"Perfect Competition" a Joke

Let's see how some of the assumptions of perfect competiton hamper investigations of economic problems. There are a long line of examples you can point to. For one: it is assumed there are no "externalities" -meaning that no-one is affected by others' actions, except through the market. If something is not paid for, it is assumed no benefits or costs are involved.

The silliness of this assumption is clearly seen in a world concerned about pollution, or about the "quality of life".

For another example, it is assured that each individual wishes to maximise his/her own 'profits'. And that everyone stays as individuals. When the benefits of cooperation (eg cheap vegies through Food Co-op) are so obvious, it is surprising that "economic man' is still an individual.

Further, a basic premise is that no consumer or producer is large enough to control (or even affect) any market. The unrealism of assuming away the Government, monopolies and Trade Unions is amply seen in the work of recent economists trying to fit these into the theory.

Yet there would seem to be a major contradiction in pushing a square monopoly into a round hole that pretends it doesn't exist. And the implications of these problems have not been fully investigated.

The best example of lack of realising implications comes in welfare economics. Two leading economists, Robbins and Arrow, have shown conclusively that it is impossible in a free-market system to have a social welfare function (ie some indication of the total desires of all consumers). Yet after noting these difficulties, most of welfare economics assumes that there is a social welfare function.

So in many cases we can see (or not see) imaginery can openers. We're not getting much closer to opening the can of beans, or to explaining the economics of the present system.