Selfishness, Greed and Capitalism

Economists believe people are perfectly rationalthat individuals are logical and perfectly informed. Thisdoes not mean, however, that economists believe that thepopulation is entirely rational, well- informed, intelligentor wise. Nor can the field of economics be demolished withone of the almost infinite number of examples of humanfoolishness.Some models are usefulThe statistician George E. P. Box once said that ‘all modelsare wrong, but some are useful’ (Box and Draper 1987:424). Theoretical economics sometimes describes a worldwhich no one believes exists, nor ever will exist, and yet itcan still be useful. For example, economic theory suggeststhat, if there is perfect competition in a totally free market,prices will drop to the point at which there is no excessprofit. In this scenario, a company sells a product with aten pence profit margin and so another company jumps inand sells the same product with a nine pence profit margin.This undercutting continues until the product is sold forthe exact amount it costs to manufacture, distribute andretail, including the salaries of all involved (the marginalcost of production).This scenario is patently unrealistic, partly becausegovernment regulation precludes the possibility of freemarkets with total competition and no barriers to entry,but also because in a vibrant and creative economy thereare always profit margins for entrepreneurs to chase. But,although the model is hypothetical to a large extent, itcontains the important truth that greater competition23