Economics Dictionary of ArgumentsHome
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| Overproduction: Overproduction in economics occurs when the supply of goods exceeds demand, leading to unsold surpluses. It can result from inefficiencies, technological advancements, or misjudging consumer needs. Overproduction may cause falling prices, wasted resources, and economic imbalances. In some cases, it can lead to production cuts, layoffs, or economic downturns if not addressed effectively. See also Production, Market, supply, Demand, Progress, Technology._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Overproduction - Dictionary of Arguments
Rothbard III III 725 Overproduction/VsOverproduction/Rothbard: Perhaps the most important conclusion of the theory of monopolistic or imperfect competition is that the real world of monopolistic competition (where the demand curve to each firm is necessarily falling) is inferior to the ideal world of pure competition (where no firm can affect its price). This conclusion was expressed simply and effectively by comparing two final equilibrium states: under conditions of pure and monopolistic competition. >Monopolistic competition/Rothbard, >Pure competition/Rothbard, >Competition/Rothbard, >Equilibrium. Rothbard III 727 The only assumption we need in drawing the average-cost curve is that, for any plant in any branch of production, there will be some optimum point of production, i.e., some level of output at which average unit cost is at a minimum. All levels of production Iower or higher than the optimum have a higher average cost. Pure competition: In pure competition, where the demand curve for any firm is perfectly elastic, (…) each firm will eventually adjust so that its (…) curve will be (…) in equilibrium; (…) Monopolistic competition: (…) monopolistic competition yields higher prices and less production—i.e., a Iower standard of living - than pure competition. Furthermore, output will not take place at the point of minimum average cost - clearly a social "optimum," and each plant will produce at a Iower than optimum level, i.e., it will have "excess capacity." This was the "welfare" case of the monopolistic-competition theorists. III 728 Vs: (…) Chamberlin and others have shown that this analysis does not apply if we are to take consumer desire for diversity as a good to besatisfied.(1) Many other effective and sound attacks have been made from different directions. One basic argument is that the situations of pure and of monopolistic competition cannot be compared because the AC curves would not, in fact, be the same. Chamberlin(2,3) has pursued his revisionism in this realm also, declaring that the comparisons are wholly illegitimate, that to apply the concept of pure competition to existing firms would mean, for example, assuming a very large number of similar firms producing the identical product. Ifthis were done, say, with General Motors, it would mean that either GM must conceptually be divided up into numerous fragments, or else that it be multiplied. If divided, then unit costs would undoubtedly be higher, and then the "competitive firm" would suffer higher costs and have to subsist on higher prices. This would clearly injure consumers and the standard of living; thus, Chamberlin follows Schumpeter's criticism that the "monopolistic" firm may well have and probably will have Iower costs than its "purely competitive" counterpart. If, on the other hand, we conceive of the multiplication of a very large number of General Motors corporations at existing size, we cannot possibly relate it to the present world, and the whole comparison becomes absurd.(4) 1. And the product differentiation associated with the falling demand curve may well lower costs of distribution and of inspection (as well as improve consumer knowledge) to more than offset the supposed rise in production costs. In short, the AC curve above is really a production-cost, rather than a total-cost, curve, neglecting distribution costs. Cf. Goldman, “Product Differentiation and Advertising.” Furthermore, a genuine total-cost curve would then not be independent of the firm’s demand curve, thus vitiating the usual “cost-curve” analysis. See Dewey, Monopoly in Economics and Law, p. 87. 2. H. Chamberlin, Theory of Monopolistic Competition, and Mrs. Joan Robinson, Economics of Imperfect Competition. For a lucid discussion and comparison of the two works, see Robert Triffin, Monopolistic Competition and General Equilibrium Theory (Cambridge: Harvard University Press, 1940). 3. Recently, Professor Chamberlin has conceded this point and has, in a series of remarkable articles, astounded his followers by repudiating the concept of pure competition as a welfare ideal. Chamberlin now declares: "The welfare ideal itself... is correctly described as one of monopolistic competition.... [This] seems to follow very directly from the recognition that human beings are individual, diverse in their tastes and desires, and moreover, widely dispersed spatially." Chamberlin, Towards a More General Theory of Value, pp. 93-94; also ibid., pp. 70-83; E.H. Chamberlin andJ.M. Clark, "Discussion," American Economic Review, Papers and Proceedings, May, 1950, pp. 102-04; Hunter, "Product Differentiation and Welfare Economics," pp. 53 3-52; Hayek, "The Meaning of Competition" in Individualism and the Economic Order, p. 99; and Marshall I. Goldman, "Product Differentiation and Advertising: Some Lessons from Soviet Experience," Journal of Political Economy, August, 1960, pp. 346-57. 4. See Chamberlin, “Measuring the Degree of Monopoly and Competition” and “Monopolistic Competition Revisited” in Towards a More General Theory of Value, pp. 45-83._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Rothbard
> Counter arguments in relation to Overproduction
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