Occasional X: How it works (DXXXII)

Why the Worst Get on Top is the title of Ch. 10 in Friedrich Hayek's book The Road to Serfdom. In the free-market economy, profit may provide a strong incentive to corruption/organized crime. According to quasi-Darwinian logic, the most corrupt survives. The proof is given in table AXEC221b ⇓. Microfoundations are methodologically false; therefore, the elementary production-consumption economy is given with three macroeconomic axioms in lines 1, 4, 7. The business sector is split into two identical firms in lines 1-2, 4-5, 7-8. Under the initial analytical conditions of market-clearing and budget-balancing, this yields the price P in line 16. For a start, the price is the dependent variable here. In the initial state, the price is equal to unit wage costs W/R, and equal for both firms. The workers get the whole product O. The profit Qm for both firms and the business sector as a whole is zero. Now, the wage rate W in firm 1 is lowered arbitrarily; otherwise, both firms are identical in every respect. As a result, the market price P decreases in line 12. The profit of firm 1 increases in line 19; firm 2 makes a loss in line 20. Total profit remains zero. The household sector as a whole still gets the whole product O, but the workers of firm 1 can buy less with their lower wage income; the workers of firm 2 can buy more with their unchanged wage rate W and a lower price P. The firm that somehow manages to pay less for the same labor input increases profit Qm. Firm 2 makes a loss and will go bankrupt if it does not also make a wage cut. As a result, firm 1 wins the race to the bottom. The workers of firm 1 cannot move to firm 2 because it no longer hires or doesn't exist any longer. This process of cross-over exploitation is inherent to capitalism and inevitably leads to higher concentration. If a firm can undercut minimum wage regulations, it can be said that the criminal firm wins and the honest firm loses. What remains in the long run is a degenerated/ corrupted free-market economy. On closer inspection, economics is revealed as the story of intra-sectoral cross-over exploitation among the firms of the business sector and among the households of the household sector. Sociologically, this means there are no classes with a common interest. Ultimately, the market is not primarily an allocation mechanism but a quasi-Darwinian selection mechanism that increases the survival chances of the corrupt and decreases them for the honest. This is why guilds have emerged historically. Basically, they are self-organized associations of the honest against the corrupt, with honor as the guiding behavioral principle. Honor was replaced with the freedom of licit/illicit profit maximisation, which favors the corrupt.

— AXEC (@EgmontHandtke) November 1, 2026

Occasional X: How it works (DXXVIII)

“Taught this way, economics is revealed as the story of human cooperation, with division of labour, profit and loss guiding us toward more productive activity.” (Mani Basharzad) Not true. Economics is taught the false Austrian way. Instead, profit may provide a strong incentive to corruption/ organized crime. The proof is given in table AXEC221b ⇓. The elementary production-consumption economy is given with three macroeconomic axioms in lines 1, 4, 7. The business sector is split into two identical firms in lines 1-2, 4-5, 7-8. Under the conditions of market-clearing and budget-balancing, this yields the price P in line 16. The price is here the dependent variable. In the initial state, the price is equal to unit wage costs W/R, and equal for both firms. The workers get the whole product O. The profit Qm for both firms and the business sector as a whole is zero. Now, the wage rate W in firm 1 is lowered arbitrarily; otherwise, both firms are identical in every respect. As a result, the market price P decreases in line 12. The profit of firm 1 increases in line 19; firm 2 makes a loss in line 20. Total profit remains zero. The household sector as a whole still gets the whole product O, but the workers of firm 1 can buy less with their lower income; the workers of firm 2 can buy more with their unchanged wage rate W and a lower price P. The firm that somehow manages to pay less for the same labor input increases profit. Firm 2 makes a loss and will go bankrupt if it does not also make a wage cut. As a result, firm 1 wins the race to the bottom. The workers of firm 1 cannot move to firm 2 because it no longer hires or doesn't exist any longer. This process of cross-over exploitation is inherent to capitalism and inevitably leads to higher concentration. If a firm can undercut minimum wage regulations, it can be said that the criminal firm wins and the honest firm loses. What remains in the long run is a degenerated/corrupted free-market economy. Taught this way, economics is revealed as the story of intra-sectoral cross-over exploitation between firms and between households.

— AXEC (@EgmontHandtke) October 29, 2026