Why the Capitalists dont want a free market

[bailey_187]

Capitalists often pay lip service to "Free market" and "Perfect competition", but in reality they do not want it.

A free market is a market with no barriers to entry or exit, perfect information between producers and consumers, and complete mobility of all factors of production. If such a state of affairs existed, the profits made by capitalists would be tiny

http://tutor2u.net/economics/content/diagrams/output_longrun_2.gif

A capitalist in a free market will have to set price entirly on the supply and demand within the market (shown by the diagram on the left). The capitalist (shown by the diagram on the right) will have to set price at the market price which. But this is only the same price as the avergae cost (AC) of production. You could say why doesnt the capitalist minimise the AC, and they do, but assuming there is perfect information in a free market as there should be in one, other capitalists will see the firm is able to earn high profits and also enter the market, increasing supply, depressing price back down. The same is true if the capitalist attempts to raise price above its Average cost - capitalists will be attratcted to the market (as information is perfect and factors of production mobile), increasing supply and decreasing price.
So even if a compeltly "free market" WAS possible, it would be compleltly undesirable to capitalists.
Capitalists generally prefer oligopolistic markets as it gives them the ability to charge higher prices and erect barriers to entry to prevent new capitalists enetering the market, increasing their profit.


Some capitalists however pay lip service to the free market, and advocate "free market" policies. This is those particular capitalists cases if because they themselves do not hold a oligopolisitic or monopolistic position in a market.

[Common_Means]

Capitalists often pay lip service to "Free market" and "Perfect competition", but in reality they do not want it.

A free market is a market with no barriers to entry or exit, perfect information between producers and consumers, and complete mobility of all factors of production. If such a state of affairs existed, the profits made by capitalists would be tiny

The profits would, at first, be relatively smaller; although inherently greater than the individual's labour-power. Over time however, capital intensifies, leading to greater profits.



A capitalist in a free market will have to set price entirly on the supply and demand within the market (shown by the diagram on the left). The capitalist (shown by the diagram on the right) will have to set price at the market price which. But this is only the same price as the avergae cost (AC) of production. You could say why doesnt the capitalist minimise the AC, and they do, but assuming there is perfect information in a free market as there should be in one, other capitalists will see the firm is able to earn high profits and also enter the market, increasing supply, depressing price back down. The same is true if the capitalist attempts to raise price above its Average cost - capitalists will be attratcted to the market (as information is perfect and factors of production mobile), increasing supply and decreasing price.
So even if a compeltly "free market" WAS possible, it would be compleltly undesirable to capitalists.
Capitalists generally prefer oligopolistic markets as it gives them the ability to charge higher prices and erect barriers to entry to prevent new capitalists enetering the market, increasing their profit.

This is not true at all. The exchange-value of a commodity is the socially necessary labour time required to produce it. If capitalist `A' undergoes an innovation, he/she is able to increase productivity, dropping the value of labour-power, and still, for a time (until the innovation becomes the social norm) sell based on the socially necessary labour-power required to produce it - essentially, he/she extracts a greater amount of surplus value while still adhering to supply/demand principles in a laissez-faire market.

[bailey_187]

This is not true at all. The exchange-value of a commodity is the socially necessary labour time required to produce it..

The price is the socially necessary labour time + the surplus value.
If AC represents the socially necessary labour time, then price isnt going to fall below it, but surplus value can rise or fall based on price due to supply and demand changing price.



If capitalist `A' undergoes an innovation, he/she is able to increase productivity, dropping the value of labour-power, and still, for a time (until the innovation becomes the social norm) sell based on the socially necessary labour-power required to produce it - essentially, he/she extracts a greater amount of surplus value while still adhering to supply/demand principles in a laissez-faire market.

And when other capitalists see this large surplus (as there will be perfect information) they will enter the market too, increasing supply, lowering the price, so eating away any abnormal profits made.

[Common_Means]

The price is the socially necessary labour time + the surplus value.
If AC represents the socially necessary labour time, then price isnt going to fall below it, but surplus value can rise or fall based on price due to supply and demand changing price.



And when other capitalists see this large surplus (as there will be perfect information) they will enter the market too, increasing supply, lowering the price, so eating away any abnormal profits made.

The labour and the sale of labour-power are separate entities. Hence, when a capitalist is able to introduce new innovations, they are increasing the productivity of labour, while simultaneously paying the worker the labour-power. Moreover, by increasing the productivity to say 20% greater, the value embedded in each commodity drops. However, the capitalist will not sell for its actual value, only just below that of the socially necessary labour time required to produce the commodity under average conditions. The result is, in part, twofold:

First, the capitalist increased the valorization process. Second, they received a greater share of the market. The result is that the capitalist has, in fact, profited from a decreased price of the commodity.

The only way that laissez-faire markets (where "homo economicus''" rule the day) would be contradictory would be if all competitors were able to spontaneously implement the same innovation. However, given that the market acts as the source of deciding what is, and what is not, socially necessary, the other capitalists would have no way of knowing until the commodity went to market. Essentially, a lag between a new innovation and its social acceptance is inherent - perfect information or not.

Consequently, one competitor, for x period of time, extracts greater surplus-value. That is, the drop in the price of commodities vis a vis increased productivity allows for the further centralization of capital.

EDIT - The following should also be noted: If one accepts that labour-power is based on the value the worker requires in order to reprodcue themselves, it also stands to reason that the decrease in commodity prices also results in a decrease to the cost of labour-power.

Perhaps my interpretation is off - I have read Capital and had a great appreciation for the motion presented in it, but I would not call myself a Marxist. I would agree with the assessment that contemporary (and historical) capitalism is anything but laissez-faire. However, from my interpretation of Marx I would contend that capitalism had to be examined under entirely free conditions where actors were economically rational. Otherwise, the analysis becomes normative.