John Strachey

The Vision of Perfect Competition




In these passages, taken from Contemporary Capitalism, John Strachey presents the evolution of the so-called capitalist system from a situation of more or less perfect competition to one where the agents of "the economic process had ceased to be individual producers, buyers and sellers, and had become employers of hired labourers".
And this would introduce deep transformations that would put and end to a system of perfect competition.



Modern economics began with a vision and a demand. The vision was of a world of perfect competition. The demand was that the vision should be made flesh. Every let, hindrance and restraint which prevented the development of competition must be removed - laissez faire, laissez aller. [*] Moreover this vision of perfect competition was not intended to be a description of then existing reality. On the contrary, it was a revolutionary demand for the destruction of what was and the rebuilding of the world according to a new ideal.

The vision which inspired alike the French philosophes and the English founding fathers of the science implied the division of labour: it was a vision of a world in which each man was to have, in the words of Doctor Johnson, "his single talent well employed". Each man was to produce exclusively what he best could and then bring it to market in order to satisfy his wants by competitive exchange. The weaver was to sell cloth to buy food, boots, shelter, fuel and the rest: the baker to sell bread, the doctor medicine, the smith horseshoes, the cobbler boots - each to satisfy his manifold wants. It was to be a society based on the division of labour, and yet a society of perfectly free, equal and independent producers, buyers and sellers. There could be waggoners to sell the commodity "transport", and so fetch and carry to market, and merchants to sell the act of mediating the buying and selling. But that, in principle, was about all the complications allowed for.

True, in the real world there were landlords who had no need to sell anything in order to buy: for they received money for nothing in the form of rent. But the more radical at least of the prophets of what was to become capitalism regarded them as painful anachronisms, to be got rid of sooner rather than later. The landlord was the one man who enjoyed "unearned income", as we should call it. The early theorists had not really distinguished between the wage earner and the capitalist: they lay together, undifferentiated in the form of independent producers, neither employed nor employing-the peasant, the yeoman farmer, the hand-loom weaver, and the other independent artisans. None could doubt their contribution to the national wealth. Their fission into wage earner and capitalist, although it had in fact begun, was still largely unnoticed. They could still combine against the one parasitic class who lived by owning. And they did so under the banner of freedom of exchange in perfect competition; for that alone would ensure to each man the enjoyment of the full fruits of his labour.

The new dispensation was to be an essentially two-dimensional economy: a flat land in which no buyer and seller was to be taller than any other - so that none could over-reach his neighbour. The exchanges were envisaged as horizontal, as it were: they were to be exchanges between free and equal producers: between, in a word, men who all belonged to one category or class of society. No one had even whispered the idea that there might be another kind of exchange: that there might be vertical exchanges, as it were - exchanges which took place actually within, and in the course of, the process of production, instead of between independent possessors of the finished product. No one had whispered that there might be exchanges between men belonging to different social classes: between men who were so differently situated in society that even apparently free exchanges between them bred, not a mutual freedom and equality, but the reverse. There was no hint in the original vision that the produce-sellers might be themselves employers of other men who could not, for some reason, independently produce for themselves. There was to be no third economic dimension, no economic depth, as it were, to a society founded upon the original vision of perfect competition.

This was the vision which inspired the stormy political forces which sought and achieved revolution in France and America, and reform in Britain. Men passionately believed that if only the stale, feudal restrictions, the overgrowths of landlordism, monarchic arbitrariness and mediaeval superstition could be cast down, a classless Utopia founded upon free exchange in perfect competition must be the result. This was the mighty aspiration of which the demand to laissez faire, laissez aller was merely the sober economic aspect.

No doubt many of the early economists - the ever cautious Smith himself, for example - by no means shared the more Utopian dreams of the "left wing" theorists - such as Godwin. Nevertheless I think that it is true to say that the semi-conscious major premise of the economists' own theory, till the end of the eighteenth century at least, was a society of free and equal independent producers - largely classless if the landlord interests were overcome - rather than a society of employers and wage earners. Moreover we shall find that to a remarkable degree what is still, in Britain at least, the main body of economic thought has, in one sense, retained this character right down to the present day. Nor can the inability of the genuinely die hard section of present day economists to bring their theory into contact with mid-twentieth century reality be understood, unless we realise that they are under the continuing spell of the original vision of perfect competition.

We must also recollect, however, that in fact the vision of perfect competition was never made flesh - perhaps that is the very reason why it still haunts us in frustration. That was not indeed because feudal and monarchical restraints were not in the end effectively destroyed. It was because, before the vast process of clearing the ground for competition had been completed, the new qualifications, restraints, and in the end actual negations, of competition which we described in the last chapter had grown up. They are indeed only the final consequences of tendencies which appeared at the very birth of the system. For the truth is that the earliest development of capitalism proper: namely, the appearance of dependant wage earners in factories, marked the divergence of reality from the noble vision. For then already the true dramatis personae of the economic process had ceased to be individual producers, buyers and sellers, and had become employers of hired labourers.




[*] "Laissez faire, morbleu! Laissez faire" wrote the impassioned Marquis d'Argenson in 1751. But he in turn, it is thought, was echoing the answer of Legendre, the seventeenth-century merchant, to Colbert's question, "Que faut-il faire pour vous aider ?" - "Nous laisser-faire." (See Keynes' Pamphlet, The End of Laissez faire, for a delightful account of the origin of the phrase).


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