Perfect competition

Though some agricultural markets estimated the model of the perfectly competitive free market, in actuality there is no real example of such a market. Markets that do not have all seven features of the entirely free market are, therefore, correspondingly less moral.

In the capitalist sense of the word, justice is when the benefits and burdens of society are distributed such that a person receives the value of the contribution he or she makes to an enterprise.  Perfectly  competitive  free  markets  embody  this  sense  of  justice,  since  the equilibrium point is the only point at which both the buyer and seller receive the just price for a product. Such markets also maximize the utility of buyers and sellers by leading them to use and distribute goods with maximum efficiency.

Efficiency comes about in perfectly competitive free markets in three main ways:

1.   They encourage firms to minimize the resources they consume to produce a commodity and to use the most efficient technologies.

2.   They motivate firms to invest resources in industries with a high consumer demand and move away from industries where demand is low.

3.   They distribute commodities among buyers so that they receive the most satisfying commodities they can purchase, given what is available to them and the amount they have to spend.

First, in a perfectly competitive market buyers and sellers are free to enter or leave the market as they choose. That is, individuals are neither forced into nor prevented from engaging in a certain business, provided they have the expertise and the financial resources required.

Second, in the perfectly competitive free market, all exchanges are fully voluntary. That is, participants are not forced to buy or sell anything other than what they freely and knowingly consent to buy or sell. Third, no single seller or buyer will so dominate the market that he is able to force the others to accept his terms or go without. In this market, industrial power is decentralized among numerous firms so that prices and quantities are not dependent on the whim of one or a few businesses. In short, perfectly competitive free markets embody the negative right of freedom from coercion. Thus, they are perfectly moral in three important respects:

(a) Each continuously establishes a capitalist form of justice

   (b) Together they maximize utility in the form of market efficiency

   (c) Each respects certain important negative rights of buyers and sellers.

 No single seller or buyer can dominate the market and force others to accept his terms. Thus, freedom of opportunity, consent, and freedom from coercion are all preserved under this system.

However, several cautions are in order when interpreting these moral features of perfectly competitive free markets. First, perfectly competitive free markets do not set up other forms of justice. Because they do not react to the needs of those outside the market or those who have little to exchange, for instance, they cannot establish a justice based on needs. Second, competitive markets maximize the utility of those who can contribute in the market given the constraints of each participant's budget. However, this does not mean that society's total utility is necessarily maximized. Third, although free competitive markets set up certain negative rights for those within the market, they may actually lessen the positive rights of those outside those whose participation is minimal. Fourth, free competitive markets ignore and even conflict with the demands of caring. As we have seen, an ethic of care implies that people exist in a web of inter-reliant relationships and should care for those who are closely related to them. A free market system, however, operates as if individuals are completely independent of each other and takes no report of the human relationships that may exist among them. Fifth, free competitive markets may have a destructive effect on people's moral character. The competitive pressures that are present in perfectly competitive markets can lead people to attend constantly to economic competence. Producers are constantly pressured to reduce their costs and increase their profit margins. Finally, and most significant, we should note that the three values of capitalist justice, utility, and negative rights are produced by free markets only if they embody the seven circumstances that define perfect competition. If one or more of these conditions are not present in a given real market, then the assert can no longer be made that these three values are present.