Actually existing capitalism

I read the D.M.Winch book I picked up, Analytical Welfare Economics, on the train yesterday. My overwhelming reaction was, “You could get away with teaching such arid material in 1971??” Still, there were a couple of nuggets I enjoyed.

“While perfect competition is sufficient for the achievement of a Pareto optimum, it is not necessary. It is quite possible theoretically to satisfy the necessary conditions in a controlled socialist state. ‘Perfect’ socialism is every bit as good as perfect competition when judged by this criterion. In te real world of course, socialism is far from perfect, but so is competition. Since bith systems are capable of achieving a Paretian optimum in their conceptually perfect forms, the proposition [the 1st welfare theorem] concerning perfect competition does not establish its superiority.”

I liked the reminder about the formal equivalence between the ideal free market and the ideal centrally planned economy, its general equilibrium dual (an idea – as I’ve said before – brilliantly illustrated by Francis Spufford’s Red Plenty).918XzFk2GeLThere was also a nice link made between Scitovsky’s argument about welfare reversals, overturning the possibility of Hicks-Kaldor compensation and the difference between compensating and equivalent variation. Still, I won’t be troubling my students to get Prof Winch’s book out of the recesses of the library…