An Hypothetical Economic System

[Exonerate]

So this idea kind of struck me randomly as I was eating dinner today... Bear with me here, my knowledge of economics is elementary at best. Greed is the motivating force behind humans and capitalism. Corporations work on the principle of generating as much profit as they possibly can, through whatever means available. Sometimes this means hiking up prices on inelastic goods, cutting down labor costs, reducing raw materials costs, whatever. But what if instead of focusing on generating as much of a surplus as possible, all entities made their goal at breaking even? For example, an car company would produce cars, and sell them at the lowest price possible to break even with their expenses. I can already foresee some potential problems, such as stagnation, since companies would have no excess money to put into expanding their operation. What would happen to the economy, as a whole? Assuming it's possible, would it just sort of collapse or stay static? Would things get done any more efficient?

[K. A. Pital]

"Break even"? Do you realize that in perfect competition, you should be operating with zero profit? So that you're always on the crossing of MC and LAC curves?

The thing is, perfect competition is a lie, and companies not "sometimes" gouge prices, cut down labour costs and overtly fall to using low quality material, they do it all the time if they can snatch it behind the lines.

I can already foresee some potential problems, such as stagnation, since companies would have no excess money to put into expanding their operation.

No. There's fiscal profit and economic profit. And superprofit. Fiscal profit is the monetary profit that the company accounts for. Economic profit, in perfect competition, should be zero - it's the amount of resources spent by the owner that are compensated by fiscal profit. A superprofit is a profit which exceeds economic profit.

So unless there's zero fiscal profit, which technically means that the company is operating with economic loss, companies still have money for future investment.

For example, an car company would produce cars, and sell them at the lowest price possible to break even with their expenses.

Do you include alternative costs? Or only real total costs? Technically companies should operate that way - the collective bargaining power which sets the price in perfect competition should always keep companies zero-profit.

[The Grim Squeaker]

So your question is "What if human nature was fundamentally altered" or "Everyones an Altruist" right? .

Well, first of all Communism is now possible since the system you describe would have humans acting altruistically and against their own interests.

Secondly the idea is utter bosh, are you asking whether the system could work in theory (Governments do work towards minimizing massive corporate profits to a degree, though a strong and efficient company will always, barring outside involvement, crush a small, weaker and more inefficient firm) or asking how human society would be altered by a "divine act" enforcing this situation? If so is any human improvement even possible (Otherwise the decay and stagnation will cause massive economical decline as was the case in the USSR where the mere 4% of private plots produced 25% of the agricultural output compared to the "Altruistic & non competitive" plots).

[K. A. Pital]

Well, first of all Communism is now possible since the system you describe would have humans acting altruistically and against their own interests

That's actually wrong. Communism, at least it's imagined Marxist version, is not altruism. It's essentially tribal communitarism upscaled, and frankly tribal communitarism can't be named altruistic by any stretch of imagination.

I believe you were speaking about Soviet-style socialism (total nationalization), where it would be possible for people to work even as they see the interests of the state separate from their own. Right?

If so is any human improvement even possible (Otherwise the decay and stagnation will cause massive economical decline as was the case in the USSR where the mere 4% of private plots produced 25% of the agricultural output compared to the "Altruistic & non competitive" plots).

4% of private lands producing 25% of output? Where's that from?

The decay came because of the centralization and nationalization, as opposed to communization of companies and worker profit-control. People no longer could see their interests being the same as the interests of the state, which led to the situation.

[The Grim Squeaker]

Well, first of all Communism is now possible since the system you describe would have humans acting altruistically and against their own interests

That's actually wrong. Communism, at least it's imagined Marxist version, is not altruism. It's essentially tribal communitarism upscaled, and frankly tribal communitarism can't be named altruistic by any stretch of imagination.

I mean that there won't be a capitalistic society to outgrow & out-produce it, and that it won't suffer from corruption, stagnation or minimal enthusiasm (One of the basic problems with communism was "Why work hard when you get paid the same? for lazing around and threatening to report your comrade-boss to a politikal officer") [/quote]

I believe you were speaking about Soviet-style socialism (total nationalization), where it would be possible for people to work even as they see the interests of the state separate from their own. Right?

That and the "Why improve" point, yeah.

If so is any human improvement even possible (Otherwise the decay and stagnation will cause massive economical decline as was the case in the USSR where the mere 4% of private plots produced 25% of the agricultural output compared to the "Altruistic & non competitive" plots).

4% of private lands producing 25% of output? Where's that from?

"The Rise and Fall of the Great Powers: Economic Change and Military Conflict From 1500 to 2000", by Paul Kennedy (Number is provided circa 1987).
I can get the exact page/source for you if you want though (I still have the book here, I just finished the Excellent novel today

The decay came because of the centralization and nationalization, as opposed to communization of companies and worker profit-control. People no longer could see their interests being the same as the interests of the state, which led to the situation.

True, however the lack of any incentive to improve also contributed (In my opinion, though this wasn't the case with truly "Patriotic" individuals or the military [the exceptions], and thats ignoring the ennui caused by Bureaucratic inertia slowing any progress or reforms), and overspending on defense to the point of slowing growth relative to its chief competitor - The US , so that it ended up in a spiral of having to devote every larger proportions of its GNP to Defese, causing further economic slowdown ad hoc.

[Darth Wong]

One concern about this idea leaps to mind immediately: if companies are ordered to break even, this means that they will shovel all of their profits into capital expenditures and salary compensation, and I'll bet the lion's share of that increased compensation will go to the top executives. Only now there's no money left over for dividends to the shareholders, and dividends are where shareholders make most of their money (contrary to popular belief, buying and selling is not a good way to make money for the average investor because you get nailed with fees and capital-gains taxes). So equities become less lucrative, and it becomes harder for companies to raise money when they really need it, and companies go bankrupt much more easily. Saving and investing become more difficult, thus exacerbating the current trend toward spending rather than saving.

I'm sure there are plenty of other problems too, but that's the first one that jumped out at me.

[Darth Wong]

So your question is "What if human nature was fundamentally altered" or "Everyones an Altruist" right? .

Thanks for hijacking the thread to yet another discussion of communism. It's not as if that topic has ever been discussed here before

[K. A. Pital]

I'm sure there are plenty of other problems too, but that's the first one that jumped out at me.

Spending versus savings actually should be decided in favour of spending, par keynesianism IIRC. Because if some money is left in deadweight, it slows down the economic development. I may be mistaken though, but the classical model always has "total spending", so that the producer's income in any form is later 100% re-invested, and thus the circle is never-ending and with total spending. In real life not all that is made is spent, therefore some assets remain "dead", not to count the problem of liquidity. Technically this leads to money-hoarding.

Although I will note that there's a huge difference between simple spending and direct investment. The relation between the two may not be a simple dependency.