Free Market Competition versus Cronyism and Monopoly

Posted by PITHOCRATES - January 15th, 2012

Week in Review

There is a general misunderstanding of what capitalism means.  When most people criticize capitalism, they’re not criticizing capitalism.  But, instead, crony capitalism.  Where some in business seek special favors from government.  Thus preferring the privilege of cronyism over free market competition.

Economics can range between two poles.  Free competition.  And monopoly.  Free competition is an essential element of capitalism.  Whereas monopoly requires the power of the state to enforce (see Competition and the Economists by Murray N. Rothbard posted 1/10/2012 on Ludwig von Mises Institute).

To Adam Smith and to his successors, “competition” was not a term defined with mathematical precision; it meant, generally, “free competition,” i.e., competition unhampered by governmental grants of exclusive privilege. And “monopoly” tended to mean such grants of governmental privilege.

To Adam Smith, for example, “competition” was used in the common-sense way that businessmen use it: to mean rivalry between two or more independent persons or firms. “Free competition” meant absence of grants of exclusive privilege, freedom of trade and freedom of entry into occupations; “monopolies” meant grants of exclusive privilege.

When Smith used the term “competition,” for example, he used it to describe the competition among buyers, which bids prices up when demand exceeds supply, or the competition of sellers, which bids prices down when supply is greater than demand.

Free market competition keeps consumer prices down.  Because of that competition between sellers.  When there is crony capitalism there is less competition.  And elements of monopoly.  Which lets prices stay high.  This is crony capitalism.  It lets those politically connected escape free market competition.  So they can enjoy higher selling prices.  And you can only do this with friends in high places.  Who have the power to suspend free market forces by legislation.  Which is the only way you can.

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