BB&T Academic Programs
What Capitalism Is
The Nature of Government
Economics of Capitalism
In a capitalist system, economic competition is the pursuit of economic values, whether dollars or resources or market share, by business firms or individuals. The economic use of the term is a more specific use of the idea of competition, which at root means the pursuit of values by different individuals when the achievement of the value excludes its attainment by others. Under capitalism, this rivalry for economic values benefits all productive individuals in a society because it represents productivity under a system of freedom and individual rights. Competition, properly understood, means free competition, which means unrestrained by government interference in economic life.
In a capitalist economy, producers face competition from other producers, both existing and potential. Various individuals may compete to sell milk where there is a demand for twenty gallons of milk. If these individuals can each produce twenty gallons of milk, they will compete to sell their product to the purchasers of milk. Another example might be when a new college graduate with specialized skills enters the job market and receives multiple offers from different companies. Each company competes for the services of the graduate and in turn the graduate competes against other graduates. If Joe succeeds in selling twenty gallons of his milk in the market, it necessarily means that Sally cannot sell hers. If Company X hires Betty to be their accountant, it means that Companies Y and Z cannot employ her at that time.
Unlike sporting competition or games, where there is necessarily a winner and a loser, economic competition has features that distinguish it and makes it mutually beneficial for individuals to compete economically. In economic competition, there is always one party that gains the value—the sale of a car to an individual car-buyer and its proceeds—that is therefore unavailable to other parties, but these other parties are not losers in the same sense as the team that loses the championship game. In economic life, there is a harmony of interests between rational economic actors. This is not true in the context of other types of competition. The reason lies in the nature of what it means to compete in each context.
In other competitions, the winner and loser compete to achieve some defined mutually exclusive objective—to score more points, to finish a marathon in less time, to achieve checkmate against an opponent. In these cases, the action or actions that enable one competitor to be declared a winner have meaning only in the context of the contest. Running for 26.2 miles in under two hours and fifteen minutes, while certainly a feat of human athleticism and endurance, is not a value outside the context of running in (or training for) a marathon. The same holds true for other actions taken to compete in sports or games. Moving around small pieces of carved wood on a checkered board is not a value outside of doing so according to the rules of chess against an opponent in the context of a chess match.
In economic competition, the actions that various competitors take to "win" are different. In a capitalist system, individuals compete to be a more successful or more efficient producer of wealth. Whether in the form of earning a wage, inventing a new machine, manufacturing an electronic device, or hiring the best employee, competition in economic life always involves producing and offering values. When different individuals "compete" in the economic realm, they are each achieving a productive value—they each create wealth. Although one producer may exceed the others in success (he may sell more or earn more profits or hire better employees), the producers who have not "won" nevertheless have achieved something of value appropriate to their own productive effort. They may hire some other employee or sell some milk or make some profit. This point has been concretized well by philosopher Harry Binswanger. He notes that "if the New York Yankees could choose between winning by a score of 2 to 1 or losing by a score of 9 to 10, they would unhesitatingly choose winning, even though it means scoring fewer runs." By contrast, "if a business had to choose between 'winning' (being the market-leader in sales) with profits of $2 million or 'losing' (being second, third, or lower in earnings) with profits of $9 million, they would unhesitatingly choose 'losing.'"
Indeed, even when a particular seller of milk, for example, is "out-competed" in the marketplace and is unable to sell any milk, he benefits from the actions of the rival producer. His rival has achieved efficiency and productivity, has made it possible for others to be more productive and efficient, and in turn has created wealth. When the competitor was unable to make a sale, he failed to achieve a new value, but he did not "lose" the sale. It never "belonged" to him in the first place, though he was free to attempt to gain it. That each individual competitor has produced milk does not constitute a right or entitlement to sell it or to deserve customers. Each has entered the competition voluntarily with a full knowledge of the potential gains and risks. When the milk-seller who "loses" has seen his rival devise new ways of reducing the price of milk, he may be motivated to enact such cost-saving measures himself, he may be driven to new levels of productivity, or he may discover that his talents are better suited to another profession (or even to going to work as an employee for his former rival).
A final aspect of economic competition is worth highlighting. Consider again the rival producers of milk. Each of these producers is in competition not only with other producers of milk, but also with producers of substitute goods as well as any other goods. Some purchasers of milk may prefer instead to spend their money on soy milk, or on soda, or orange juice, or any other beverage. Beyond this, if their purchase of milk is done as an additional, luxury good, they may choose instead to spend their money on car wax or hot dogs, or they may even choose to invest the money at interest. In this wider context, milk producers compete not only with other milk producers, but also with other producers in the marketplace who might offer a more attractive substitute at a similar price. For this, it is clear that even a marketplace with only one producer of milk is still competitive because potential purchasers of milk can either choose not to do so or to spend their money on rival goods. Even when there is only a single producer or a handful, it is usually because they are the low-cost producers; they gain, not by "price gouging," but by efficiencies and cost savings that yield higher rates of profit. Thus, even these single producers will themselves have to compete for capital and resources against other producers in other fields.