Occasional X: Clueless economists / Price Mechanism (XX)

“Liberty is competition and incessant conflict, the mother of all progress, in which only the most capable can triumph, and the weakest, as in nature, are condemned to annihilation.” (Gustave Le Bon) Not true. Instead, profit may provide a strong incentive to corruption/organized crime. In the free-market economy, not the most 'capable' but the most corrupt survives. 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 initial conditions of market-clearing and budget-balancing, this yields the price P in line 16. 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 firms and among households. 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.

— AXEC (@EgmontHandtke) October 31, 2026

For more about the quasi-Darwinian process, see AXECquery.