<p>A free market does not allocate resources in some fair or equitable manner, it allocates resources for maximal economic utility. So if a rich person is able and willing to pay a larger price for water to fill their pool than a poor person is able to pay for the same water in order to drink it then the free market will allocate the water to the rich person. If the rich person is paying more than by definition that is the bigger economic utility.</p>
<p>From a social perspective this may be blatantly unfair. In that case you could argue that the free market is not the optimal way to manage a society but this is a slightly different argument. The free market does exactly what it promises to do, the question is more whether that is what you want not whether the free market is efficient according to its definition.</p>

CC BY-SA 4.0
2024-09-21T14:47:35.050Z
Then, by your very own admission, the "free market" is a brutal and inhumane way of distributing resources, as it provides vast abundance and luxury to a small corporate few while the poor and working class struggle to afford food and housing.

Under "free markets", resources are given to the highest bidder regardless of what is actually good for society and what meets human needs. Free market economists would prefer that the rich have yachts while the workers go hungry, die because they can't pay for healthcare, and struggle to afford a roof over their heads, because it is "efficient".
anonymous_inquirer
CC BY-SA 4.0
2024-09-21T16:06:27.310Z
@anonymous_inquirer You seem to be mixing up the definition of what a free market is with some belief that everyone who talks about free markets is a proponent of everything becoming free markets. I explained how the definitions that economist use for the terms 'efficient' and 'free market' play together. This has absolutely nothing to do with supporting either of these concepts.
quarague
CC BY-SA 4.0
2024-09-23T14:11:47.013Z
@anonymous_inquirer What is brutal and inhumane is keeping a market small when it needs to grow.  High ticket items take extra money from the rich to invest in market growth so that in the future, that market can server everyone, not just a random % of the population.
Nosajimiki
CC BY-SA 4.0
2024-09-24T04:16:13.123Z
Ah, yes. "In the future". 

But until then, the poor must suffer from the daily pain of not having enough to survive.
anonymous_inquirer
CC BY-SA 4.0
2024-09-24T17:56:33.470Z
@anonymous_inquirer If you are working, and still don't make enough to eat, then your current profession probably lacks economic utility.  Capitalism reduces these industries by forcing people leave them to seek jobs with a higher economic value.  When enough people leave, that employer either needs to increase wages or reduce output.  If the service has value, then the employer can afford to increase wages to replace lost employees.  If it does not, then that industry will shrink wasting less of the workforce on something that ppl don't value.
Nosajimiki
CC BY-SA 4.0
2024-08-29T08:04:10.170Z
2024-08-29T08:04:10.170Z
quarague
<blockquote>
<p>How are markets efficient at allocating resources for maximal social utility if they only give resources to the highest bidder?</p>
</blockquote>
<p>The efficient allocation is an allocation of resources to people who are willing to pay for them most.</p>
<p>For example, it can be shown mathematically that total social surplus in a well functioning  market is maximized when price is set such that supply equals demand (e.g. see Mankiw Principles of Economics pp 133-154). This result already takes into account ability to pay because demand function is derived from consumer's constrained optimization problem (that is from consumer preferences, represented by utility, constrained by consumer's budget).</p>
<p>However, there is a caveat there. When we talk about maximizing social welfare in this context we talk either about Marshallian welfare or welfare function that treats every person equally by giving everyone equal social weight. However, there are other social welfare functions (aside from this &quot;vanilla&quot; one). For example, under Rawlsian social welfare function, which only gives social weight to poor and no social weight to rich or middle class, might not be maximized by standard market outcomes.</p>
<hr />
<p>There are also a lot of misconceptions in your question. Let me address those as well.</p>
<blockquote>
<p>One of the standard doctrines of market-based economics is that a market allocates resources to where they are most valued, which makes very little sense in the context of income inequality.</p>
</blockquote>
<p>This is not a doctrine, and to my best knowledge there is no subfield or school of thought called &quot;market-based economics.&quot;</p>
<p>As already mentioned in the answer, you can prove mathematically in supply demand model that in a well functioning market, Marshallian social welfare is maximized at market price. Similarly the first welfare theorem, which again can be proven mathematically, shows that if markets are perfect and competitive they will yield pareto optimal outcomes. This has nothing to do with income inequality, because that does not factor in the 'vanilla' welfare concepts.</p>
<p>However, it is a misconception that this would imply that markets maximize <em>any</em> social welfare. Depending on your values and ideology, there are various social welfare functions (e.g. see Stiglitz Public Economics pp 173-174). For example, a Rawlsian would claim that we shouldn't care about any welfare gains to middle class or rich people we should only care about welfare of poorest people in society. Such ideology implies different welfare function that will be maximized under different conditions than the 'vanilla' Marshallian one.</p>
<p>Similarly, you could choose some 'equitist' social welfare function where social welfare is maximized by minimizing inequality.</p>
<blockquote>
<p>The market allocates resources to where it is most profitable to do so. That is so that that the market gives resources to the people who can afford it, not the people who need it the most. It is more profitable for suppliers to provide yachts and $300 dollar tasting menus to the wealthy rather than to feed the hungry, house the homeless, provide education and healthcare to all.</p>
</blockquote>
<p>You are conflating various concepts.</p>
<ul>
<li>Yes markets do not allocate resources based on need. I can't think of any economist through the history who would postulate markets work that way. Need in economics is not equal to value.</li>
<li>What is profitable and unprofitable is ultimately dictated by consumer preferences. Hence, saying markets allocate resources according to profitability is just a roundabout way of saying that markets allocate resources to their highest valued uses (in a way how it is defined in economic literature -  note the terms value etc have specific meaning in economics that does not always 100% correspond to their common English usage. As every scientific field, economics developed special vocabulary to be rigorous and precise).</li>
<li>Indeed, you are completely correct in pointing out that markets do not generally care about poor and thereby resources are also allocated to luxury goods. Again however, I do not think there ever was an economist who would disagree. This however, does not mean the resources are not allocated to their most valued uses, in sense as these terms are defined and widely used in academic literature.</li>
</ul>
<blockquote>
<p>The idea that the price mechanism allocates resources to their most valued resources also seems nonsensical, as the poor literally cannot afford high prices. They don't &quot;value&quot; food, medication, and education less, they literally do not possess enough units of currency to satisfy the price point that the business people have demanded. They are forced to go without food, medicine, and shelter not because they value it less than the rich people who are buying mansions and swaths of residential properties, but because they literally cannot afford it and are locked out of access.</p>
</blockquote>
<p>Again problem here is lack of understanding the terminology in the field. Generally, in an economic model the value people derive from consumption is based on a consumer constrained optimization problem, where consumers try to maximize their utility <strong>subject to</strong> their budget. From such problem you get demand function, then from similar constrained optimization of firms you can get supply function, and then from supply and demand you can show that total social surplus is maximized. For example, see numerous examples of such (or similar) problems in Varian Microeconomic Analysis or MWG Microeconomic Theory.</p>
<p>Hence, the postulate that markets allocate resources to their most valued uses already is derived based on peoples preferences and their budgets. Consequently, the fact that some people have little or no resources is already factored in. Of course, this does not mean such outcome is ethical. It might be perfectly allocatively efficient to let quadriplegic person starve. This does not mean it is ethical, even if such outcome could be shown to maximize Marshallian welfare or to be pareto efficient.</p>
<blockquote>
<p>How is the market ensuring optimal social utility when it only gives resources to the highest bidder and not the people who require it the most?</p>
</blockquote>
<p>Again because when we say it maximizes social utility we mean either Marshallian welfare or pareto efficiency. Which are &quot;vanilla&quot; versions of social welfare, in a sense that they are based just on adding up some measures of welfare across individuals in society. However, other social welfare functions based on Rawlsian Max-Min, Utilitarianism, or libertarian/classical liberal ethics, or many others, exist as well. For example, under libertarian ethics even markets subject to market failures, which are not allocatively efficient can maximize social welfare, and under Rawlsian ethics even allocatively efficient perfects markets might not.</p>
<p>However, no economist would go as far as to claim that they maximize social welfare under any welfare criterion. For example, see Stiglitz's Public Economics pp 173-174.</p>
<p>Hence this is not really some secret. It is also not a doctrine, since no matter what your ideological leaning is, it can be objectively shown with math that this occurs given the definition and conditions mentioned above. It is an theoretical result that can be rigorously deduced, like for example Pythagorean theorem. The important thing here is to have good command of terminology and to understand that we are talking about maximizing <em>a</em> social welfare (e.g. Marshallian welfare/Pareto Efficiency) not <em>the</em> social welfare, since there is no agreed upon objective normative criterion.</p>

CC BY-SA 4.0
2024-09-21T14:40:08.187Z
"The efficient allocation is an allocation of resources to people who are willing to pay for them most."

There it is. It isn't about "willingness" to pay, it is about ABILITY to pay. A poor person isn't less "willing" to pay for housing, food, and healthcare, they literally CANNOT because they don't have enough units of currency to satisfy the ownership class.
anonymous_inquirer
CC BY-SA 4.0
2024-09-21T14:42:00.603Z
So, what you're saying is that it is more "efficient" to allow rich people to have mansions, yachts, swimming pools, and waste food in fine dining establishments than it is to provide social goods to the hungry, homeless, and struggling?

What then does "efficiency" even mean? What is "efficient" about the rich gobbling up a disproportionate share of resources while the masses suffer housing insecurity and cannot feed their children?
anonymous_inquirer
CC BY-SA 4.0
2024-09-21T14:43:29.553Z
"Marshallian social welfare is maximized at market price."

What is this "Marshallian social welfare"? Homelessness and tent cities are growing at the current "market price". One in seven American adults is now food insecure, and the vast majority of humanity is barely surviving. Millions are starving. Is this maximal social welfare????
anonymous_inquirer
CC BY-SA 4.0
2024-09-21T14:52:08.317Z
@anonymous_inquirer 1, **willingness** to pay **is** derived from the **ability** to pay. If person's A budget constraint is given by $m = px + qy$, where $m$ is the person's budget, so ability to pay,, and utility is given by $u=x^0.5y^0.5$ then the agent's demand that represents agent's **willingness to pay** is $x^*=0.5m/p$. The willingness to pay depends on ability to pay. Ability to pay **is already factored in willingness to pay**. Hence, clearly mathematically poor person is actually willing to pay less for housing, food, healthcare and so on. This is trivially true by definition of
1muflon1
CC BY-SA 4.0
2024-09-21T14:55:58.257Z
those words, and their usage in science. This is just logically implied. 2. I am not saying that, again that can be derived mathematically. More efficient doesn't mean more good. For example, keeping quadriplegic person or someone in vegetative state clearly wastes society resources, but that does not mean it would be good to not keep those people alive. That is moral judgement that is beyond scope of economics. Efficiency for the sake of efficiency is not supreme good.
1muflon1
CC BY-SA 4.0
2024-09-21T14:57:39.017Z
That makes no sense. 

Think of a person who died because they froze to death because the market deemed it "inefficient" to provide affordable housing for them.

If they had more money, they would certainly have been "willing" to pay for the life-essential resources that were withheld from them. This use of the word "willing" is so inhumane and psychopathic because it suggests that a homeless person who froze to death did so because they chose to, because they just "weren't willing" to pay the costs of housing. They weren't ABLE, and they died.
anonymous_inquirer
CC BY-SA 4.0
2024-09-21T14:57:49.470Z
3. Marshallian social welfare is the sum total of consumer and producer surplus.  4. Regarding the other questions, I do not know if marshalian welfare is maximized in those markets because only perfect markets maximize marshalian welfare and I do not know if there are some market imperfections or not. However, this being said, yes in optimum where Marshalian welfare is maximized there might still be homeless and starving people around. That is not mutually exclusive.
1muflon1
CC BY-SA 4.0
2024-09-21T15:01:03.830Z
To be clear, according to mainstream economics, a person who died because they literally couldn't afford life essential goods or services has died because they just weren't "willing" to pay for it?

The implication is that they were instead "willing" to die. That they weighed both options and rationally chose to die because they weren't "willing" to pay thousands of dollars to have healthcare. It just seems so cruel and deceptive. 

The dalits of India aren't "unwilling" to feed their children. They are unable because their earnings are too low.
anonymous_inquirer
CC BY-SA 4.0
2024-09-21T15:04:04.850Z
@anonymous_inquirer It doesn't suggest that at all you are now just making stuff up.  Every science has its own terminology. That's like saying, that when we medically say the  consciousness resides in cerebral cortex, you would retort, that is psychopathic so there is no soul? This language suggests we are just animated atoms so psychopathic. If you are not interested in science but in some religion, or philosophical debates then sciences are not the right place
1muflon1
CC BY-SA 4.0
2024-09-21T15:05:47.410Z
As I already demonstrated the willingness of pay depends on an ability to pay. Willingness to pay (ability to pay). Hence, for example, in the example of representative consumer I show we would say the consumer was not willing to pay but that was also because given the consumer income the consumer was not able to pay.  In fact you are using the word in same way, when you say if the poor would have more money they would be willing to pay. Which clearly translated to logical language means willingness to pay is function of income, as expressed in economics
1muflon1
CC BY-SA 4.0
2024-09-21T15:08:31.867Z
You seem to try to give these words some moralistic religious meaning, in economics they are definitions like all the latin words used in medicine, they have no moral meaning, they are used for their utility to communicate results between scientists
1muflon1
CC BY-SA 4.0
2024-09-21T15:15:01.813Z
Let's say that a heart medication costs 1000 dollars. However, I have zero dollars left in savings after paying for rent, groceries, and other bills. So I literally do not have enough money to pay for it.

Would you say that I am "unwilling" to pay for the heart medication? Or that I just don't value it?

If I die because of a heart condition because I can't afford to pay for the medication, would you say that I "willingly valued" this result over getting the heart medication?
anonymous_inquirer
CC BY-SA 4.0
2024-09-21T15:23:03.357Z
@anonymous_inquirer first of all its not about what I would say. if I would be doctor I would not call the system of veins and heart cardio-vascular system because that is my whim, but because that is how this system is called. Regarding your example, yes, any trained economist would say that person was unwilling to pay for it given their income. Willingness in economics does not mean its a whim, but it is a result persons **constrained** choice, where the constraint is the person's budget. This doesn't have any moral implications whatever you are trying to push here. In economics we would
1muflon1
CC BY-SA 4.0
2024-09-21T15:23:58.410Z
also say that being gay is exogenous preference, because in economics preference does not mean its some free choice, and you can be born with exogenous preferences. It has no moral connotations like it might have in some theological debates
1muflon1
CC BY-SA 4.0
2024-09-25T06:47:31.560Z
Your paragraph on the caveat makes Marshallian welfare sounds needlessy harsh and the alternatives needlessly illogical. Marshallian welfare is linear or independent of the welfare an individual already has. So redristibuting a fixed amount of welfare from one individual to another leaves total welfare unchanged. Alternative welfare functions still treat every individual equally but assign each individual a decreasing marginal utility of additional welfare. In these models transferring a fixed amount of welfare from a rich to a poor individual increases total welfare.
quarague
CC BY-SA 4.0
2024-09-25T14:41:19.907Z
@quarague 1. Those are not my caveats. I didn’t came up with definitions of these concepts. 2. No that doesn’t necessarily hold unless you assume cardinal utility. 3. There are alternative social welfare functions, my answer is clear about their existence
1muflon1
CC BY-SA 4.0
2024-09-26T07:56:11.130Z
My comment was not about your definitions, these are correct. It was about phrasing and perception. In totally over-the-top words your description makes it sound like Marshallian welfare is the only serious economic option, the others are some leftie-communist-hippie-dream. Of course you didn't write it like that, but I still feel you could describe the alternatives a little more open-minded.
quarague
CC BY-SA 4.0
2024-09-26T11:04:04.353Z
@quarague huh? Ralwsian welfare function is literally the most commonly used in public econ literature. Also it’s considered to be left liberal. Do you even know who Rawls was? Not really a communist. Of course there are other social welfare functions, like classical liberal or charitable conservative SWF but I choose Rawlsian specifically because in research it’s one of the most popular alternatives to Marshallian welfare. I am open to edits in case I misrepresented something but I literally choose the second most commonly used SWF, was I supposed to fish for some niche ones?
1muflon1
CC BY-SA 4.0
2024-09-26T19:39:59.657Z
Rawls is an excellent example, no complaint there. I stumbled over your description 'which only gives social weight to poor and no social weight to rich or middle class' but I guess it can be described that way.
quarague
CC BY-SA 4.0
2024-09-26T20:14:41.537Z
@quarague oh okay but that is literally how it works mathematically. If you check the papers in such welfare criterion utility of poorest individual gets weight 1 and anyone else gets 0. This doesn’t equate to communism because that would make even the poorest person worse off. Inequality is ok as long as it yields higher utility for poorest person
1muflon1
CC BY-SA 4.0
2024-08-29T21:58:32.387Z
2024-08-29T22:11:45.557Z
2024-08-29T22:11:45.557Z
1muflon1
<h2>Just because the rich get &quot;dibs&quot; does not mean the poor have no opportunities</h2>
<blockquote>
<p>It is more profitable for suppliers to provide yachts and $300 dollar tasting menus to the wealthy rather than to feed the hungry, house the homeless, provide education and healthcare to all.</p>
</blockquote>
<p>There is a huge problem with this assumption because it is no way more profitable in the grand scheme of things to only sell high end menus and yachts.  Those sorts of things only represent a tiny fraction of the economy; so, companies that cater to this market tend be in fierce competition for a share of what is ultimately a tiny market.   Companies that cater to the rich rarely have an annual revenue of more than a few million dollars per year. These places are limited because they rely on the patronage of so few people.  If you were to open up 1000s of identical stores all over the world, most of them would fail horribly because no one can afford it, and the whole company would go bankrupt.  However, companies which aim at serving the poor and middle class are often worth 100s of billions dollars each.  So, because McDonalds aims to serve the maximum number of people it can profit from, it is worth 40,000 times as much as Chis Pacca which charges 300/$ for a steak.</p>
<h2>Maximum Social Utility Specifically</h2>
<p>This is not just about who can afford something, but it includes who will choose to buy something.  In a pure socialist economy, if I have 10,000 widgets and 100,000 people, I have 3 choices:</p>
<ol>
<li>I could try to break up my widget production into 100,000 tiny or sub-par widgets so that everyone only gets an unsatisfying widget.</li>
<li>I could lottery off the widgets so that 10,000 random people get them.</li>
<li>I could pick my 10,000 favorite people and give them to those people.</li>
</ol>
<p>Socialists say that #1 or #2 are ideal situations, and capitalists often accuse #3 of being the sad reality, but in fact, all 3 of these options are less fair than the capitalist approach. Let's say of your 100,000 people, only 30,000 people actually want the widgets, and of those people only 5000 REALLY like widgets. In a socialist distribution method, you are taking widgets away from all the people who like them to give to people who do not like them.  That becomes wasted production.</p>
<p>In a capitalist society, it is true that not all of the 30,000 people who want a widget will get one (the same was true of the socialist economy), but it does ensure that all 10,000 widgets will go to someone who cares enough to buy them at their given cost; so, none of the widgets are wasted production.  We can also assume that even if not all 5000 people who really like widgets could not afford one, that a disproportionate number of widgets will go to this population because they are more willing to sacrifice other purchases for a widget so you will in the end see a distribution of widgets that leads to the least waste and the highest consumer satisfaction possible given your scarcity.</p>
<p>The problem you have with 'literally cannot afford it' is a bit of a red herring.  Not everyone gets everything they want, and they may not even get everything they need, but unless their society produces enough for everyone regardless of if they want it or not, that is just the nature of scarcity.   But if you have any money, you can buy something.  Sometimes that means you choose between food and shelter.  Sometimes that means choosing between a car and medical care... but Maximum Social Utility gives said poor person the right to choose which of those things they get. When times get hard, the poor can still choose to eat and be homeless, or keep their car and lose their healthcare, if those are the things they value most.</p>
<h2>The importance of price setting in Market Growth</h2>
<p>The biggest difference between the capitalist and socialist approach to scarcity is that the capitalist approach reallocates resources so that a market that some people can not afford today becomes affordable tomorrow.  If you are only producing 10,000 widgets, but need 30,000 to fill demand, then by selling to the 10,000 richest people at the highest possible price means that you make a bigger profit per unit.  Those higher profit margins attract investment meaning that producers of those 10,000 widgets now have the money to build more widget factories... and if they don't then another company seeing how much money they are making will want to create a competing factory.  Either way, the increased profit margin will encourage investment into the industry to produce more widgets.  So when they do this, they will sooner rather than later start producing close to 30,000 widgets.  Competition will force them to drop prices to make widgets affordable to everyone who can afford the bare minimum cost it takes to make the widgets.  This means that the only people who will not eventually be able to afford a widget are those who either do not want one, or are not contributing enough to society to afford the cost it takes to make one.</p>
<p>In contrast, a socialist system will do one of 2 things.  It will keep widget production at 10,000 making the shortage a permanent problem, or they will arbitrarily increase production without regard to production cost vs benefit.  In most cases they do not know how much they need; so, they may increase production to 50,000 widgets.  In this case they will have taken all of the resources away from the economy's other needs to produce an extra 20,000 widgets that go to waste. This means less doodads and whatchamacallits that could have been produced using the same labor causing shortages in other areas of the economy.</p>
<p>But even if you get it just right, and make 30,000 widgets for the 30,000 people who want it, some of those people will not be producing as much as it costs to give them a widget; so, you have to take a little bit from everyone else's productivity to support the less productive person.  While there are certain ethical circumstances where this is clearly the right thing to do like with the elderly, disabled, the temporarily unemployed, etc.  It also encourages people with the ability to produce more to not maximize their own production.  For example, a person's value to society as a doctor or engineer is much higher than that of a receptionist.  If you are a receptionist who gets all of the same resources as a doctor or engineer, then it's not worth it to try to move towards the more valuable, harder to attain roles in society which creates shortages in those markets.  So, even if giving away the exact number of widgets everyone wants leads to a fair distribution, you will handicap your society's production because of a lack of want-to.  So, as a whole, your society will produce less (or just goods and services of less value), causing greater shortages across every sector of your economy because this makes you more vulnerable to a trade deficit.</p>
<h2>Luxury Goods &amp; Services are Important to Everyone</h2>
<p>Many occupations take a lot more specialized skills and/or risk than others.  Those occupations typically pay more than others because the only ways that a society can fill those roles with enough workers to meet demand is through unequal pay or through forced labor.  So, unless you want to advocate for a return to slavery, you need to accept that some people must be paid more than others.  Without that fact, there will not be enough doctors, engineers, plumbers, roofers, farmers, etc. to serve the needs of society because too many people will choose to work in the easiest possible jobs that require the minimum amount of education.</p>
<p>Infrastructural and logistical failures would lead to reduced production and distribution of goods and services causing more scarcity, starvation, etc.  But there is no point in making more money than other people if there is nothing to spend it on.  If all people are offered the exact same products, then earning more money is meaningless; so, you would still fail to incentivize people to work in jobs that you need more of.</p>
<p>So, while it may seem wasteful for a car company to produce one car that is worth \$20,000 and another car that is worth \$120,000 because no one NEEDS the \$120,000, for society as a whole, it is not a wasted investment.  It's not the bigger paycheck that gets people to waste 11-16 years of their life to become a doctor.  It is the luxury goods that come with that paycheck.</p>
<p>As for more basic needs like food people often assume that these are lower paying jobs than they are.  In the United States, the 2022 median income for a farmer was $178,692. It's really hard to find people willing to move out to nowhere and work long hours in heat and cold and stress over the uncertainties of weather.  So, for you to have anything at all to eat, our economy relies on the luxury goods and services that these farmers enjoy in compensation for what they've had to give up.  Without them, we would have less farmers, and instead of producing a bit more food than we need with a few people going hungry, we'd be producing way less food than we need and a lot of people going hungry.</p>

CC BY-SA 4.0
2024-09-21T14:51:01.137Z
What is better for maximal social utility? 

Resources getting put into luxuries for the rich, such as tropical resorts built in places where the local working class is extremely impoverished, or directing those resources instead to meet the needs of society?

There is more than enough resources to make sure everyone's needs are met, but "efficient markets" produce starvation and homelessness for those who cannot produce enough pieces of green paper.

The homeless are freezing to death under free market capitalism while empty luxury condos and massive mansions abound.
anonymous_inquirer
CC BY-SA 4.0
2024-09-21T15:05:12.983Z
Again, if we're talking about supplying basic human needs, there is no scarcity. There is more than enough for all of us. 

Also, this: 

" but it does ensure that all 10,000 widgets will go to someone who cares enough to buy them at their given cost"

No. Not 'cares enough', but who has enough money. It is SO disgusting to say that a rich person "cares more" about getting healthcare than a poor person who DOESN'T HAVE ENOUGH MONEY.

We produce enough food and build enough to feed and house everyone, yet so many go without those things.
anonymous_inquirer
CC BY-SA 4.0
2024-09-21T15:07:02.963Z
Rich people don't "want" food, housing, education and healthcare more than poor people, they are able to afford it. 

The poor absolutely want and value those things. They just don't have the right amount of currency units to satisfy the gouging suits.
anonymous_inquirer
CC BY-SA 4.0
2024-09-23T13:48:26.907Z
@anonymous_inquirer "there is more than enough resources to make sure everyone's needs are met" <- No, there are as many resources as people are willing and able to produce.  Sometimes there are enough to meet everyone's needs, sometimes there are not.  When you walk into a grocery store and see a shelf full of eggs that have suddenly tripled in price, it typically does not mean that some greedy bastard decided today that eggs will cost 3 times as much. It means that something happened to the supply of eggs; so, they increased the price to the point that they can keep eggs on the shelves.
Nosajimiki
CC BY-SA 4.0
2024-09-23T13:48:29.830Z
If they don't do this, there will still be a shortage of eggs, but it will be random who does and who does not get them instead of graded by income.  This increased price helps the egg industry grow until such point that it can produce enough to provide for everyone.  When you price control the eggs so that everyone can afford them, you prevent the egg industry from growing making the shortage last much longer or even collapsing the egg industry so that the supply shrinks even though there is a demand for more eggs.
Nosajimiki
CC BY-SA 4.0
2024-09-23T13:59:51.163Z
I'm not saying that there are not problems inherent with capitalism, like its tendency to move towards monopolization which can lead to really big problems in minimum quality of life, but that is a whole complex and separate set of problems than Social Utility.
Nosajimiki
CC BY-SA 4.0
2024-09-24T03:23:44.440Z
You have also avoided my question. If a poor person dies because they cannot afford the thousands of dollars they must pay for heart medication, do they "value" the medication less than someone who can afford it? Were they simply "unwilling" to pay an amount of money they simply did not have?
anonymous_inquirer
CC BY-SA 4.0
2024-09-24T03:39:37.020Z
explain how we produce enough food to feed the global population, yet millions starve while a third of all that food produced is wasted. There are other examples of artificial scarcity, where the wealthy keep their operations profitable by withholding available goods. For example, Amazon destroys excess product instead of lowering the price or giving it away. In my city, grocery shelves are full, and grocery stores waste a ton of food, yet 10% of us rely on food banks and more and more are skipping meals.
anonymous_inquirer
CC BY-SA 4.0
2024-09-24T13:21:02.040Z
@anonymous_inquirer Free Market economic theory assumes easy market entry and competition.  The problems you are describing are not caused by the free market, they are caused by breakdowns in it.  Monopolization, Cellar Boxing, Price Fixing, Externalities, and Barriers to Entry like Intellectual Property Laws and Regulations can all inhibit the free market.  Capitalism cannot guarantee that everyone will have everything they need all the time.  But world wide, a lot fewer people starve in capitalist economies than in socialist ones.  Optimization does not guarantee perfection.
Nosajimiki
CC BY-SA 4.0
2024-09-24T13:55:29.420Z
@anonymous_inquirer As for your more specific question about luxury goods, I've added a section to my answer that explains their practical role in the economy.
Nosajimiki
CC BY-SA 4.0
2024-09-26T17:36:24.340Z
I've read it, and it makes very little sense. Again, and I am asking a very direct question here, why is it more optimal to direct a disproportionate amount of resources to giving rich people yachts and mansions while the masses lack basic needs? We already have the productive capacity to feed, house, medicate, and clothe everyone on Earth. 

The rich would still have a high standard of living even if we were to massively redistribute resources. 

Is a poor person who literally has no money really "unwilling" to pay gouged prices?
anonymous_inquirer
CC BY-SA 4.0
2024-09-26T18:09:09.223Z
@anonymous_inquirer  Price gouging becomes sustainable when monopolies leads to a lack of competition.  Capitolist price setting is based on a Nash equilibrium, whereas Monopolist price setting is based on WTP (willingness to pay).  If your food is monopolized, then no new food provider will be able to appeal to your portion of the market to fulfil the available niche.  The monopoly emposes market entry barriers to make sure that they do not have to reduce their prices or offer adequate alternatives to be able to serve the whole market.
Nosajimiki
CC BY-SA 4.0
2024-09-26T18:09:11.527Z
I believe the problem in your question, and why so many answers don't make since to you, is that you are conflating monopolized markets with capitalist markets, but they work by fundamentally different principles.  Capitalism can lead to monopolies, just like socialism can lead to communism when either is faced with corrupt or unethical leadership, but that does not automatically make the one the same as the other.
Nosajimiki
CC BY-SA 4.0
2024-08-29T20:01:39.503Z
2024-09-24T17:07:57.657Z
2024-09-24T17:07:57.657Z
Nosajimiki
<p>One of the standard doctrines of market-based economics is that a market allocates resources to where they are most valued, which makes very little sense in the context of income inequality.</p>
<p>The market allocates resources to where it is most profitable to do so. That is so that that the market gives resources to the people who can afford it, not the people who need it the most. It is more profitable for suppliers to provide yachts and $300 dollar tasting menus to the wealthy rather than to feed the hungry, house the homeless, provide education and healthcare to all.</p>
<p>If the price of water skyrockets, the rich will buy up the water to irrigate their gardens and fill their swimming pools, while the urban and rural poor will be left without water. In Cape Town, the rich are literally exacerbating the city's water shortage because of their disproportionate consumption of the water supply.</p>
<p>The idea that the price mechanism allocates resources to their most valued resources also seems nonsensical, as the poor literally <strong>cannot afford high prices</strong>. They don't &quot;value&quot; food, medication, and education less, they literally do not possess enough units of currency to satisfy the price point that the business people have demanded. They are forced to go without food, medicine, and shelter not because they value it less than the rich people who are buying mansions and swaths of residential properties, but because they <strong>literally cannot afford it</strong> and are locked out of access.</p>
<p>During a water shortage when the price skyrockets, the limited supply of water will go to the rich, because they can afford the high prices, have less of a monetary incentive to reduce consumption, and will gobble up the water to make ice sculptures or whatever it is they do.</p>
<p>Currently, the &quot;free market&quot; allocates a disproportionate share of resources to give rich people yachts, mansions, and other unnecessary luxuries, while millions of people struggle with inadequate access to education, medical needs, broadband, food, and water.</p>
<p>How is the market ensuring optimal social utility when it only gives resources to the highest bidder and not the people who require it the most?</p>

CC BY-SA 4.0
2024-08-28T21:46:15.813Z
An efficient market does not guarantee an equitable outcome, nor does it purport to do so.
Herr K.
<markets><inequality><efficient-markets><capitalism>
How are markets efficient at allocating resources for maximal social utility if they only give resources to the highest bidder?
anonymous_inquirer
# How are markets efficient at allocating resources for maximal social utility if they only give resources to the highest bidder?

(Asked by: username_0 on 2024-08-28)

One of the standard doctrines of market-based economics is that a market allocates resources to where they are most valued, which makes very little sense in the context of income inequality.

The market allocates resources to where it is most profitable to do so. That is so that that the market gives resources to the people who can afford it, not the people who need it the most. It is more profitable for suppliers to provide yachts and $300 dollar tasting menus to the wealthy rather than to feed the hungry, house the homeless, provide education and healthcare to all.

If the price of water skyrockets, the rich will buy up the water to irrigate their gardens and fill their swimming pools, while the urban and rural poor will be left without water. In Cape Town, the rich are literally exacerbating the city's water shortage because of their disproportionate consumption of the water supply.

The idea that the price mechanism allocates resources to their most valued resources also seems nonsensical, as the poor literally **cannot afford high prices**. They don't "value" food, medication, and education less, they literally do not possess enough units of currency to satisfy the price point that the business people have demanded. They are forced to go without food, medicine, and shelter not because they value it less than the rich people who are buying mansions and swaths of residential properties, but because they **literally cannot afford it** and are locked out of access.

During a water shortage when the price skyrockets, the limited supply of water will go to the rich, because they can afford the high prices, have less of a monetary incentive to reduce consumption, and will gobble up the water to make ice sculptures or whatever it is they do.

Currently, the "free market" allocates a disproportionate share of resources to give rich people yachts, mansions, and other unnecessary luxuries, while millions of people struggle with inadequate access to education, medical needs, broadband, food, and water.

How is the market ensuring optimal social utility when it only gives resources to the highest bidder and not the people who require it the most?

**Tags:** markets, inequality, efficient-markets, capitalism
> **Comments:**
> **username_1**: An efficient market does not guarantee an equitable outcome, nor does it purport to do so.  

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## 3 answers

### Answer by username_2 on 2024-08-29. Score: 2

A free market does not allocate resources in some fair or equitable manner, it allocates resources for maximal economic utility. So if a rich person is able and willing to pay a larger price for water to fill their pool than a poor person is able to pay for the same water in order to drink it then the free market will allocate the water to the rich person. If the rich person is paying more than by definition that is the bigger economic utility.

From a social perspective this may be blatantly unfair. In that case you could argue that the free market is not the optimal way to manage a society but this is a slightly different argument. The free market does exactly what it promises to do, the question is more whether that is what you want not whether the free market is efficient according to its definition.

> **Comments:**
> **username_0**: Then, by your very own admission, the "free market" is a brutal and inhumane way of distributing resources, as it provides vast abundance and luxury to a small corporate few while the poor and working class struggle to afford food and housing.  Under "free markets", resources are given to the highest bidder regardless of what is actually good for society and what meets human needs. Free market economists would prefer that the rich have yachts while the workers go hungry, die because they can't pay for healthcare, and struggle to afford a roof over their heads, because it is "efficient".  
> **username_2**: @anonymous_inquirer You seem to be mixing up the definition of what a free market is with some belief that everyone who talks about free markets is a proponent of everything becoming free markets. I explained how the definitions that economist use for the terms 'efficient' and 'free market' play together. This has absolutely nothing to do with supporting either of these concepts.  
> **username_3**: @anonymous_inquirer What is brutal and inhumane is keeping a market small when it needs to grow.  High ticket items take extra money from the rich to invest in market growth so that in the future, that market can server everyone, not just a random % of the population.  
> **username_0**: Ah, yes. "In the future".   But until then, the poor must suffer from the daily pain of not having enough to survive.  
> **username_3**: @anonymous_inquirer If you are working, and still don't make enough to eat, then your current profession probably lacks economic utility.  Capitalism reduces these industries by forcing people leave them to seek jobs with a higher economic value.  When enough people leave, that employer either needs to increase wages or reduce output.  If the service has value, then the employer can afford to increase wages to replace lost employees.  If it does not, then that industry will shrink wasting less of the workforce on something that ppl don't value.  

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### Answer by username_4 on 2024-08-29. Score: 2

> How are markets efficient at allocating resources for maximal social utility if they only give resources to the highest bidder?

The efficient allocation is an allocation of resources to people who are willing to pay for them most.

For example, it can be shown mathematically that total social surplus in a well functioning market is maximized when price is set such that supply equals demand (e.g. see Mankiw Principles of Economics pp 133-154). This result already takes into account ability to pay because demand function is derived from consumer's constrained optimization problem (that is from consumer preferences, represented by utility, constrained by consumer's budget).

However, there is a caveat there. When we talk about maximizing social welfare in this context we talk either about Marshallian welfare or welfare function that treats every person equally by giving everyone equal social weight. However, there are other social welfare functions (aside from this "vanilla" one). For example, under Rawlsian social welfare function, which only gives social weight to poor and no social weight to rich or middle class, might not be maximized by standard market outcomes.

---

There are also a lot of misconceptions in your question. Let me address those as well.

> One of the standard doctrines of market-based economics is that a market allocates resources to where they are most valued, which makes very little sense in the context of income inequality.

This is not a doctrine, and to my best knowledge there is no subfield or school of thought called "market-based economics."

As already mentioned in the answer, you can prove mathematically in supply demand model that in a well functioning market, Marshallian social welfare is maximized at market price. Similarly the first welfare theorem, which again can be proven mathematically, shows that if markets are perfect and competitive they will yield pareto optimal outcomes. This has nothing to do with income inequality, because that does not factor in the 'vanilla' welfare concepts.

However, it is a misconception that this would imply that markets maximize *any* social welfare. Depending on your values and ideology, there are various social welfare functions (e.g. see Stiglitz Public Economics pp 173-174). For example, a Rawlsian would claim that we shouldn't care about any welfare gains to middle class or rich people we should only care about welfare of poorest people in society. Such ideology implies different welfare function that will be maximized under different conditions than the 'vanilla' Marshallian one.

Similarly, you could choose some 'equitist' social welfare function where social welfare is maximized by minimizing inequality.

> The market allocates resources to where it is most profitable to do so. That is so that that the market gives resources to the people who can afford it, not the people who need it the most. It is more profitable for suppliers to provide yachts and $300 dollar tasting menus to the wealthy rather than to feed the hungry, house the homeless, provide education and healthcare to all.

You are conflating various concepts.

* Yes markets do not allocate resources based on need. I can't think of any economist through the history who would postulate markets work that way. Need in economics is not equal to value.
* What is profitable and unprofitable is ultimately dictated by consumer preferences. Hence, saying markets allocate resources according to profitability is just a roundabout way of saying that markets allocate resources to their highest valued uses (in a way how it is defined in economic literature - note the terms value etc have specific meaning in economics that does not always 100% correspond to their common English usage. As every scientific field, economics developed special vocabulary to be rigorous and precise).
* Indeed, you are completely correct in pointing out that markets do not generally care about poor and thereby resources are also allocated to luxury goods. Again however, I do not think there ever was an economist who would disagree. This however, does not mean the resources are not allocated to their most valued uses, in sense as these terms are defined and widely used in academic literature.

> The idea that the price mechanism allocates resources to their most valued resources also seems nonsensical, as the poor literally cannot afford high prices. They don't "value" food, medication, and education less, they literally do not possess enough units of currency to satisfy the price point that the business people have demanded. They are forced to go without food, medicine, and shelter not because they value it less than the rich people who are buying mansions and swaths of residential properties, but because they literally cannot afford it and are locked out of access.

Again problem here is lack of understanding the terminology in the field. Generally, in an economic model the value people derive from consumption is based on a consumer constrained optimization problem, where consumers try to maximize their utility **subject to** their budget. From such problem you get demand function, then from similar constrained optimization of firms you can get supply function, and then from supply and demand you can show that total social surplus is maximized. For example, see numerous examples of such (or similar) problems in Varian Microeconomic Analysis or MWG Microeconomic Theory.

Hence, the postulate that markets allocate resources to their most valued uses already is derived based on peoples preferences and their budgets. Consequently, the fact that some people have little or no resources is already factored in. Of course, this does not mean such outcome is ethical. It might be perfectly allocatively efficient to let quadriplegic person starve. This does not mean it is ethical, even if such outcome could be shown to maximize Marshallian welfare or to be pareto efficient.

> How is the market ensuring optimal social utility when it only gives resources to the highest bidder and not the people who require it the most?

Again because when we say it maximizes social utility we mean either Marshallian welfare or pareto efficiency. Which are "vanilla" versions of social welfare, in a sense that they are based just on adding up some measures of welfare across individuals in society. However, other social welfare functions based on Rawlsian Max-Min, Utilitarianism, or libertarian/classical liberal ethics, or many others, exist as well. For example, under libertarian ethics even markets subject to market failures, which are not allocatively efficient can maximize social welfare, and under Rawlsian ethics even allocatively efficient perfects markets might not.

However, no economist would go as far as to claim that they maximize social welfare under any welfare criterion. For example, see Stiglitz's Public Economics pp 173-174.

Hence this is not really some secret. It is also not a doctrine, since no matter what your ideological leaning is, it can be objectively shown with math that this occurs given the definition and conditions mentioned above. It is an theoretical result that can be rigorously deduced, like for example Pythagorean theorem. The important thing here is to have good command of terminology and to understand that we are talking about maximizing *a* social welfare (e.g. Marshallian welfare/Pareto Efficiency) not *the* social welfare, since there is no agreed upon objective normative criterion.

> **Comments:**
> **username_0**: "The efficient allocation is an allocation of resources to people who are willing to pay for them most."  There it is. It isn't about "willingness" to pay, it is about ABILITY to pay. A poor person isn't less "willing" to pay for housing, food, and healthcare, they literally CANNOT because they don't have enough units of currency to satisfy the ownership class.  
> **username_0**: So, what you're saying is that it is more "efficient" to allow rich people to have mansions, yachts, swimming pools, and waste food in fine dining establishments than it is to provide social goods to the hungry, homeless, and struggling?  What then does "efficiency" even mean? What is "efficient" about the rich gobbling up a disproportionate share of resources while the masses suffer housing insecurity and cannot feed their children?  
> **username_0**: "Marshallian social welfare is maximized at market price."  What is this "Marshallian social welfare"? Homelessness and tent cities are growing at the current "market price". One in seven American adults is now food insecure, and the vast majority of humanity is barely surviving. Millions are starving. Is this maximal social welfare????  
> **username_4**: @anonymous_inquirer 1, **willingness** to pay **is** derived from the **ability** to pay. If person's A budget constraint is given by $m = px + qy$, where $m$ is the person's budget, so ability to pay,, and utility is given by $u=x^0.5y^0.5$ then the agent's demand that represents agent's **willingness to pay** is $x^*=0.5m/p$. The willingness to pay depends on ability to pay. Ability to pay **is already factored in willingness to pay**. Hence, clearly mathematically poor person is actually willing to pay less for housing, food, healthcare and so on. This is trivially true by definition of  
> **username_4**: those words, and their usage in science. This is just logically implied. 2. I am not saying that, again that can be derived mathematically. More efficient doesn't mean more good. For example, keeping quadriplegic person or someone in vegetative state clearly wastes society resources, but that does not mean it would be good to not keep those people alive. That is moral judgement that is beyond scope of economics. Efficiency for the sake of efficiency is not supreme good.  
> **username_0**: That makes no sense.   Think of a person who died because they froze to death because the market deemed it "inefficient" to provide affordable housing for them.  If they had more money, they would certainly have been "willing" to pay for the life-essential resources that were withheld from them. This use of the word "willing" is so inhumane and psychopathic because it suggests that a homeless person who froze to death did so because they chose to, because they just "weren't willing" to pay the costs of housing. They weren't ABLE, and they died.  
> **username_4**: 3. Marshallian social welfare is the sum total of consumer and producer surplus.  4. Regarding the other questions, I do not know if marshalian welfare is maximized in those markets because only perfect markets maximize marshalian welfare and I do not know if there are some market imperfections or not. However, this being said, yes in optimum where Marshalian welfare is maximized there might still be homeless and starving people around. That is not mutually exclusive.  
> **username_0**: To be clear, according to mainstream economics, a person who died because they literally couldn't afford life essential goods or services has died because they just weren't "willing" to pay for it?  The implication is that they were instead "willing" to die. That they weighed both options and rationally chose to die because they weren't "willing" to pay thousands of dollars to have healthcare. It just seems so cruel and deceptive.   The dalits of India aren't "unwilling" to feed their children. They are unable because their earnings are too low.  
> **username_4**: @anonymous_inquirer It doesn't suggest that at all you are now just making stuff up.  Every science has its own terminology. That's like saying, that when we medically say the  consciousness resides in cerebral cortex, you would retort, that is psychopathic so there is no soul? This language suggests we are just animated atoms so psychopathic. If you are not interested in science but in some religion, or philosophical debates then sciences are not the right place  
> **username_4**: As I already demonstrated the willingness of pay depends on an ability to pay. Willingness to pay (ability to pay). Hence, for example, in the example of representative consumer I show we would say the consumer was not willing to pay but that was also because given the consumer income the consumer was not able to pay.  In fact you are using the word in same way, when you say if the poor would have more money they would be willing to pay. Which clearly translated to logical language means willingness to pay is function of income, as expressed in economics  
> **username_4**: You seem to try to give these words some moralistic religious meaning, in economics they are definitions like all the latin words used in medicine, they have no moral meaning, they are used for their utility to communicate results between scientists  
> **username_0**: Let's say that a heart medication costs 1000 dollars. However, I have zero dollars left in savings after paying for rent, groceries, and other bills. So I literally do not have enough money to pay for it.  Would you say that I am "unwilling" to pay for the heart medication? Or that I just don't value it?  If I die because of a heart condition because I can't afford to pay for the medication, would you say that I "willingly valued" this result over getting the heart medication?  
> **username_4**: @anonymous_inquirer first of all its not about what I would say. if I would be doctor I would not call the system of veins and heart cardio-vascular system because that is my whim, but because that is how this system is called. Regarding your example, yes, any trained economist would say that person was unwilling to pay for it given their income. Willingness in economics does not mean its a whim, but it is a result persons **constrained** choice, where the constraint is the person's budget. This doesn't have any moral implications whatever you are trying to push here. In economics we would  
> **username_4**: also say that being gay is exogenous preference, because in economics preference does not mean its some free choice, and you can be born with exogenous preferences. It has no moral connotations like it might have in some theological debates  
> **username_2**: Your paragraph on the caveat makes Marshallian welfare sounds needlessy harsh and the alternatives needlessly illogical. Marshallian welfare is linear or independent of the welfare an individual already has. So redristibuting a fixed amount of welfare from one individual to another leaves total welfare unchanged. Alternative welfare functions still treat every individual equally but assign each individual a decreasing marginal utility of additional welfare. In these models transferring a fixed amount of welfare from a rich to a poor individual increases total welfare.  
> **username_4**: @quarague 1. Those are not my caveats. I didn’t came up with definitions of these concepts. 2. No that doesn’t necessarily hold unless you assume cardinal utility. 3. There are alternative social welfare functions, my answer is clear about their existence  
> **username_2**: My comment was not about your definitions, these are correct. It was about phrasing and perception. In totally over-the-top words your description makes it sound like Marshallian welfare is the only serious economic option, the others are some leftie-communist-hippie-dream. Of course you didn't write it like that, but I still feel you could describe the alternatives a little more open-minded.  
> **username_4**: @quarague huh? Ralwsian welfare function is literally the most commonly used in public econ literature. Also it’s considered to be left liberal. Do you even know who Rawls was? Not really a communist. Of course there are other social welfare functions, like classical liberal or charitable conservative SWF but I choose Rawlsian specifically because in research it’s one of the most popular alternatives to Marshallian welfare. I am open to edits in case I misrepresented something but I literally choose the second most commonly used SWF, was I supposed to fish for some niche ones?  
> **username_2**: Rawls is an excellent example, no complaint there. I stumbled over your description 'which only gives social weight to poor and no social weight to rich or middle class' but I guess it can be described that way.  
> **username_4**: @quarague oh okay but that is literally how it works mathematically. If you check the papers in such welfare criterion utility of poorest individual gets weight 1 and anyone else gets 0. This doesn’t equate to communism because that would make even the poorest person worse off. Inequality is ok as long as it yields higher utility for poorest person  

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### Answer by username_3 on 2024-08-29. Score: 1

## Just because the rich get "dibs" does not mean the poor have no opportunities

> It is more profitable for suppliers to provide yachts and $300 dollar tasting menus to the wealthy rather than to feed the hungry, house the homeless, provide education and healthcare to all.

There is a huge problem with this assumption because it is no way more profitable in the grand scheme of things to only sell high end menus and yachts. Those sorts of things only represent a tiny fraction of the economy; so, companies that cater to this market tend be in fierce competition for a share of what is ultimately a tiny market. Companies that cater to the rich rarely have an annual revenue of more than a few million dollars per year. These places are limited because they rely on the patronage of so few people. If you were to open up 1000s of identical stores all over the world, most of them would fail horribly because no one can afford it, and the whole company would go bankrupt. However, companies which aim at serving the poor and middle class are often worth 100s of billions dollars each. So, because McDonalds aims to serve the maximum number of people it can profit from, it is worth 40,000 times as much as Chis Pacca which charges 300/$ for a steak.

## Maximum Social Utility Specifically

This is not just about who can afford something, but it includes who will choose to buy something. In a pure socialist economy, if I have 10,000 widgets and 100,000 people, I have 3 choices:

1. I could try to break up my widget production into 100,000 tiny or sub-par widgets so that everyone only gets an unsatisfying widget.
2. I could lottery off the widgets so that 10,000 random people get them.
3. I could pick my 10,000 favorite people and give them to those people.

Socialists say that #1 or #2 are ideal situations, and capitalists often accuse #3 of being the sad reality, but in fact, all 3 of these options are less fair than the capitalist approach. Let's say of your 100,000 people, only 30,000 people actually want the widgets, and of those people only 5000 REALLY like widgets. In a socialist distribution method, you are taking widgets away from all the people who like them to give to people who do not like them. That becomes wasted production.

In a capitalist society, it is true that not all of the 30,000 people who want a widget will get one (the same was true of the socialist economy), but it does ensure that all 10,000 widgets will go to someone who cares enough to buy them at their given cost; so, none of the widgets are wasted production. We can also assume that even if not all 5000 people who really like widgets could not afford one, that a disproportionate number of widgets will go to this population because they are more willing to sacrifice other purchases for a widget so you will in the end see a distribution of widgets that leads to the least waste and the highest consumer satisfaction possible given your scarcity.

The problem you have with 'literally cannot afford it' is a bit of a red herring. Not everyone gets everything they want, and they may not even get everything they need, but unless their society produces enough for everyone regardless of if they want it or not, that is just the nature of scarcity. But if you have any money, you can buy something. Sometimes that means you choose between food and shelter. Sometimes that means choosing between a car and medical care... but Maximum Social Utility gives said poor person the right to choose which of those things they get. When times get hard, the poor can still choose to eat and be homeless, or keep their car and lose their healthcare, if those are the things they value most.

## The importance of price setting in Market Growth

The biggest difference between the capitalist and socialist approach to scarcity is that the capitalist approach reallocates resources so that a market that some people can not afford today becomes affordable tomorrow. If you are only producing 10,000 widgets, but need 30,000 to fill demand, then by selling to the 10,000 richest people at the highest possible price means that you make a bigger profit per unit. Those higher profit margins attract investment meaning that producers of those 10,000 widgets now have the money to build more widget factories... and if they don't then another company seeing how much money they are making will want to create a competing factory. Either way, the increased profit margin will encourage investment into the industry to produce more widgets. So when they do this, they will sooner rather than later start producing close to 30,000 widgets. Competition will force them to drop prices to make widgets affordable to everyone who can afford the bare minimum cost it takes to make the widgets. This means that the only people who will not eventually be able to afford a widget are those who either do not want one, or are not contributing enough to society to afford the cost it takes to make one.

In contrast, a socialist system will do one of 2 things. It will keep widget production at 10,000 making the shortage a permanent problem, or they will arbitrarily increase production without regard to production cost vs benefit. In most cases they do not know how much they need; so, they may increase production to 50,000 widgets. In this case they will have taken all of the resources away from the economy's other needs to produce an extra 20,000 widgets that go to waste. This means less doodads and whatchamacallits that could have been produced using the same labor causing shortages in other areas of the economy.

But even if you get it just right, and make 30,000 widgets for the 30,000 people who want it, some of those people will not be producing as much as it costs to give them a widget; so, you have to take a little bit from everyone else's productivity to support the less productive person. While there are certain ethical circumstances where this is clearly the right thing to do like with the elderly, disabled, the temporarily unemployed, etc. It also encourages people with the ability to produce more to not maximize their own production. For example, a person's value to society as a doctor or engineer is much higher than that of a receptionist. If you are a receptionist who gets all of the same resources as a doctor or engineer, then it's not worth it to try to move towards the more valuable, harder to attain roles in society which creates shortages in those markets. So, even if giving away the exact number of widgets everyone wants leads to a fair distribution, you will handicap your society's production because of a lack of want-to. So, as a whole, your society will produce less (or just goods and services of less value), causing greater shortages across every sector of your economy because this makes you more vulnerable to a trade deficit.

## Luxury Goods & Services are Important to Everyone

Many occupations take a lot more specialized skills and/or risk than others. Those occupations typically pay more than others because the only ways that a society can fill those roles with enough workers to meet demand is through unequal pay or through forced labor. So, unless you want to advocate for a return to slavery, you need to accept that some people must be paid more than others. Without that fact, there will not be enough doctors, engineers, plumbers, roofers, farmers, etc. to serve the needs of society because too many people will choose to work in the easiest possible jobs that require the minimum amount of education.

Infrastructural and logistical failures would lead to reduced production and distribution of goods and services causing more scarcity, starvation, etc. But there is no point in making more money than other people if there is nothing to spend it on. If all people are offered the exact same products, then earning more money is meaningless; so, you would still fail to incentivize people to work in jobs that you need more of.

So, while it may seem wasteful for a car company to produce one car that is worth \$20,000 and another car that is worth \$120,000 because no one NEEDS the \$120,000, for society as a whole, it is not a wasted investment. It's not the bigger paycheck that gets people to waste 11-16 years of their life to become a doctor. It is the luxury goods that come with that paycheck.

As for more basic needs like food people often assume that these are lower paying jobs than they are. In the United States, the 2022 median income for a farmer was $178,692. It's really hard to find people willing to move out to nowhere and work long hours in heat and cold and stress over the uncertainties of weather. So, for you to have anything at all to eat, our economy relies on the luxury goods and services that these farmers enjoy in compensation for what they've had to give up. Without them, we would have less farmers, and instead of producing a bit more food than we need with a few people going hungry, we'd be producing way less food than we need and a lot of people going hungry.

> **Comments:**
> **username_0**: What is better for maximal social utility?   Resources getting put into luxuries for the rich, such as tropical resorts built in places where the local working class is extremely impoverished, or directing those resources instead to meet the needs of society?  There is more than enough resources to make sure everyone's needs are met, but "efficient markets" produce starvation and homelessness for those who cannot produce enough pieces of green paper.  The homeless are freezing to death under free market capitalism while empty luxury condos and massive mansions abound.  
> **username_0**: Again, if we're talking about supplying basic human needs, there is no scarcity. There is more than enough for all of us.   Also, this:   " but it does ensure that all 10,000 widgets will go to someone who cares enough to buy them at their given cost"  No. Not 'cares enough', but who has enough money. It is SO disgusting to say that a rich person "cares more" about getting healthcare than a poor person who DOESN'T HAVE ENOUGH MONEY.  We produce enough food and build enough to feed and house everyone, yet so many go without those things.  
> **username_0**: Rich people don't "want" food, housing, education and healthcare more than poor people, they are able to afford it.   The poor absolutely want and value those things. They just don't have the right amount of currency units to satisfy the gouging suits.  
> **username_3**: @anonymous_inquirer "there is more than enough resources to make sure everyone's needs are met" <- No, there are as many resources as people are willing and able to produce.  Sometimes there are enough to meet everyone's needs, sometimes there are not.  When you walk into a grocery store and see a shelf full of eggs that have suddenly tripled in price, it typically does not mean that some greedy bastard decided today that eggs will cost 3 times as much. It means that something happened to the supply of eggs; so, they increased the price to the point that they can keep eggs on the shelves.  
> **username_3**: If they don't do this, there will still be a shortage of eggs, but it will be random who does and who does not get them instead of graded by income.  This increased price helps the egg industry grow until such point that it can produce enough to provide for everyone.  When you price control the eggs so that everyone can afford them, you prevent the egg industry from growing making the shortage last much longer or even collapsing the egg industry so that the supply shrinks even though there is a demand for more eggs.  
> **username_3**: I'm not saying that there are not problems inherent with capitalism, like its tendency to move towards monopolization which can lead to really big problems in minimum quality of life, but that is a whole complex and separate set of problems than Social Utility.  
> **username_0**: You have also avoided my question. If a poor person dies because they cannot afford the thousands of dollars they must pay for heart medication, do they "value" the medication less than someone who can afford it? Were they simply "unwilling" to pay an amount of money they simply did not have?  
> **username_0**: explain how we produce enough food to feed the global population, yet millions starve while a third of all that food produced is wasted. There are other examples of artificial scarcity, where the wealthy keep their operations profitable by withholding available goods. For example, Amazon destroys excess product instead of lowering the price or giving it away. In my city, grocery shelves are full, and grocery stores waste a ton of food, yet 10% of us rely on food banks and more and more are skipping meals.  
> **username_3**: @anonymous_inquirer Free Market economic theory assumes easy market entry and competition.  The problems you are describing are not caused by the free market, they are caused by breakdowns in it.  Monopolization, Cellar Boxing, Price Fixing, Externalities, and Barriers to Entry like Intellectual Property Laws and Regulations can all inhibit the free market.  Capitalism cannot guarantee that everyone will have everything they need all the time.  But world wide, a lot fewer people starve in capitalist economies than in socialist ones.  Optimization does not guarantee perfection.  
> **username_3**: @anonymous_inquirer As for your more specific question about luxury goods, I've added a section to my answer that explains their practical role in the economy.  
> **username_0**: I've read it, and it makes very little sense. Again, and I am asking a very direct question here, why is it more optimal to direct a disproportionate amount of resources to giving rich people yachts and mansions while the masses lack basic needs? We already have the productive capacity to feed, house, medicate, and clothe everyone on Earth.   The rich would still have a high standard of living even if we were to massively redistribute resources.   Is a poor person who literally has no money really "unwilling" to pay gouged prices?  
> **username_3**: @anonymous_inquirer  Price gouging becomes sustainable when monopolies leads to a lack of competition.  Capitolist price setting is based on a Nash equilibrium, whereas Monopolist price setting is based on WTP (willingness to pay).  If your food is monopolized, then no new food provider will be able to appeal to your portion of the market to fulfil the available niche.  The monopoly emposes market entry barriers to make sure that they do not have to reduce their prices or offer adequate alternatives to be able to serve the whole market.  
> **username_3**: I believe the problem in your question, and why so many answers don't make since to you, is that you are conflating monopolized markets with capitalist markets, but they work by fundamentally different principles.  Capitalism can lead to monopolies, just like socialism can lead to communism when either is faced with corrupt or unethical leadership, but that does not automatically make the one the same as the other.  

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