fatvegan

In analyzing the competitive processes of a laissez-faire economy, one must recognize that capital outlays (investments in new plant and equipment either by existing producers or new entrants) are not determined solely by current profits. An investment is made or not made depending upon the estimated discounted present worth of expected future profits. Alan Greenspan

A while back I talked about investment by monopolies. I said that monopoly profits aren't required for a good level of investment, and that it was up to capital markets. Although I don't agree with some of his assumptions, in that article he makes a very persuasive case for eliminating antitrust laws and letting capital markets manage prices for us. Using the capital markets and not the "productive" markets to manage competition is the key point, and one I haven't heard discussed properly before. It's not up to consumers to keep business honest, but up to investors. And I trust investors to know what's good for them far more than I trust consumers.

The other interesting distinction he makes, which is related to my post about predatory pricing below, is that between high prices and low costs. Both can contribute to high profits, but only high prices are a problem. If a company makes money because it's the only one efficient enough to charge prices low enough, that isn't the fault of the company. But if it charges prices that are high, and uses other methods to keep competitors out, then that is a problem. As he says, the problem is prices and not profits.