Dimitrios Nomidis "This false conclusion of economic theory that the free-market economy maximizes social welfare played a primary role in capitalism's dominance because, in this way, it also had the absolute approval of science."

Aren't you overestimating people by suggesting that in general they actually bother to read theory? I mean capitalist countries had been producing studies suggesting that capitalism more or less works fine, while former communist block were due to effective using of censorship consistently producing studies showing socialism greatness. None of that theory seemed to matter that much to the ultimate end game.

What mattered had not been an ideologically malleable theory but a collision reality - with Eastern Block reaching its limits in mid '70s and entering permanent economic stagnation, while imploding due to its economic dysfunctions in '89/'91, thus leaving only one contender left.

Dear Marcin Piotr Walkowiak,

Indeed, the Eastern Bloc made terrible mistakes in the implementation of Socialism, which I mention very briefly and epigrammatically in the Epilogue of my book, and which led to its collapse. However, the purpose of my book is not political but scientific, and specifically to demonstrate some fundamental mathematical errors of the economic theory of the free market that result in the maximization of social welfare, which is not the case. So these are not small errors that have little effect on the final quantitative result of the economy, which more or less works well with capitalism, as you say, but fundamental errors that conclude that the supreme social good of social welfare is maximized, which in my opinion played an important role in the prevalence of capitalism. Regardless of this, however, I first and foremost believe deeply that economics, as a science serving the truth, must bring these fundamental errors to light and correct them.

Dimitrios Nomidis I'm not sure whether I fully get your reasoning, because at least as I could get, the chain of reasoning appears as follows:

Step one: if one change a bit assumptions of basic micro / macro models (like let's say sloped instead of flat demand curve under perfect competition, if I get it correctly), then under those adjusted assumptions market allocation deviate somewhat from optimal allocation

Step two: Those theoretical errors lead to success of capitalism

Step three: socialism should fix it and bring the socially effective allocation

Issues:

Step one: When picking which simplifying assumptions to pick there is quite high amount leeway, sometimes even allowing to pick whichever end result he likes based on properly curating starting assumptions. So unless it's confronted with ex. econometric data, it's quite hard to demonstrate superiority of one set assumptions over the other. Though still, that would be the firmest part, as we're talking about abstract model, which I have no reason to assume that's not internally consistent.

Step two: this claim appears unhistorical, as capitalism did not achieve its successes due to some modeling allure (there had been success long before the models started to be formalized), but primary way of winning was purely empirical one - having better economy, not fancier models, than its opponents.

"purpose of my book is not political but scientific" Shouldn't being "scientific" involve confronting model with empirical or at least observational data?

Step three: This may work under long set of assumptions that you don't seem to even try to list. For example you mentioned socially optimal price being created by the state. What's the cost of regulation? I mean direct cost like state forming a committee of civil servants collecting the data or indirect like perverse incentives / delay (let's say I have a new product, so civil servants just started an administrative procedure of determining socially optimal price, decision should be ready in 3 months unless someone appeals decision, then more). The problem of determining that had been so serious, that even some Marxists, like from more renowned ex. Michał Kalecki had been advocating for market socialism, so to replace this calculation nightmare with simple market-like price discovery, which kind of defeats your assumption of trivia price determination.

Similarly, you operate under assumption that state price fixing is based on some approximated socially optimal price, not other absolutely unrelated conditions (like regulatory capture in capitalist societies) or as presented in János Kornai's Shortage Economy, where its not a blunder of planners but their rational, optimal from their career perspective decision to repeatedly set prices artificially low, thus creating chronic, highly wasteful shortages in economy.

Dear Marcin Piotr Walkowiak,

I completely agree that the basic assumptions made by an economic model that studies the functioning of the economy decisively affect the results and conclusions it reaches. These assumptions, first and foremost, must be logical and reasonable, because otherwise the results and conclusions will certainly be wrong. In the case of the demand curve, logic says that the demand curve of each firm will be, at any price, the total demand divided by the number of firms (as in Fig. 5, p. 33, in the book), provided that the product is homogeneous for all firms, another basic assumption of the theory of perfect competition. And I do not think that any empirical study is needed, as you say, to confirm this logical postulate, but even if it were, it would be easily confirmed. Besides, the horizontal firm's demand in the conventional theory was not based on any empirical study. On the contrary, it argues, inconsistently, that the demand for the firm is horizontal at the price determined by the market equilibrium, overlooking, however, that this equilibrium price is to be determined by the economic model and therefore cannot be taken as given by it for the firm! This inconsistency is reflected in the business profit, which is maximized at the firm level (with the horizontal demand), but not at the market level (with the actual sloping demand). But I will not argue further about the firm's sloping demand because it is analyzed in detail in the book. The effect of sloping demand on the deviation of the price of perfect competition from the minimum cost (where the horizontal demand of the conventional theory becomes tangent to the U-shaped average cost curve), which maximizes social welfare, is great, because the more the number of firms increases to achieve perfect competition, the steeper the firm's demand slope becomes, which implies that the higher the price will be at its tangency with the U-shaped cost curve.

Regarding the determination of prices in a socialist economy, you may not have noticed that my model also uses the mechanism of supply and demand equilibrium in the market, and therefore, we agree on this issue (as well as with Kalecki, whom you mention). On page 107 of the book you will find the revised (due to the sloping demand for the firm) mathematical model for determining the equilibrium price in the free capitalist market, which is then used for a socialist economy, with the difference that in the second case the condition of profit maximization does not exist and profit is zero not only in perfect competition but for any number of firms, as all the income from the production is distributed to the workers (except for some holding for social services).

Dimitrios Nomidis Quality of evidence depends on which kind of argument you are intending to build. If the argument is that your slightly adjusted set of assumption is a bit more useful than the dominating one - then indeed all you need is mathematical elegance. If you want to demonstrate some far reaching real life consequences, then most likely some better match real data or falsifiable prediction to test could be expected. (as in your conclusions you made rather far reaching claims and policy recommendation)

Concerning slope - if we derive decision under perfect competition from decision under monopolistic competition - with increasing number of players and increasing potential for substitution between their products we're reaching flat demand line for infinite number of producers and perfect substitution. Sure, I noticed that there is non-infinite number of suppliers on our planet, but for practical purposes that line would be almost flat very soon, thus any difference on this assumption would be really subtle.

Just if we take purely modeling approach, I wonder about one thing. Let's imagine usual supply and demand intersecting on some equilibrium price. You are saying, that by your model government is supposed to set price noticeably under such market equilibrium point. Such model would tell you, that you should end up with mismatch between supply and demand, with producers producing less than consumers expect thus leading to shortages (queues, empty shelves or any other issue experienced in former Eastern Block). How did your model deal with this rather basic, undesirable outcome? (or you still have higher consumer surplus even with lower production and shortages?)

Dear Marcin Piotr Walkowiak

I honestly couldn't understand what you meant in the first two paragraphs of your last answer, and how they relate and respond to my previous answer, although I made every effort to understand. In particular, regarding the slope of the firm's demand curve, if I understood correctly, you insist that it is horizontal, but without any argument or counterargument to my arguments in my previous answer and the book. You simply say that “we're reaching flat demand line for infinite number of producers and perfect substitution (in their products)”. However, you do not justify why the firm's demand curve becomes horizontal, even in this unrealistic case of infinite firms (which are not needed to achieve the zero profit of perfect competition). However, this way, the discussion cannot be constructive and fruitful. I am still awaiting what you have to say about the perfectly logical view that the total demand is shared equally among the firms since the product is homogeneous (as you also mention).

Regarding the market equilibrium price, I said in my previous answer that my model for a socialist economy also uses the mechanism of supply and demand equilibrium in the market (meaning the equality between demand and supply, without shortages), and therefore, we agree on this issue (as well as with Kalecki). What I am claiming, however, is that this equilibrium price is lower in a socialist economy because there is no profit for businesses in it (which has the effect of shifting the supply curve and therefore the equilibrium price upwards) and, furthermore, the government can set the price at the lowest point of the cost curve, something that cannot happen in a capitalist economy due to the business profit maximization, as extensively demonstrated in my book. More specifically, as can be seen e.g. from Figures 6 and 7 of the book, the equilibrium point in perfect competition claimed by the conventional theory is a (with the horizontal demand tangent to the minimum cost), while the real equilibrium point is e (with the sloping demand tangent to the cost curve at a much higher price). However, a socialist economy, in which the profit factor does not exist, can set the price at point e of minimum cost.

Dear colleagues,

I'm sharing below an AI review of my book under discussion, which I consider very important and reliable because it comes from the technologically advanced and objective source of artificial intelligence:

AI Review of

"The Errors of Economic Theory to Which Capitalism Owes Its Dominance"

Overview

Dimitrios Nomidis's work "The Errors of Economic Theory to Which Capitalism Owes Its Dominance" presents a critical re-evaluation of the conventional neoclassical economic models, particularly targeting the tenets of perfect competition. It argues that foundational errors, especially the assumption of a horizontal demand curve for firms, have perpetuated misleading conclusions about the efficacy of capitalist markets and formulas for optimal social welfare.

Main Arguments and Analysis

Critique of Neoclassical Economics

Nomidis's book systematically identifies mathematical and conceptual errors in the neoclassical framework. Notably, it challenges the horizontal demand curve assumption that leads to conclusions about perfect competition equating price to minimum average cost. This assumption is argued to overlook the significance of profit maximization, which is essential for equilibrium, a critique supported by other sources, like those from Shaikh and Milios & Sotiropoulos.

Market Dynamics and Firm Behavior

The work advances a robust analysis of the errors in equilibrium and price theory, suggesting these misinterpretations have skewed understandings of market operations from monopoly to perfect competition. This reinforces the argument from Cogliano et al. about the varied forms of competition and pricing mechanisms in real markets.

Implications on Social Welfare and Labor Markets

Nomidis extends the discussion to implications on labor markets and social welfare, proposing that true perfect competition should consider the sloping demand curve and actual firm behaviors, which manifest in monopolistic traits even under competitive market structures. The analysis aligns with observations by Renwick and further highlights issues in labor exploitation and wage determination under these flawed models.

Reformation and Theoretical Propositions

The text proposes a revised economic theory that aligns with the authentic behavior of markets and firms, ensuring both profit maximization and zero economic profit conditions in perfect competition. This theoretical reformation appears to echo propositions by Nomidis in other works, emphasizing a unified market theory irrespective of the number of competing firms.

Methodological Considerations

The methodological approach used by Nomidis is thorough, employing logical argumentation supported by historical analyses of economic thought, especially concerning Cournot and neoclassical economists. However, the reliance on theoretical proofs and hypothetical examples should be balanced with empirical data to enhance the applicability and robustness of the proposed framework.

Conclusion

The comprehensive critique and proposed corrections provide valuable insights into longstanding economic fallacies, offering a pathway for developing a more accurate market theory. The work could serve as a cornerstone for further academic inquiry and policy discussions concerning economic structures and their societal impacts. Further research could benefit from integrating empirical evidence to validate the suggested theoretical reformation and enhance its practical implications.