Paying Investors With Product Solves the Paradox of Profit in Perfect Competition

[Patrick Anderson]

Originally posted to http://listcultures.org/pipermail/p2presearch_listcultures.org/2008-March/000436.html


This begins part two in our study of elementary economics. I hope
this will be a step toward resolving some of the still pending issues
in the "Capital Club" thread. If that doesn't happen, I will go back
and address them directly.

Part of the Wikipedia entry reads:
"According to the standard economical definition of efficiency (Pareto
efficiency), perfect competition would lead to a completely efficient
outcome. The analysis of perfectly competitive markets provides the
foundation of the theory of supply and demand. Perfect competition is
a market equilibrium in which all resources are allocated and used
efficiently, and collective social welfare is maximized." --
http://en.wikipedia.org/wiki/Perfect_competition

Since perfecting competition would cause price to approach cost, a
strange situation occurs where normal "For Profit" businesses - who
measure their success by the amount they can keep price above cost -
would all close their doors proclaiming failure.

A business must pay it's investors SOMETHING, otherwise, why would
they invest? So, if the investors are expecting profit, then they
require the business they invested in to be able to operate in an
imperfect market. Profit is a measure of this imperfection.

But there is another thing that we could pay investors if those
investors are in a certain set. If the investors are also CONSUMERS
(some could incidentally be workers too) of the product being
produced, then they would be satisfied with receiving product alone,
and would never need the business to keep price above cost.

When the investors of production are the consumers of the output, the
organization can withstand perfect competition because those that
pre-paid will expect PRODUCT instead of profit.


In contrast, if the all investors are all WORKERS (some could
incidentally be consumers too), and the market has perfect
competition, then the workers would be paid the same wages as any
worker that was not an owner, yet would have the risk of holding the
debt of that incorporation.

If you say "Well, they would be consumers too, so would also be paid
in product" then you are describing why consumers should be the owners
of the Means Of Production and avoiding the issue of whether ownership
should be limited to those that happen to have the skills to operate
it.

If you say "Well, the workers could pay themselves a higher wage than
non-owning workers" then you are talking about how profit would be
'hidden' in those wages since owners can arbitrarily make that
division. But in that case, the organization would be less efficient
than "consumer owned" - since, when many of the owners are not
neccessarily workers, then wages and profit are cleanly and clearly
separated. If a worker tried to collect too high of a wage for the
quality of work he was supplying, then the collective owners would put
that job up for reverse-bid (just as employers do today) until a
worker with a better quality-to-wage ratio was found.