Market and new alternatives

The economic problem and the market

• The economic problem is overwhelming, and we need an economic mechanism that operates like a real algorithm to approximate a solution.
• The capitalist market acts as a real algorithm, managing to provide a solution to the extremely difficult allocation problem by dividing the problem into subproblems (companies) and coordinating them with the price mechanism.
• If something is scarce, its marginal productivity increases (due to diminishing returns), its price increases (because entrepreneurs value things based on the profits they generate), its production increases (because the profitability of producing it increases and entrepreneurs want to maximize profit), and thus its scarcity tends to be compensated for.
• If something is abundant, its marginal productivity decreases, its price decreases, its production decreases, and thus its abundance tends to be compensated for.

Market Results

• Traditional economics assumes that the world is the result of the interaction of subjects who exchange and produce to maximize their subjective utility.
• (Imagine further that the subjects somehow manage to reach a situation in which none can improve without worsening another, and claim that such a state is somehow "optimal".)
• However, if some of these subjects or agents maximize profit by using techniques similar to others, they will tend to obtain a proportionally higher output in the long run than by maximizing any other objective.
• Therefore, in the long run, profit maximizers will tend to survive , displacing those who pursue any other objective. Even starting from a world of utility maximizers , this will tend to evolve into a world of profit maximizers .
• We will call PM1 the world of utility maximizers , and PM2 the world of profit maximizers .
• (We can model PM2 with the Von Neumann economic model, or VN, an economy with maximum proportional growth.)
• But PM2 (and VN) is an ahuman allocation ; it doesn't take human objectives into consideration, only profit. Profit maximization determines a non-anthropocentric economy, where human beings participate on an equal footing with other resources, where the subordination of human beings, their objectives, and their needs to production for production's sake prevails.
• Therefore, the unrestricted market leads to the subordination of human beings to the maximization of profit.

Without a market we cannot allocate; �with a market we have structural problems

• Besides the problem of dehumanization, which is the most serious, the capitalist market shows other structural problems (problems caused by the very way in which the system operates).
• Instabilities, such as the cycles of economic crises;
• Waste, such as unemployment;
• Power over the market, such as monopolies and oligopolies;
• Inequality, between people and between countries;
• Ignorance of global problems, such as climate change or the loss of biodiversity.
• But we do not know of any other economic mechanism, apart from the market, that can provide a solution to the economic problem.
• In short: if we use the market we arrive at profit maximization, the subordination of human beings to production for production's sake, and the other problems mentioned; if we do not use the market we cannot provide a solution to the economic problem.
• This is the question of our times.

Problems with alternatives to capitalism

• Faced with this dichotomy and these problems, already evident in the 19th century, some solutions have been proposed in the 20th century, such as communism and the welfare state.
• Communism was an administrative economy that didn't entirely reject the market or businesses, but aimed to establish prices and production and consumption quotas through the state. It became clear that this economic mechanism was even more inefficient than capitalism, precisely because it prevented the market from operating freely in the allocation of resources.
• The welfare state maintains the capitalist market as the regulator of the productive apparatus, but diverts resources from it to allocate them to purposes other than profit maximization: public healthcare, education, pensions, etc. In doing so, it has partially humanized resource allocation and mitigated some of capitalism's structural problems. However, it shares the structural problems of pure capitalism, even while mitigating them; and it shares problems of inefficiency with communism, precisely because part of resource allocation is not subject to competition. Furthermore, it is not available to all of humanity, and therefore faces sustainability problems when there is no technological advantage to offset its enormous cost due to competitive pressure from countries that do not benefit from it.

We need new alternatives

• We won't be able to do without the market, not for now.
• But the market alone leads to dehumanization and the other structural problems we have pointed out.
• The most successful solutions to this dilemma so far have been the welfare states of advanced countries.
• But precisely because it is applied only to some countries, and because of added problems such as a tendency towards inefficiency, this model is in serious crisis. And even if this crisis could be overcome, welfare states only in developed countries are not a long-term solution.
• We must look for new alternatives that allow us to solve the extremely difficult economic problem without falling into the dictatorship of profit and that are applicable to all of humanity.