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Post-keynesian and Austrian Criticisms of the Standard Neoclassical View of Competition Essay

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Introduction

The economists distinguish competition as essential to the economic science. They also say that generally the equilibrium is not competition; the Austrians school of economic thought from time to time confuses the two unlike the other schools of economic thoughts (Blecker, 1989).

The current models policies are argued upon the general equilibrium structure, while mixed interactive agent-based models have been coming up to confront them.

Some economists or in other words competing schools of economic thought which may include the neoclassical , post-Keynesian, Australian, and some other institutional economists all embrace the position that disagree on basics (Samuelson,1947).

The Post Keynesian economic thought argued that even if a theoretical pure competitive market circumstances that may include instantaneously flexible wages and prices existed this would not without human intervention achieve a full employment general equilibrium in the money-based economy (Bowles & Boyer, 1990).

Therefore the differentiation of products hinders competition because this makes the competitive entrance so costly. To make it more precise neoclassical economic school of thought makes it clear that main automobile companies transform styles probably each year thus increasing the operating cost of competing in this business.

Probable competitors might be willing and in a position to undertake the same or similar measures, moreover they simply cannot contend. Alternatively—indeed, on the other hand—the economies of scale also limit the competition.

Considering the fact that most definite firms take in lower costs per unit cost due to huge volumes this enables the them to hinder the smaller growing firms, or smaller potential entrants, from entering into the market (Samuelson, 1948). This is because those efficient and well established firms can never compete with the new up coming ones.

The neoclassical school of thought is said to have gotten the issue precisely and completely toward the rear. This is because the consumers will find the resources allocated pleasingly that also likely competitors find it hard or impossible to enter into the market.

Always the product differentiation, in particular that does increase the prices, can sometimes act as a barrier to entry that is if purchasers desire that segregation and pay most probably higher prices linked with, the new yearly auto styles.

On the other hand when buyers do not choose such segregations and, instead, recognize the firms that alter styles not as much or never at all, then manufactured goods differentiation here hardly acts as a barrier to the aggressive entry.

Through econometric analysis of the economic theories, the post Keynesian and the classical models provided reasonably good description of profit differential while the neoclassical performed the worst among the three.

Linking the classical and the post-Keynesian models, we discover that the classical is further consistent with the phenomena that it is intended to clarify. To conclude a hybrid model combining variables from the three unconventional theories displays the main explanatory influence (Lance, 1985).

There are usually two avenues of criticism that one may take with reverence to the neoclassical monopoly theory. Within the first consign, one may criticize the purely competitive model which is taken as a point of reference and as a foundation of comparison with monopolistic situations.

Also criticisms on the whole notion of non-legal barriers to entry can be applied, disagreeing, instead, that it is simply the customer preference that limits the competition and that, therefore no misallocation of income occurs. In many cases economists tend to agree that pure competition is not really feasible (Marc, 1992).

Most likely reluctantly, that it may not even be pleasing or optimal if it might be real. This is there are few economists who noticed and emphasized the critical rule of the purely competitive model, distinctively, that it is not a descrip­tion of rivalry at all.

The pure competition is believed to be stationary, whose equilib­rium condition and the assumptions are such that the competi­tive process is lined out by meaning.

Or to be more precise, though pure competition may illustrate the absolute out­come of a exacting competitive situation, the critical end consequence, it does not explain the competitive procedure that produced that significant outcome. Therefore purely competitive theory is not a speculation of competition as it is said to be.

The neoclassical tradition of perplexing competitive procedure with a final, fixed equilibrium state makes for gross errors and mistakes in the economic scrutiny.

For instance, the product demarcation, adver­tising, the price competition as well as including price discrimination and modernization are somewhat more often than not fated as monopolistic and therefore as resource misallocating and socially unfavorable.

This criticism follow reasonably because not one of these activities is probable under purely competitive circumstances. Consequently the whole thing that is truly competitive in the present world, beyond doubt rivalries’, gets labeled as monopolistic and possessions misallocating in the Alice-in-Wonderland, solely spirited humankind (Josef, 1952).

Therefore the investigative conclusions one is always strained to come to, is taking into account the purely competitive point of view, are not just mistaken, unrealistic, but very contrary to the truth.

Then being extreme to forecast or, tell something meaningful concerning to the competitive behavior, the pure competition can only give explanation on what things would be like if really the globe contained zombie-like purchasers with homogeneous tastes and preferences, atomistic ally spontaneous firms indistinguishable in every significant respect, actually with no vocational advantages, no ad­vertising within the firm, no free enterprise, and no rivalry (Elgar & Kaldor, 1960).

Without doubt this is the major imperfection and meaninglessness inherent in the purely com­petitive point of view.

The Neoclassical and Austrian theories

When comparing neoclassical economic school of thought with the Austrian economics it is essential to be on familiar terms with the Austrian economics which is normally a school within the broader custom of neoclassical economics according to the history.

The Austrian economics, unlike the Post-Keynesianism, is not profane in certain basic respects. In contrast, with regard to what neoclassical economics has turned out to be and the manner that the unique marginal’s project is now explicit within the conventional, the Austrian economics is every bit as sacrilegious as any of the alternative schools of thought mentioned in the discussion above.

The two-pronged aspect of the Austrian economics leads to numerous tensions within the school that is both theoretical and empirical. The standard neoclassical economics occupies the first category. When assuming the firm to be having perfect information, neoclassical economics in this context reflect on some simple problem situations.

The theory again addresses how perfectly informed persons act to make best use of profits or minimize costs given their vital work, Fernandez & Rodrik (1991) further argued that given uncertainty concerning the allocation of gains and losses of management policy, agents may be over cynical on the subject of policy changes.

Post Keynesian and Neoclasical

While Post Keynesian convinced cost constraints on their behavior. The Neoclassical economics customarily illustrates the capability of markets to conquer simple predicament situations and achieving static condition (Weintraub, 2002).

The neoclassical greatest accomplishment is that it has provided a accurate manifestation that under these rarified circumstances resource allocation will always be Pareto optimal. Also like the neoclassical economics, the post Keynesian political economy can also be said to facade a straightforward problem situations for persons.

On the side of neoclassicists, however, post Keynesian theory argue that the market economy does not produce social accord.Keynesian theory , from the judgment of equilibrium theorizing, still raises up the troubles of monopoly and commerce cycles that are within this structure endemic to capitalism.

On the contrary to the above mentioned approaches, the Post Keynesian economics again considers economic actors who tackle difficult problem situations. Then issues concerning imperfect information and all the uncertainties move to the front position of such analysis and better-off more problematical obstacles turn out to be the focus.

The post Keynesian approaches have established the market’s inability to carry out or perform effectively when encountered by such problem situations and in this sense split with the neoclassical approach the conviction that markets are laying face down to inefficient end results.

The nature of economics authenticity defies the argotic theories of the neoclassical stability and thus produces outcomes outrageously diverse from what the standard economic models could forecast.

Criticisms

The elementary difference involving Post Keynesian theory and that of Neoclassicism is that the previous assumes that economic agents operate in a surroundings of uncertainty, while the final is premised on perfect forethought.

This difference means that in the Post Keynesian economics, the extended durations of less than full employment are as result of insufficient aggregate demand. While the Neoclassicism, in contrast, believe there at all times exists adequate or satisfactory demand to buy all output presented for sale.

Since the system is or else completely determined, the monetary and financial side of the macroeconomics acts no role in the standard neoclassical approach. There fore it is not essential to know the interest rates, the prices, and money supplies to know the long-run level of output and service that will prevail in general and in every manufacturing.

According to the Post Keynesianism, now that it is possible for collective quantity demanded to fall short or decrease of the quantity flourishing there is no promise that all those who would like to be employed at the current earnings rate will find service (Gordon, 1993).

Within these surroundings, financial variables are decisive, as are the interest rates and workers emotions are always toward liquidity. When workers transfer toward a more liquid ways of saving, for instance, so then the service suffers. This again spaces the economy on a latest growth path and consequently constrains future choices.

Therefore the previous affects the future and currency matters in both the short and long run. It is then for these reasons that neoclassical attempts to give details on exchange rate have focused on the real side of the economy while Post Keynesians put into consideration portfolio capital or income flows.

Also the financial investment comprises the awesome majority of international economic dealings is clear to both sides; the Neoclassicism theory, however, views this in different perspective and refers to this as the white noise or, on the other hand, simply the progression by which trade flows make themselves to be felt (Hicks, 1979).

The Post Keynesian point of view explains investment capital as being a force unto itself, and also capable of being a self-determining agent changing the economy onto a new direction or track. Then long run is said to be dependent of monetary factors.

Conclusion

Pure competition is not in reality possible according to most economists. While some would agree, possibly unenthusiastically that it may not even be pleasing or optimal if it may possibly exist.

Although other few economists have recognized or emphasized the essential imperfection of the purely competitive form that is to say, that it is not a explanation of competition in any way (Dutt, 1989).Therefore pure competition is a stagnant, equilibrium state whose very assumptions are such that competitive practice is ruled out by description.

Or else to put the matter more considerately and precise while pure competition may perhaps illustrate the final outcome of a challenging competitive situation, the eventual end result of outcomes , may not describe the competitive procedure that produced that particular result.

There fore making it that a purely competitive theory is not a speculation of competition per se.The post Keynesian theory evinces a practical contradiction.

While on the other hand, it illustrates a far and a higher attention in questions of line of attack than any other school of economic thought discussed with the probable exception of the Austrian school of economic thought and it has at all times been highly critical of the procedural foundations of the rival economic school of thought, to be specific the Neoclassical school of economic thought.

Nevertheless on the other hand, the Post Keynesian School of economic thought has not accepted the procedural fundamentals of its own (Dutt, 1984).

With the Post Keynesian School of economic thought having been defined predominantly by its disagreement to neoclassical examination or in other words analysis, the students are unable to comprehend sacrilegious economics until when they are able to learn what it is not.

Still then, realizing why a substitute or an alternative exists, leave alone is desirable, requires the understanding and shortcomings of the neoclassical school of economic thought analysis to a considerable degree of complication.

Elgar & Kaldor (1960) argued that using the Marx’s Commodity Axioms, the Post Keynesian School of economic thought can be favorably notable from its neoclassical theory rival at the very early beginning of a student’s introduction to economics.

References

Daly, J, Speedy, S & Jackson, D 2004, Nursing leadership, Elsevier, Sydney

Blecker, R 1989, International Competition, Income Distribution and Economic Growth. CJE 13: 395-412

Bowles, S & Boyer, R 1990, A Wage-led Employment Regime: Income Distribution, Labour Discipline, and Aggregate Demand in Welfare Capitalism.Oxford: Clarendon.

Dutt, A 1984, Stagnation, income distribution and monopoly power. CJE 8: 25-40

Dutt, A 1989, Accumulation, distribution and inflation in aMarxian/PostKeynesian modelwith a Rentier Class. RRPE 21, 3: 18-26.

Elgar, E & Kaldor, N, 1960, Alternative Theories of Distribution, Review of Economic Studies, 23, 2: 83-100 Glyn, A, Hughes.

Gordon, D, 1993, Putting Heterodox Macro to the Test: Comparing Post-Keynesian, Marxian and Social Structuralist Macro econometric Models for the Postwar US Economy. Working Paper No. 43 New School for Social Research; published in Glick.

Hicks, P, R 1979, Causality in Economics, New York: Basic Books.

Samuelson, P 1947, Foundations of Economic Analysis. Cambridge, Harvard University

Samuelson, P 1948, Economics: An Introductory Analysis. New York, McGraw-Hill.

Steindl, J 1952, Maturity and Stagnation in American Capitalism. New York: Monthly Review Press.

Lance, T 1985, A stagnationist model of economic growth. CJE 9: 383-403

Marc, L 1992, Foundations of Post-Keynesian Economic Analysis. Aldershot: University Press.

Weintraub, E 2002, How Economics Became a Mathematical Science, Durham: Duke

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