Free Competition

Abstract

Free competition is certainly unanimously held as the main and obvious characteristic of market economies, in the sense that such an expression as a “competitive market economy” can be considered as a pleonasm. Competition, in the everyday sense of the term, conveys the idea of pluralism, rivalry of men, firms, or nations, of a race which ends with winners and losers. At the same time, it is an active process which establishes these “dynamic properties of capitalism… that constitutes the basis of our confidence in its superiority to other forms of economic organization” (Stiglitz, 1986). These ideas, common sense of the ordinary layman, are not common sense economics, supposed to theorize free competition; as stressed again and again, economic theory generally defines competition in just the opposite sense. As precisely stated at length by Friedman (1962), “competition has two very different meanings. In the ordinary discourse, competition means personal rivalry, with one individual seeking to outdo his known competitor. In the economic world, competition means almost the opposite. There is no personal rivalry in the competitive market place. There is no personal higgling. The wheat farmer in a free market does not feel himself in personal rivalry with, or threatened by, his neighbor, who is, in fact, his competitor. The essence of a competitive market is its impersonal character. No one participant can determine the terms on which other participants shall have access to goods or jobs.