and labor, which coexists with competition among firms. -- This is getting too long. I'm going to stop and just post what I've got.

[@Diamat1917]

10:05 why is idealistic vision of capitalism dominant although empirical evidence contradicts it? Because it is foundation of understanding of society!

[@Bmurdaco]

Too many ads on this video!

[@Faustus_de_Reiz]

I'm not sure why he thinks perfect competition is the dominant paradigm of economics because even undergrads learn that perfect competition is a Weberian ideal form. Of course it's not something that you're going to Empirically observe, because it's not meant to present an empirical observation. It is meant to give you something to distinguish or create a distinction from what is empirically observed.

[@aakashkohli914]

everything they taught us at school and graduation level is false... but why do they teach us all those things then...

[@moudhaffarsaidi9457]

Ideological commitment, and an investment in the academic power structure

[@Ottmar555]

Professor Shaikh himself gives a possible answer in this lecture: kzbin.info/www/bejne/kJycgqePe8mfidk

[@nickolasrobert7340]

Because it's the orthodoxy,and if you don't work with orthodox tools, you're not a real economist, understand? It's pure ideology.

[@Faustus_de_Reiz]

Can you point to a single model in graduate theory that is inherently false? If you can, was it made explicit that this theory is false but it provides a building block? Because when I went through graduate macro theory we did a Solow model. We were told explicitly that a solo model is not empirically observed but that it is a building block for understanding both real business cycle theory and other growth theories such as endogenous growth theory.