ABSTRACT
An economy combining features, private ownership of capital, private management of enterprise, and, market system, can be expected to react to changes in the conditions of demand and supply. The existence of a “competitive private enterprise economy” does not of itself, however, ensure smooth and rapid adjustment of the economy to changes in the underlying conditions of demand and supply. The productive efficiency of a competitive economy, and the speed of adjustment to changing patterns of demand, will vary from one type of good to another and will depend inter alia on the quality of management, the geography of the market, and the development of communications. The traditional goal of promoting competition throughout the economy suffered a severe blow from the formal articulation by Lipsey and Lancaster in 1957 of “The General Theory of Second Best.” A final deficiency of allocative propositions in economics also arises from our acceptance of their formulation in terms of potential gains.
