Journal of Post Keynesian Economics, 37:687703, 2015

Copyright # Taylor & Francis Group, LLC

ISSN 0160-3477 print / 1557-7821 online
DOI: 10.1080/01603477.2015.1050335

JOHN F.M. MCDERMOTT

Perfect competition, methodologically

contemplated
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Abstract: The concept of perfect competition embodies a formal contradic-

tion, precisely as would that of the largest integer. The ascription of
legitimate meaning to the concept, as in George J. Stiglers well-known
1957 essay, Perfect Competition, Historically Contemplated, is demon-
strably circular, hence methodologically unacceptable. Mathematical
problems arising from the concept are explored and it is these that give rise
to the contradiction, as is demonstrated. Paradoxically, the elimination of
perfect competition and its supporting canon comes at no cost to a scientific,
that is, empirically oriented economics.

Key words: mathematical methods, microeconomics, theory.

JEL classifications: B41, C00, D00.

It is a remarkable fact that the concept of competition

did not begin to receive explicit and systematic attention in
the main stream of economics until 1871. This conceptas
pervasive and fundamental as any in the wholestructure
of classical and neoclassical economic theorywas long
treatedwith the kindly casualness with which one treats of
the intuitively obvious. Only slowly did the elaborate and
complex concept of perfect competition evolve, and it was
not until after the first World War that it was finally received
into general theoretical literature.
George J. Stigler (1957, p. 1)

John F.M. McDermott is professor emeritus of social sciences at the State

University of New York, College at Old Westbury.

687
 688 JOURNAL OF POST KEYNESIAN ECONOMICS

Part 1
There can be no perfect competition in the so-called real world. That
is of course a commonplace, even trivial observation. But very
different and centrally significant, a perfect competition is logically
impossiblebecause the very concept embodies a contradiction. In
this it is kindred to the heaviest possible weight or, in more precise
analogy, the largest integer. A proof of this proposition will be
presented in Part 2.
Notwithstanding, again to cite Stigler, the concept is, as
pervasive and fundamental as any in the whole structure of
neoclassical economic theory.
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Accordingly, the claim that perfect competition represents

an unacceptable, self-contradictory concept is not likely to be
welcomed by those many economists who regularly employ it in
their work. With a view therefore to extending the proper focus,
discipline, and authority to the present argument, we should first
develop Stiglers own views as to just exactly what constitutes this
elaborate and complex concept of perfect competition.
Appropriate to its title, Stiglers essay is of a historical nature,
beginning with Adam Smiths treatment of the phenomenon of
competition and coming up to Frank Knight, whom Stigler credits
with giving its first complete formulation in his 1921 Risk,
Uncertainty and Profit (Stigler, 1957, p. 11).
Stigler writes:
The assumptions necessary to competition are presented [by
Knight] as part of a list that describes the pure enterprise
economy, and I quote those that are especially germane to
competition:1
2. We assume that the members of the society act
with complete rationality. They are supposed to know
absolutely the consequence of their acts when they are
performed, and to perform them in the light of the
consequences . 4. there must be perfect mobility in all
economic adjustments, no cost involved in movements
or changes all the elements entering into economic
calculationseffort, commodities, etc. must be continuously
variable, divisible without limit. 5. It follows from
number 4 that there is perfect competition. There must be
1
In the interests of both focus and brevity, I have excised part of the Knight
quotation as given by Stigler and also bold-faced the concepts in it that are of
particularly methodological interest here.
 PERFECT COMPETITION, METHODOLOGICALLY CONTEMPLATED 689

perfect, continuous, costless intercommunication between all

individual members of the society. Every potential buyer of a
good constantly knows and chooses among the offers of all
potential sellers, and conversely. Every commodity, it will
be recalled, is divisible into an indefinite number of units
which must be separately owned and compete effectually
with each other. 6. Every member of the society is to
act in entire independence of all other persons .
Individual independence in action excludes all forms of
collusion, all degrees of monopoly or tendency to mon-
opoly . 9. All given factors and conditions are to remain
absolutely unchanged. They must be free from periodic or
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progressive modification as well as irregular fluctuation.

The connection between this specification and number 2
(perfect knowledge) is clear . The above assumptions,
especially the first eight, are idealizations or purifications
of tendencies which hold good more or less in reality are
the conditions necessary to perfect competition. The ninth,
as we shall see, is on a somewhat different footing. Only
its corollary of perfect knowledge (specification number
2) which may be present even when change takes place is
necessary for perfect competition. (Stigler, 1957, p. 12)

What is peculiar to this quotation, both on the part Frank

Knight and in Stiglers approving use of it, is the recurring appeal
to perfect. It overtly appears in # 4 and twice in # 5. Specification
# 2 demands complete rationality and, lest we misunderstand his
meaning, Knight amends it to perfect in the last sentence of the
quoted material. In # 6 we find a synonym used in place of perfect
independence, that is, entire independence. In specification # 9,
absolutely unchanged would suffer no change of meaning if we
substituted perfectly for that absolutely.
The difficulty here is this: the other key terms that appear in
this brief exposition, such as competition, knowledge, commodities,
intercommunication, unchanged, and so on pose no particular
definitional problems or, at least, no irresolvable ones. Few of us
would not be able to muddle through to adequate definitions for
these terms, at least for economics purposes. But if Knights five
specifications (2, 4, 5, 6, and 9) are intended to convey the analytical
meaning or content of a perfect competition, they have done so only
by circular definition. Clearly that is unsatisfactory. Moreover, it is
methodologically unacceptable. If perfect competition, requires
perfect rationality, perfect divisibility, a perfect lack of relevant
 690 JOURNAL OF POST KEYNESIAN ECONOMICS

change, and so on, then at some point in the game it seems requisite
that we tackle that perfectnot defer the tackling via still more
perfects or synonyms for them.
Nevertheless, within this same essay, Perfect Competition,
Historically Contemplated, Stigler forecast the continuing
theoretical vitality of the concept:

Today the concept of perfect competition is being used more

widely by the profession in its theoretical work than at any
time in the past. The vitality of the concept is strongly
spoken for by this triumph. Of course, this is not counsel
of complacency. I have cited areas in which much work
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must be done before important aspects of the definition of

competition can be clarified. My fundamental thesis, in fact,
is that hardly any important improvement in general
economic theory can fail to affect the concept of compe-
tition. But it has proved to be a tough and resilient concept,
and it will stay with us in recognizable form for a long time
to come. (Stigler, 1957, p. 17)

His forecast was accurate. Whatever may be the definitional

deficits of the perfect in perfect competition, it has certainly not
prevented the latters employment among modern theorists. In
what is still one of the most thorough and celebrated theoretical
explorations of the existence and conditions for the stability of
economic equilibria, by the Nobelist Kenneth Arrow and his
hardly less distinguished coauthor, the late Frank Hahn, perfect
competition is often appealed to and it is nowhere indicated that
the concept might not be trouble-free. In their preface, the authors
declare, in the analysis of an idealized, decentralized economy
it is supposed, in the main, that there is perfect competition and
that the choices of economic agents can be deduced from certain
axioms of rationality (Arrow and Hahn, 1971, p. v; emphasis
added), and, in homage to its importance, this usage is frequently
appealed to later in their text (pp. 53, 129, 182n, 187, 266, 275,
321322, 322).
This acceptance is common to many other of the most
distinguished modern economics theorists, saving only Alfred
Marshall. On their part, Milton Friedman, Lionel Robbins, John
Hicks, Paul Samuelson, Herbert Simon, Gerard Debreu, Joseph
Schumpeter, John Maynard Keynes, Leon Walras, and even those
champions of imperfect forms of competition, Joan Robinson and
 PERFECT COMPETITION, METHODOLOGICALLY CONTEMPLATED 691

Edward H. Chamberlin, readily deploy itthe list seems endless.2

Economists are not alone in this: in his otherwise critical examin-
ation of scientific usages and practices, the philosopher, Ernest
Nagel, also finds perfect competition, so to speak, perfectly accept-
able (Nagel, 1961, p. 454), while the noted theoretical sociologist,
Talcott Parsons, apparently responding to someone elses hesita-
tions on the point, has written of the legitimacy of such closely
related concepts as a perfectly rational act, a perfectly integrated
group, The scientific legitimacy, indeed the indispensability of
such concepts is not to be questioned. Without them there could be
no science (Parsons, 1968 [1937], p. 33; emphasis added).
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Perfect Must be Perfect

Let us accept that the meaning or meanings of perfect in
combination with competition, rationality, knowledge, and, say,
divisibility do seem sufficiently clear at the intuitive level.3 In
grammar, perfect is a comparative adjective. Accordingly, our
imaginations can readily imagine, say, a person acting somewhat
irrationally and we can as it were mentally remove this or that
specific item of irrationalitymisperception, haste, emotion,
avoidable error, and so forthso as to approach more closely
the idea of acting more rationally. In our everyday affairs this sort
of exercise is not at all infrequent, so that to mentally continue the
process in theory seems a natural and legitimate step. We
extrapolate to an idea of acting in which all irrationalitiesall
possible irrationalitiesare stripped away, ergo, form an intuitive
concept of acting with perfect rationality.
In fact, the ease and the familiarity of the exposition of the
previous paragraph should put us on our guard. It hides a theoreti-
cal ambush for the unwary. Perhaps the best way to show this is to
take up Knights requirement, from specification number 4, that
commodities must be continuously variable, divisible without
limit, that is, perfectly divisible. Intuitively, the two bold-faced
specifications seem identical, but they may be far from so.

2
Robinson (1965, p. 51) treats the concept as a template that guides theorizing
rather than a constitutive element within the resulting theory. Chamberlin (1933
[1948], pp. 6, 25) distinguishes pure from perfect competition but charac-
terizes the latter only negatively and rather loosely.
3
This line of argument was greatly stimulated by Chomsky (1965, 1975 [1957]).
 692 JOURNAL OF POST KEYNESIAN ECONOMICS

Consider a segment of a workaday demand curve, DD. Drawing

on one of Stiglers examples (1957, p. 13), we can examine the
demand for (or, equally, the supply of) potatoes. If the unit of quan-
tity is a single potato, clearly we cannot satisfy the requirement for
divisibility demanded by Knights fourth specification. Stigler pro-
poses the obvious alternative; simply by amending the quantitative
unit from individual potatoes to weights of potatoes, the problem
seems resolved and, accordingly, he goes on with his discussion.
But a demand curve must possess the mathematical property of
continuity; if there are gaps in it, the point wherehere the supply
curvepasses over it may be missing and there will be no equilibrium
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position (and, of course, vice versa with respect to the supply curve).
The culprit here is that creature of extrapolation, divisible without
limit, a formulation that means not quite the same thing as continuously
variable. The latter is requisite here. One can form a demand curve that
is divisible without limit but that will still have gaps within it. Again, a
divergence between evident intuition and orderly theorizing.
At the intuitive level we can imagine divisible to mean that we
can extrapolate from larger to smaller weight units of potatoes,
without limit: tons, hundredweights, pounds, ounces, half ounces,
eighth ounces, thousandth ounces, billionth ounces, smaller
and smallerwithout limit. But if we translate that intuitive
account into mathematical terms, it is woefully inadequate. The
reason is that we just now intuitively imagined an iterative process
of dividing the quantitative dimension of the potatoes into smaller
and smaller units. (Obviously we could have as well imagined
smaller and smaller units of the cost dimension or, for that matter
finer and finer units of the two-dimensional cost/quantity ratio
that forms the demand [and/or supply] curve.)
But no such iterative process can provide us with the linear
continuity that is called for by both the economics and the math-
ematics of the situation. In fact, that condition, divisible without
limit, is satisfied by a (mathematical) line segment constituted
solely by points that are each associated with a rational number.
In it, not only will there be gaps but there will actually be more
gaps than (rational) points.4

4
The argument here rests on the work of the German mathematician, Georg
Cantor who first systematically distinguished the existence of and the properties
of different kinds of infinites (Cantor, 1952 [1915], pp. 103110). For an equiva-
lently authoritative but more reader-friendly account, one may consult the still
classic Courant and Robbins (1969 [1941], pp. 7786).
 PERFECT COMPETITION, METHODOLOGICALLY CONTEMPLATED 693

An effective way to grasp the scale of the difference is as fol-

lows. The rational numbers constitute a denumerable infinite,
that is, they have a (cardinal) number of elements identical to
the positive integers: 1, 2, 3, n, It is only when we form their
power set, the set of all the subsets of that denumerable infinite,
that is, the set:
2 to the 1; 2; 3; . . . nth; . . . power
that we generate the (equivalent of the) real number continuum
thus the relative scarcity of points on a line constituted solely
by points associated with the rational numbers! On that basis,
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our demand curve, intuitively formed by the procedure divisible,

even without limit, would almost surely not share a point (value)
with a crossing supply curve even if the latter were itself
continuous.5
In fairness to Stigler, he does confirm the need, for example, for
a demand curve to be continuous (Stigler, 1957, p. 4). But his, and
Knights formulation, of the logical requirements for establishing
that continuity are unfortunately ambiguous. It may beas I
believethat this relative looseness of formulation stems from
the narrative requirements of the history Stigler is recounting but
it leaves an unfortunate legacy to those of his later readers who
may not be so attentive to methodological issues.
There are two larger points to this brief exercise. One is that we
cannot readily constitute the normal, needed meaning of the prefix
perfect in economics by iterative steps. Equivalently, one cannot
readily construct it via a process made up of discrete steps.6 In
the present case, the necessary continuity of the demand curve
required that we analytically introduce the equivalent of the real
numbers via the power set of an initially infinite set.

5
From the very first days of my very first economics course I was troubled by
the insouciance with which the professor drew mighty consequences from the
supply/demand diagrams he kept sketching on his blackboard. But how could
one belie the evidence of ones eyes? For the exceptionally formidable assump-
tions demanded by preference orders, thus by extension even the most conven-
tional supply/demand curves, see, for example, McDermott (2011, pp. 176177).
6
Walrass (1977 [1874]) device of the auctioneer who takes in and sorts out all
the possible bids and offers in the market, is an effective narrative device but it
also obscures the very considerable logical-mathematical leap from an iterative
procedure of bids and offers being received and processed one by one to the
continuum of all possible bids and offers being processed simultaneously. It is
the latter that is needed.
 694 JOURNAL OF POST KEYNESIAN ECONOMICS

The second point is that the heralded mathematicization of

economics is crucially dependent on this introduction of the real
number continuum. If, for example, we were to construct supply/
demand curves, preference orders, probability distributions, and
so on only via iterative procedures, they would suffer gaps in their
values such as those we found in the rational number line just
above. As Stigler (1957, n52) points out, such functions as we
introduce must be continuously differentiable. That failing, one
would have to investigate for virtually every distinct problem just
which numerical techniques could be validly employed and which
were prohibited. It is the mathematical continuum that endows the
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discipline of economics with its most powerful inferential and

analytical tools, both directly, as here, and indirectly by providing
the foundation for the use of differential equations and other, even
more powerful aids to analysis and inference.

Part 2
Where does this leave perfect competition? On the one hand,
we cannot construct it from the iterative steps suggested by our
rationality example above, that is, by extrapolating from imperfect
competition to more and more perfect competition, ultimately to a
perfect competition. Such a procedure would not guarantee that
we have exhausted the possible variants of competition since, as
above, an iterative procedure will not yield us a continuum of
those variants, which is to say, all possible of them.
On the other hand, we advance analytically not at all when we
define perfect this and that by appealing to perfect that and this.
But it is precisely this advance that is required if (micro)economic
analysis is to be given a rigorous basis.
We could however form the ordered set comprising all the possible
variants of greater and lesser competition, that is, an ordered
continuum of the variants of competitionand then examine that
set for both the existence of and the qualities of a maximal terminal
element. If it could be found and identified, that ostensibly unique
terminal element would thus have to constitute the needed perfect
competition. This is the procedure that we will follow.
There is however a complication. While, as above, it is relatively
easy to give an intuitively satisfactory definition of what constitutes
greater and lesser competition, to give an exhaustive and precise
analytical definition, even if it were possible without all those
 PERFECT COMPETITION, METHODOLOGICALLY CONTEMPLATED 695

perfects, would present us with an equivalently imposing logical-

mathematical structure to work with. In the argument to follow
we will simplify matters by conceiving not of abstract variants of
competitiveness but instead of variants of competitive markets.
In doing so we must avoid the historical sin of confusing a perfect
market, as instanced, say, by a simple country auction with perfect
competition. The difference, as Stigler points out, is that the country
market might in itself be perfectly competitive (in the common
meaning of those words) but, as it imposes no market-driven
mobility on capital, it falls short of the needed perfect competition
across a whole (notional) economy (see Stigler, 1957, pp. 1, 6).
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Accordingly, the strategy is to construct the ordered set of all

possible competitive markets and then to examine that set for the
existence and characteristics of a terminal, most perfect possible
market within which, presumably, we will find the needed perfect
competitionbut here, on an analytical, not intuitive basis!
However, as will be shown, this seemingly straightforward
strategy must needfully eventuate in what will prove to be the
self-contradictory character of the concept of perfect competition.
In short, the overall strategy is a familiar one; we assume the
existence and uniqueness of perfect competition, and then show
that this assumption leads to a contradiction.

Searching for perfect competition

1. Consider possible competitive markets, both real ones and
merely notional ones.7 One is interested in clarifying the meaning
or, better, logic of a concept that is integral to an abstract model
of perfect competition so that, for our purposes, the distinction
between real markets and merely notional ones has no bearing.
One can define a competitive market to be constituted by at
least two individuals entertaining an offer or offers of sale and or/
purchase,8 hence my adoption of the term transactors. Then,
two competitive markets will differ if at least one of their transac-
tors is different.
2. But if one can always conceive that there could be one
additional transactor in a (notionally) possible competitive market,
7
The construction to follow has some elements of realism in it but,
following Friedman (1951), they are unnecessary though they may, as here, serve
heuristic purpose.
8
We assume here that all transactions are money denominated; the assumption
is harmless in the present context, merely allowing for simpler exposition.
 696 JOURNAL OF POST KEYNESIAN ECONOMICS

and so on and so forth. In short, the number of transactors here

has to constitute a denumerably infinite set, that is, one that is
isomorphic to the set of natural numbers, 1, 2, 3, n, 9
3. Next form the set of all possible competitive markets, that is,
the set comprising all the possible transactors in all their possible
combinations. The elements of this new set are subsets of individual
transactors. This will be the power set of the one introduced under
(2), the set comprising all its subsets. Again referencing Georg
Cantor (1952 [1915]) this is an infinite of a higher order than (2)s
denumerably infinite transactors. The (cardinal) number of its
elements will be identical to that of the set of real numbers.
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It is this step that introduces the needed completeness to the set

of competitive markets, that is, the set is perfectly exhaustive of
possible markets.
4. The set of subsets formed above, however large, is still just a
collection of objects. We have to further assume that there is or
can be some criterion for identifying the competitiveness of
markets and for separating those of greater from those of lesser
competitiveness. As argued above, that criterion can be hard to
specify because of the analytical/theoretical demands of perfect.
On the other hand, for our present purposes it does not matter
which criterion of competitiveness is employed.
Of course, on the hypothesis that there is not and cannot be any
such criterion, then the present search for a perfect competition is
nullified. So we have to assume that there is at least one such
criterion of competitiveness, and we do so here.
5. On that assumption the elements of the set of markets
introduced under (3) can be ordered by their degree of competi-
tiveness. The needed function has to be complete and transitive
over the set. Any function, f(x, y) similar to x is greater than or
equal to y will do.
Complete: for every pair of elements, x and y of the set under (2),
x will be greater than or equal to y or vice versa. Transitive: for

9
This assumption underlines that one of the normal, even customary formula-
tions offered for a perfect market is methodologically unsatisfactory. By postulat-
ing an indefinite number of transactors, we intend that each of them will have
but a negligible effect on prices/quantities. But we need for each of them to have
a mathematically negligible effect on prices/quantities; thus we need an infinite
number. Stiglers appeal to intuitive induction (1957, p. 7, para. 3) appears to
recognize this. On the other hand, his repeated use of the prefix indefinite through-
out the article introduces some unnecessary ambiguity.
 PERFECT COMPETITION, METHODOLOGICALLY CONTEMPLATED 697

every element x, y, and z, if x is greater than or equal to y and y is

greater than or equal to z, then x is greater than or equal to z.10
6. The new set created above is (3)s all possible competitive
markets but with each of its elements now placed in a linear,
sequential order as determined by the function, is greater than
or equal to with respect to competitiveness. The meaning content
of this competitiveness remains undefined, but that is immaterial
to the present procedure. We needed only that there be at least one
such ordering function that systematically determined the sequen-
tial place of each element relative to every other.
As the ordered power set of a denumerably infinite set, this new
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set will be isomorphic to the mathematical linear continuum, that is,

its elements can be placed in an exhaustive one-to-one relationship
with an uninterrupted linear sequence of the set of real numbers.
7. We now search the ordered set under (5) for its highest, that is,
most perfect element. That search procedure also employs the
function f(x, y), x is greater than or equal to (with respect to compe-
titiveness) y. Here one is trying to identify that value (or values) of x
which is (are) greater than every y. If one can locate and identify
this (these), it (they) will be the highest element(s) among all
possible competitive markets. It (they) accordingly will identify
the most competitive market(s) and what ostensibly goes on in it
(them) would qualify as the analytical terminus of our search
and, here, as perfect competition.
***
Before continuing, the reader is asked to confirm, if needed to
reexamine, that the foregoing exposition defines perfect competition
in a manner that is comprehensively and authoritatively sufficient
for the Economics/theoretical uses it has heretofore been called
upon to perform.
***
Moving on,
8. Is there an upper boundary to this series?
It definitely has such a boundary or it possibly does not. Many
infinite series do not but without an upper boundary there is no
most competitive market, and hence no perfect competition.
Moreover, sequences of real numbers and even of rational numbers,

10
Because of the function f(x, y), greater than or equal to, two of its markets
may be different (i.e., have at least one different transactor) but share the same
location in the series.
 698 JOURNAL OF POST KEYNESIAN ECONOMICS

as here, are not bounded unless of course one separately imposes a

boundary condition, All those greater than and including the square
root of 5, All those less than and including 1/5, and so forth.
One could exclude from considerationby definitionany
series that has no upper boundary or might have no upper
boundary. But such a step is barred by the earlier all possible
assumption in (4). At the notional level to exclude even a single
possible series is to violate the all.
But if the series has no upper boundary, then any market put
forward as a candidate for most competitive would be bested by
at least one other in the ordered series under (5), and so on, and so
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forth, and hence no perfect competition.

As constructed, the series of (5) has that form. Like the series of
positive integers, 1, 2, 3, n, , it has no upper boundary, hence,
in the case at issue, it yields no perfectly competitive market, hence
no perfect competition.
But the series can be recast in such fashion that it will have an
upper limit. For example, to every value of the ordered series we
could assign a similarly ordered index number ranging from 0no
competition whatsoeverto 1 perfect competition. Then all the
values of (5) will lie between those two boundaries, 0 and 1. And
by virtue of a suitable assignment, the series of increasingly competi-
tive markets will approach that limit, 1, equal to perfect competition.
Does that provide us with the sought-after most competitive
market? The very distinguished philosopher/economist, Joan
Robinson (1965 [1933], p. 51), among others, has implicitly argued
so. Prima facie it fits; every other market in it will be less competi-
tive, no market will be more competitive, and, as a limit it will
be unique.
But this will not do at all, for two reasons. The first is simply
mathematical. By its very definition the limit of a series is not a value
taken by that series; it must differ by a finite amount from all the
values of the series. Equivalently, a limit is not an element in a series
that, as we say, approaches it, but a property of the series itself.
Here, however, properties of the series itself will not do. We need
the element most perfectly competitive market, that is, the value that
identifies and embodies the existence of that market. Without the
(notional) existence of that perfect competitive market we lack the
logical wherewithal to deduce the existence of economic equilibria
or, say, the efficiency and welfare theorems that are both the
crowns of (micro)economic analysis and the seeming guarantor
 PERFECT COMPETITION, METHODOLOGICALLY CONTEMPLATED 699

of the unsurpassable superiority of the free-market template for the

organization of economic affairs generally.
But as defined, our initial set had to comprise all possible
competitive markets; its limit, lying outside the series itself,
obviously cannot therefore be a competitive market a fortiori
cannot be the or a perfectly competitive market.
The second objection is that the suggested recasting procedure
the assignment of index valuesassumes the very point at issue:
that the series has a limit. In adopting the scheme with index
numbersa suitable assignment we have implicitly assumed
that the initial series (of [5]) is entirely compatible with, hence
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can be replicated by, a series that approaches a limit. In short,

the recasting procedure simply argues in a circle, assuming, as it
were, what it was ostensibly supposed to prove.
We appear to have reached an unavoidable dilemma equivalent
to a latent contradiction. The ordered set of all possible competitive
markets must be exhaustive, and hence isomorphic to an uninter-
rupted sequence of the continuum. But, unless specified, a sequence
of that nature has no upper boundary, that is, a highest element. On
the other hand, if the ordered set is recast so as to have a limit, that
limit cannot be one of the competitive markets that constitutes the
series. Most important, the recasting assumed the very point at
issue. In short, the ordered, exhaustive set of competitive markets
must have but cannot have an upper boundary element. It would
appear that the very conception of a perfect competition presents
a dilemma of contradictory alternatives.
Note that this argument does not in any fashion limit the
legitimacy of extrapolating, say, to more and more (notionally)
competitive markets. Colloquially, we can extrapolate here
without limitwhich is strictly speaking true: there is no neces-
sary limit to that process even though we speak about, again,
colloquially, perfect competition. But the latter expression
functions, upon examination here, simply as a synonym for unlimited
extrapolation, not more. We will return to this topic below but it
has to be kept in mind that perfect competition, like the largest
number or a (Euclidean) circle with a varying radius, comprises
contradiction within its very concept.
In this finding, however, we come into disagreement with that
very great weight and extent of authoritative economics and other
opinion that was earlier cited, which employs perfect competition
or perfect knowledge or perfect rationality and appears to find such
 700 JOURNAL OF POST KEYNESIAN ECONOMICS

concepts entirely acceptable, indeed required. We should, accord-

ingly, reexamine our finding from a wider, more critical perspective.
Intricacies of the infinite
We return once more to the work of Georg Cantor (1952 [1915],
pp. 103110). he observes that certain infinite sets can be shown
to be isomorphic to some of their own proper subsets (p. 108).
For example, the set of real numbers say, from 1 to 10 can be placed
in an exhaustive one-to-one correspondence with the set of real
numbers from, say, 1 to 2its proper subset. Or, more vividly, sub-
tracting (or adding) a finite number of elements from a denumerably
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infinite set does not change the (cardinal) number of the elements in
it. Thus the number of elements in the set of natural numbers, 1, 2, 3,
4, , n, is unchanged if, for example, we eliminate, say, 1 and 2.
The resulting set, 3, 4, 5, , n 2, has still the same number of
elements, as can be seen by pairing, 1 with 3, then 2 with 4, then 3
with 5, and so on, n with n 2 (i.e., placing all of the elements of
the two sets in an exhaustive one-to-one or isomorphic relationship).
In short, with infinite sets our intuitive conceptions of greater and
lesser have to be approached with great caution.
9. Proceeding, we now designate the ordered set of sets we
constructed under (5) as A, for all possible competitive markets.
If the series lacks a terminal element, we can go no further. It
would follow that perfect competition can be defined neither
through a list of independent criteriaperfect this and perfect
thatnor by a process of extrapolation of degrees of competitive-
ness, nor as an element of the set of all possible competitive markets.
Notwithstanding, let us assume as an hypothesis that A does
have such a terminal element, designated m, for most competitive.
We next delete m from A to create its proper subset, A. As with
A, A0 is also isomorphic to a sequence of the continuum.11 Accord-
ingly, on the same hypothesis it too has a highest or terminal
element, here designated m.
However, it follows from this that m and m will be consecutive in A.
But there can be no consecutive elements in a continuum. Thus,
on the assumption that A has a highest element, it also follows that
it cannotan outright contradiction.
This establishes that the concept of a perfect competition is,
as indicated, unacceptable for scientific and analytical uses. There

11
This step rests on Cantor (1952 [1915], p. 108, theorem D).
 PERFECT COMPETITION, METHODOLOGICALLY CONTEMPLATED 701

is a chasm between the evidences of our imagination and the

requirements of analytical acceptability.
That should not surprise us. Many everyday perfects, however
vivid they may be in a specific context, have widely varying mean-
ings. For example, in baseball, a pitcher is credited with a perfect
game if no hitter gets on base via a hit, walk, or error; twenty-seven
up, twenty-seven down. But would it not be more perfect if the
pitcher struck out every one of those twenty-seven batters or even
more perfect than that if, wonder of wonders, it required only
one pitch per batter, twenty-seven pitches in all. A perfect day
is just a particularly nice day, and not really that rare. For one pian-
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ist a perfectly played sonata may mean that s/he neither missed
nor slurred any note in the score; for another that the performance
was unusually insightful, moving, exciting.
But when we contemplate the analytical content of the concept
of perfect competition we find formal contradiction. That of itself
disallows all of its analytical and inferential uses.
***
Again, before continuing the reader should pause to ascertain, if
necessary to reassure him- or herself, as to the force of each stage
of the entire foregoing argument. What follows assumes that the
reader is at home on that point.

Part 3
What has been lostor gained?
The foregoing argument erases a key premise for what we may call
for present purposes the Knight/Walras/Debreu project of a
notional economy fully in equilibrium, along with its assumptions
and its theorems bearing on its fully rational, fully informed, max-
imizing individuals, its ever-cleared markets, its maximal efficiency
in the employment of resources, its unexcelled welfare outcomes,
and the rest of that interconnected canon. It also places a new
intellectual burden on those long-standing tendencies in economics
animated by a belief in something like Smiths invisible hand.12
12
According to Arrow and Hahn (1971, p. 1), The notion that a social system
moved by independent actions in pursuit of different values is consistent with a
final coherent state of balance, and one in which the outcomes may be quite dif-
ferent from those intended by the agents, is surely the most important intellectual
contribution that economic thought has made to the general understanding of
social processes.
 702 JOURNAL OF POST KEYNESIAN ECONOMICS

Nevertheless, our foregoing argument has cost economics

virtually nothing at all, certainly nothing of theoretical substance.
For example, we can actually observe that there is greater or lesser
competition in this market and that. The apparatus of perfect com-
petition only offered the barest guidance, if any, to investigations of
actual cases and problems of greater and lesser competitiveness. It
seemed to say that there was a unique solution to such inquiries
but little guidance on where or how to find it. It also seemed to
say that the closer economic arrangements approached perfect
competition, the more efficient and fair they would be. But as far
as I can ascertain there has been to date no algorithm establishing
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such a proportional correspondence.

I do want, however, to emphasize that it would be simply wrong-
headed to dismiss the theoretical advances of the Knight/Walras/
Debreu project. Its analytical achievements are, by any account,
of major intellectual importance in themselves and, to the point
here, were indispensable to the further progress of economics.
Under its stimulus the meaning of perfect competition achieved
the analytical form that was itself the precondition for the critical
rejection just argued.

Part 4
The very concept of a perfect competition embodies a contradic-
tion. Thus, consider the entire set of propositions similar to,
If there is perfect competition then , or
Under perfect competition , or
The assumption of perfect competition is necessary for ,
and so forth.
Each of them takes the logical form,
p ! q; p validly implies q; if p is true so too must be q: 1
But in the present case the antecedent proposition or propositions,
p, are necessarily false, so that Equation (1) becomes,
F! q 2
This is a tautology; in it proposition q is validly inferred, what-
soever its identity, its content, its scope. Here we meet the theorem
in formal logic that from a false proposition one may validly imply
any other proposition, any whatsoever. Hence, every proposition
embodying or dependent on the concept of a perfect competition
 PERFECT COMPETITION, METHODOLOGICALLY CONTEMPLATED 703

has to be banned from analytical theoretical usages because it

is indiscriminately implicative in the manner just noted. A concept
formed in aid of theorizing has no useful, no permissible theoreti-
cal use.
As imaginative constructs, technically as ideotypes, perfect this
and perfect that can and often do assist us in formulating this or that
project, in extrapolating some imagined phenomenon to see what
might come of it. But when we analyze this usage, it becomes clear
that this perfect refers to nothing more than the fact that we do not
imagine or forecast an end to the extrapolation. We extrapolate,
as we put it, without limit. It would be paradoxical indeed if
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on that imaginative basis we concluded that we could reach and

define a limit, and one both mathematical and perfect at that.

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