Competition in the history of economic thought

The word, competition, entered economic discourse slowly and naturally, over many decades and even centuries, as a term of common usage. From that point of view, I trace the development of the word, as it underwent various conceptual modifications en route to the more technical concept of perfect competition. The growing divergence between the ordinary meaning and the technical concept of competition represents one of the many gauges of the progress of economics towards becoming a rigorous science, but that divergence has also brought with it a number of problems.
Thus, the purpose of my thesis is two-fold: it is both a scholarly and a didactic one. As for scholarship, I set forth a textually accurate account of how the word competition has figured in the early rise and the more mature consolidation of economics as a special discipline, in which the abstract idea of a "perfect" type of market competition was employed by economists as an heuristic fiction, to bring together all the separate elements of what Edgeworth has so nicely termed the Economic Calculus. As for didactics, my thesis also serves as an exercise in identifying several root problems stemming from the concept of competition, both in its common and technical forms. Suggestions are made as to how some of the perplexities of present-day economic theory, based on the notion of perfect competition, can be resolved.
Key Themes:- In Chapter I, four major themes are announced and subjected to semantic analysis. Eunning throughout the remainder of the history, they refer to the dualities, ambiguities and qualities of vagueness and imprecision which pertain to the common-sense or ordinary notion of competitive conduct, understood as the striving of two or more persons against one another for the same object.
Upon careful study, competition is readily seen to be both equilibrating and disequilibrating in its tendencies, comprising both innovative and adaptive patterns of behaviour, and is both freeing and constraining in its effects, entailing as it does not only deliberate and conscious striving (or the exercise of free will) but as well the clash of opposing interests, or contention between two or more persons, Themes 1 and II.
As a consequence of the foregoing dualities, the word itself holds out emotive connotations that are both positive and negative (Theme III), giving the word a character of ambivalence which is inherent from its very root meaning. Thus, in its role as a principle of economic thought, competition has elicited widely, and sometimes wildly, varying responses from those who have contemplated its workings and have passed judgement upon its status.
Finally, because of its very abstraction or generality of meaning, the common-sense idea of competition is imprecise and open-ended, insofar as its general meaning specifies nothing about (a) the nature of the objectives of competitive pursuit, (b) the Betting in which competitive striving takes place, (c) the participants and their grouping into competitive "units," and (d) the strategies and patterns of conduct followed - Theme IV.
Critical Episodes:- The historical narrative proceeds, for the most part, in a chronological sequence, and is organized around a series of decisive moments, when crucial turning-points are reached and passed, separating distinct traditions of thought, or else marking the subtle transition from one mode of reasoning to another.
After a brief preliminary survey of the medieval and early modern scholastic literature, the main historical narrative begins essentially with an account of the "classical" mercantilist literature of the first half of the 17th century, with its emphasis upon national rivalries and the so-called balance-of-trade doctrine. With these preparatory steps taken, the remainder of the historical content of the thesis can be summarized in terms of the following critical episodes:-
1. l670s-1700. The beginnings of the breakdown of the classical mercantilist doctrine is accompanied by subtle shift away from the emphasis upon national rivalry towards a more individualized and sectionalized understanding of competitive interdependence, in which the negative overtones of (national) conflict in market exchange are gradually replaced by a more positive attitude towards competition as a stimulus to economic progress and efficiency.
2. 1750s-1776. The final breakdown of the mercantile logic, as the dominant influence over economic thought, occurs with the sudden and dramatic rise and momentary ascendancy of the physiocratio school, a decisive confrontation taking place between Forbonnais, latter-day exponent of "liberal mercantilism," and Quesnay, Baudeau and others of the new school (1766-68). As a principle of harmony in the physiocratic doctrine, market competition is depicted as an exchange of equivalents between individuals, and hence a limited but beneficial force in economic affairs.Adam Smith, sharing the physiocrats' liberal attitude and individualized concept of competition, adapts and improves their economic calculus, giving to competition a more positive and directive role, by showing how it regulates and thus facilitates market exchange, which in turn allows for a more productive employment of resources.
3. 1815-1848. Building upon Smith's foundations of economic liberalism, the classical economists make important conceptual and analytical advances in regard to the economic calculus, such as in enunciating the law of diminishing returns, but do rather little to alter Smith's treatment of competition. A crisis in classical liberalism is soon reached (c. 1825), in facing the newly emergent tradition of socialist thought, whereby there ensues a fierce clash of opinion concerning such things as the freeing versus constraining character of competition. As a result, the behavioural process of competition tends to become associated with a particular set of economic institutions (property, contract, markets, and market exchange). The debate points to the need to distinguish between primary and secondary income distribution (paralleling that of "class" and "individual") and the need to clarify the nature of competitive grouping.
4. 1866-71. After much delay, there occurs a transition from the classical modes of verbal reasoning towards the neoclassical styles and methods of mathematical reasoning, a transition which was hastened by Thornton's sharp attack upon competition as a law-like principle (1866) and by Jevons's response to the growing need to improve the classical value theory. However, the substance of classical doctrine is retained in neoclassical theory, as is shown by the instrumental role played by "perfect" competition, as an heuristic fiction used in the building of the neoclassical calculus. This source of continuity is qualified, though, to the extent that the classical principle of competition is supported less and less by a direct intuitive appeal to empirical evidence and more and more by the resort to abstraction and the logical rigour of mathematical theory.
5. 1889-91. After a decade or more of rapid progress and genuine improvement and refinement of mathematical technique of analysis, neoclassical theory reaches a state of crisis, brief in duration but far-reaching in its implications, when Edgeworth's static approach to equilibrium analysis departs from the Valrasian dynamics of tatonnement, faintly signalling the onset of a new outlook as to the nature and purpose of abstract economics. However, the underlying issues are not resolved at this point, and so material is selected from the 20th century to illustrate the working through of those Issues into a more nearly contemporary context.
Major Conclusions:- These I divide into two sharply distinct categories} those which refer specifically and narrowly to the concept and theory of perfect competition, as such; and those which refer to the general concept of economic competition, understood in its very broadest sense.
First, a review is made of the various arguments for the theory of perfect competitiont While stressing its strategic and instrumental role in the development of abstract economic thought, I argue that it is no longer acceptable on scientific grounds, either on the strength of empirical evidence or on the rigour of logical reasoning. However, I suggest that a divorce should be made between the behavioural theory of perfect competition, and the abstract analytical techniques it gave rise to, in the form of equilibrium analysis, the latter being the more permanent and enduring legacy of the classical and neoclassical achievement.
Second, as to economic competition in general, I draw the conclusion that though it is not law-like in its tendencies or effects, that is, in producing regular and uniformly repeated sequences of events, nevertheless, by its very breadth of meaning, competition is a ubiquitous fact of life, and economists were certainly justified in seizing upon it in their explanations of economic behaviour, and the concept - broadly interpreted - is as relevant today as it has always been. Furthermore, I conclude that there is nothing inherently good or bad about the process of competition in general, and that the only kind of value judgements that can be validly drawn about it are those which refer to, and are confined to, specific and context-bound situations, each of which must be evaluated on its own merits.