Pareto at Melos | Cosma Shalizi
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There are multiple arguments to be made on behalf of the market system. The one which the mainstream of the discipline of economics likes to emphasize, and to teach, is the “first fundamental theorem of welfare economics”. Assume some obviously false conditions about what people want, and still more obvious falsehoods about the institutions they have. (There need to be competitive markets in literally everything anyone might want, for instance.) Then let people trade with each other if they want to, and only if they want to. The market comes to equilibrium when no one wants to trade any more. This equilibrium is a situation where nobody can be made better off (by their own lights) without someone else being made worse off. … Suffice it to say that many, I suspect most, economists take this to be a strong argument for why market systems are better than alternatives, why market outcomes should be presumed to be good, etc.
A conventional assault on this is to argue that the result is not robust — since we know that the premises of the theorems are quite false, those theorems don’t say anything about the virtues of actually-existing markets. Then one has mathematical questions about whether the results still hold if the assumptions are relaxed (generically, no), and empirical questions about processes of production, consumption and distribution.
What Piccione and Rubinstein have done is quite different. They have shown that the same optimality claims can be made on behalf of the most morally objectionable way of allocating resources. “The jungle” takes the horrible message of the Melian dialogue, that “the strong do what they can and the weak suffer what they must”, and turns it into the sole basis of social intercourse ….
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