Is the perfect competition hypthesis simply the Hobbesian state of nature in the commercial realm?

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Hobbes defines the state of nature as war of all against all. Is the perfect competition hypthesis as classically defined presumably by Adam Smith simply this but rather than man against man, commercial entities against commercial entities; that is in the commercial plane or realm?

Mozibur Ullah

Posted 2013-05-14T23:30:50.500

Reputation: 1

I have amended my answer... – Vector – 2013-05-16T10:15:30.767

Answers

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Not really. At least for two reasons (but I'm sure there are more). First, Hobbes' "war of all against all" is a specific view of the "state of nature": there is no regulation, no sovereign, no law. Everyone is equal in the sense that everyone is free to take what they can, notwithstanding moral or any other regulative principles. Might is right. Perfect competition, on the other hand, is based on a certain vision of order - market economy. Moreover, perfect competition means there are no monopolies, which is not exactly in accord with "war of all against all" where the strongest is free to take all.

Second, Hobbes' state of nature brings no positive outcome for the community as a whole (well, there is not even a community). Perfect competition, in contrast, supposedly results in a desirable situation where consumers benefit from lower prices and better quality. To put is somewhat differently, in Hobbes' state of nature scarce resources are distributed inefficiently - they just go to the strongest, whereas under the conditions of perfect competition scarce resources go, supposedly, to those who can make the most of them at the lowest price.

All in all, however, the two concepts come from two very different places and I doubt they can be compared meaningfully.

Dzmitry Tsapkou

Posted 2013-05-14T23:30:50.500

Reputation: 398

Nice answer. Am i correct that it was adam smith that came up with the assumption of perfect competition? – Mozibur Ullah – 2013-05-15T20:19:33.247

It is definitely there in the Wealth of Nations, but no writer thinks in a vacuum. A JSTOR article (http://www.jstor.org/stable/1828600) suggests that the idea is already there in Becher and Boisguillebert who predate Smith and whom Smith must have read

– Dzmitry Tsapkou – 2013-05-15T20:27:04.150

@DzmitryTsapkou -"To put is somewhat differently, in Hobbes' state of nature scarce resources are distributed inefficiently.." - why is this necessarily so? Forces and counter-forces will eventually bring to a state of equilibrium - I believe the principle of entropy mandates such. There is no reason to assume that eventually a permanent monopoly will arise - on the contrary: a balanced, stable system will establish itself, through the constant tensions and counter-tensions. – Vector – 2013-05-16T02:30:33.460

1@ Mikey This is, indeed, not necessarily so. But nothing prevents it from happening in the Hobbesian state of nature, whereas "perfect competition" is precisely the situation where, by definition, this is not the case. I doubt entropy has much to do with it as long as we are still comparing concepts, both of which highly hypothetical). Whether they accurately describe the real state of affairs in the world is a whole different question. – Dzmitry Tsapkou – 2013-05-17T10:59:24.060

@DzmitryTsapkou - Thank you for your engaging reply. My contention is that entropy is relevant to 'the Hobbesian state of nature': Entropy tells us that systems naturally evolve to a state of equilibrium - which could be considered 'perfect competition' - we do see this in ecosystems, as I mentioned in my response. On the other hand, perhaps a pure monopoly is also a state of equilibrium that my arise from 'the Hobbesian state of nature'. Further, perhaps humans are now changing the balance of the ecosystem and we are moving towards 'an equilibrium of monopoly'-humans being the monopolizers... – Vector – 2013-05-18T00:32:51.320

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I have always believed that they are indeed one and the same. My own observations, acquired through years of working in the world of big business and finance (Wall Street) support this.

But to take this a bit further, and perhaps to counter Dzmitry Tsapkou's learned and astute contention, 'The Law of Jungle', as one might call Hobbes's principle, has produced a very balanced, albeit savage, ecosystem: In the rain forest, and in the natural world at large, we do not find that monopolies develop. Instead we find that many organisms live together, both in competition with one another and in symbiotic relationships, each finding its own niche and means of survival. Perhaps this is the best example we have of 'perfect competition'.

I object to those who claim 'capitalism' and entrepreneurially oriented economic systems come about 'by design' and can be replaced with others, such as Marxism: Smith's model is simply 'the natural order of things' when groups of humans congregate and engage in business and commerce.

Vector

Posted 2013-05-14T23:30:50.500

Reputation: 471