In what sense perfect competition is an optimum

The perfect competition partial equilibrium is Pareto-optimum with respect to the pre-equilibrium perfect competition. However, since the monopolist gets a better profit by being a monopolist than in perfect competition, a perfect competition partial equilibrium which starts with a pure-monopoly-then-turned-into-perfect-competition is not a Pareto-optimum. Or to put it another way, you can't use the perfect competition optimality as an argument to dismantle a monopoly. (By the way if you are trying to attack a monopoly, better use the Hayek argument on the spread of information through a free market.)

The much-trumpeted perfect competition optimality is not argument for perfect competition (whatever it is in the real world) but for not to stop the tendency through equilibrium in the particular structure of perfect competition; i. e., perfect competition optimality is a particular case of equilibrium optimality (vis-à-vis disequilibrium).

The monopolist as (necessarily) a price discriminator

The maybe most popular microeconomics book reads "we suppose that the monopolist knows the demand function for its product..." (1). This raises the question: why in the hell isn't such a monopolist a perfect discriminator? I mean, he know what prices he can charge for every marginal quantity supplied, and he doesn't do it?! Can we think about a pure monopolist not being at a time a perfect discriminator as something but a logical contradiction? Tell me a reason why such a monopolist would charge the same price to anyone knowing how much surplus he can exact from each.Yes, you can impose some institutional arrangement, but can you think of any which doesn't violate the standard Marshallian setting?

(1) Mas Colell et al. Microeconomic Theory. 1995. Page 384.

Government failure as a market failure as no failure at all

Some people say that there are government failures rather than market failures. However, one could ask how is that a already-so-well-working market allows for a failing government to appear and grow up. Or maybe, a failing State is not but a stage in the institutional development in the way of an ever-improving market.

Best wishes for 2011

A true economics to subdue pseudo-economics math.

Exogenous versus endogenous

By definition, an agent cannot plan a shift of either his supply or his demand function for any good.

Profit

True profit is always for free. It is, as Knight writes (1), "unimputable income". That's why change in profit doesn't change purpuseful behavior to undertake: it is not action-changing.

(1) Knight, Frank. Risk, Uncertainty, and Profit. 1921 -1957-. Page 308 (chapter 10, paragraph 29).

Sherlock Holmes and economics

Think of a fictional character from a novel being very used in economics. Maybe, the first comes to your mind is Robinson Crusoe. It is so widely used that some people even talk about "Crusoe economics", the economics of an agent without interaction with others. Nevertheless, I find even more interesting the character of Sherlock Holmes. I guess he is the role model of what a good economist (any scientist, indeed) must aspire to be: "the most perfect reasoning and observing machine that the world has seen". Even if you don't agree with his method (I particularly don't think it to be as efficient as Conan Doyle depicts it), I guess you can, with great benefit for economics, define and debate about a sort of "Holmes epistemics".

The economist as something distinct

One of the undeniable tasks of the economist is to attain professional self-awareness: to be as clear as possible on what is not an economist.

Exchange and equilibrium

Exchange is the unequivocal proof of previous dis-equilibrium.

God as non-planned (spontaneous) order

The invisible hand is God's hand.

So, quoting Mises: "Fort the agnostic, atheistic, and antitheistic historians and economists there is no need to refer to Smith's and Bastiat's invisible hand." Theory and History, page 169.

In defense of extreme apriorism

It is not the task of the economist to determine whether actual equilibrium is going to be attained or not. His task comes to and end once he has correctly posed the role of the arbitrager in exclusively attaining such equilibrium as well as the enunciation of some general conditions from here on.

But when we, understandably anxious of arriving at specific equilibria, pretend to use economics to test or falsify empirical evidence of such equilibria or paths to equilibria, we ar at a total loss. And, as expected, the unfair condemnation of economics for no being "exact" or even useful at all doesn't take long to come out.

It is in that sense that Hayek is right in his 1937 paper Economics and Knowledge. Effectively, if you don't make certain assumptions about information, you are not going to be able to find equilibria. However, he is wrong in pretending that it is up to economics (the pure logic of choice) the accomplishment of this task. The methods and ways in which assumptions about the obtaining and coordination of information are entrepreneurial and far away from the method and traditional aim of economics. If you agree that that empirical task is a task of econonomics, you are compelled to accept as part of the tasks of economics the calculation of how to throw a ball in order to deceive a rival player and so scoring a goal or the successful bargain of the price of a Holstein cow in the town of Coronado, Costa Rica. Intuitively, you do not expect neither to require from an expert soccer player or a cattle merchant to take courses in what usually is taught in an economics course nor that an economist qua economist is prepared to score goals or evaluate cattle. Of course, you could require those abilities from whoever you call a competent economist and call this a merely semantic problem.

It is precisely difference about assumptions on information, particularly the non-coercive stickyness of prices which separate new Keynesianism from other brands of economics. So, you should conclude that the relevant difference doesn't deal with economics; it is rather ultra-economic.

Finally, you have other formal attempts to deal with the coordination through equilibrium, particularly game theory. And, in this, case, you have to note that game theory it's seen not just as an extension of economics, but rather as a quite independent discipline useful in several fields.

Sunk "costs"

As much as expenditure is sunk, it doesn't carry cost.

Market as an information system

A market is a system of creation and spread of information. No more, no less.

Logic versus obvious

Some critics of pure logic of choice could be caught saying that it can not create "information" but only rephrase it. Those people should begin to have clear that "logic" is not the same than "obvious".

Market and freedom

The only condition for a market is freedom to exchange.

Economics versus statistics

No truly economic assertion can be said merely by quantities.

Every single economic assertion needs recourse to purpose. That's necessary. That's sufficient.

There's really nothing more to economics than pure logic of choice. Everything else, even if useful, is in the aim of statistics. And (it should be patently obvious but regretfully isn't), economics is not statistics.

Good education

The good pupil must be totally docile to the form in which he is taught and totally rebel to the teaching itself.

The good teacher must use authority exclusively for the aim of teaching.

The good pupil must be a good pupil only to a good teacher.

The way in which something is taught is part of the teaching.

Profit and loss

Expenditure (paid price) is chosen sacrifice. The agent can only choose sacrifice if he expects the value of expenditure (cost) to be worse than the value of the income (revenue). Ex post, cost can be better than revenue, but ex ante this can not be planned. Loss is exclusively an ex-post phenomenon. Ex ante, the agent only acts on grounds of profit.

Cost determines price

In the long run, expenditure (whose value is cost) determines price. This doesn't opposes at all to the theory that, given a production-possibility frontier, value alone determines prices. It is just an assertion that has to be interpreted very carefully and with a lot of subtlety. It means that, in the long run, it is not the concrete (as disconnected from anything else) value ascribed to a good what determines its price but that value in the context of comparison with the rest of goods (general equilibrium). This is how we have a remembrance, a warning, that whenever we make an analysis allowing for enough time as to everything to adjust, we can not forget general equilibrium. Partial equilibrium analysis is just the the first stage of general equilibrium analysis.

Short run

Short run is usually presented as one in which some expenditure can not be avoided. However, if such expenditure can not be avoided, its value can not account for cost.

I propose to interpret the short run rather as one kind of production engineering in which some expenditure is common to all production or independent of the quantity of produced units. In such a case the value of such common expenditure has to be regarded as cost.

This, however, implies that it can not be accepted in praxeology such a category as ex-ante losses in the short run (neither in the long run). When the agent is choosing between producing or not, he is free for disposing of common expenditure. He has to decide between producing (in which case he will have to incur in common expenditure as well as expenditure particular for each unit produced) or not producing (remaining, this way, without the charge even of common expenditure).

So, the short run supply function does not exist for magnitudes of the marginal (particular) expenditure above the average particular expenditure but only for magnitudes of that marginal expenditure above the average total expenditure.

By the way, it has to be remembered that such supply is not a supply of previously produced goods (in which case there would be a produced stock and the supply would depend exclusively on the owner-supplier's preference). The short run (as well as the long run) supply functions are necessarily supplies of not yet produced goods; i.e. they are no more than schedules in the head of the deliberating agent confronting the decision of whether producing or not. He will produce (and eventually supply) exclusively if he expects to earn a profit.

If the producer actually faces a situation in which he can not change certain element adjuvant in the production process, that is not a matter of cost but one of production function's shape, of technology, of the information the agent has in order to produce. What happens can be modeled as producer ignorance regarding how to push the production opportunities out, as the arriving at the production-possibility frontier. It can, however, not possibly be modeled as a "fixed cost", which is an oxymoron. Cost only emerges when there is choice, when the option can actually be rejected, when it is "flexible", when it is "not fixed". If the situation is given, fixed, you are not talking about cost, you are talking about a general condition of welfare. You maybe are in the realm of a science of happiness or welfare but you are certainly no more in the realm of a science of purposeful behavior, of economics.

Other feature about the relation between common and particular expenditure, not usually taken into account, is that there can be expenditure common only to certain quantities of production, a sort of "crawlingly-pegged" expenditure.