The Iron Law of Wages takes over, driving labor’s wage down to bare subsistence and capturing any efficiency gains from superior production. Capital demands and gets the risk-free rate, which quickly settles at or below zero.
This is still wrong—both the wage claim and the capital claim.
Iron Law of Wages doesn’t actually work unless people have more kids whenever they have spare income. This hasn’t been the case for two centuries; more income generally leads to fewer kids across most of the world today. (Though we could steelman the claim here and say that cultures which have more kids will eventually dominate the human population—then wages would drop to subsistence.)
On the capital side, I don’t know of any model at all where the risk-free rate naturally settles at zero, other than in a scenario of massive abundance. If capital is scarce at all, it’s going to settle to an above-zero rate of return in the long run.
The common theme in both cases: both wages-above-subsistence and capital returns only go to zero if the corresponding good (labor and capital, respectively) are massively abundant. Perfect competition is not sufficient for that to happen, except maybe if we mean “perfect competition between cultures” producing lots of babies.
Also...
Plus zero economic profits, in current reality, is pretty close to zero profits period (after labor costs, so some profit in some sense at least)
If we’re talking about “Disneyworld without any children”, the accounting profit made by labor is the only part that matters. Corporations making zero accounting profit (after capital cost) is fine, that’s not a problem at all, and of course that’s going to happen in any perfect competition scenario because starting a corporation is trivial in a perfectly competitive market. Corporations are massively abundant in this scenario, so of course the “price” of a corporation is zero. It’s the labor cost which is actually interesting, and it’s the laborers (including management etc) who actually get a profit, because there isn’t an unlimited supply of laborers.
Bottom line: no amount of perfect competition will make economic profits equal to actual profits. Perfect competition just isn’t a sufficient condition for that; it requires massive abundance of workers.
So I see this update:
This is still wrong—both the wage claim and the capital claim.
Iron Law of Wages doesn’t actually work unless people have more kids whenever they have spare income. This hasn’t been the case for two centuries; more income generally leads to fewer kids across most of the world today. (Though we could steelman the claim here and say that cultures which have more kids will eventually dominate the human population—then wages would drop to subsistence.)
On the capital side, I don’t know of any model at all where the risk-free rate naturally settles at zero, other than in a scenario of massive abundance. If capital is scarce at all, it’s going to settle to an above-zero rate of return in the long run.
The common theme in both cases: both wages-above-subsistence and capital returns only go to zero if the corresponding good (labor and capital, respectively) are massively abundant. Perfect competition is not sufficient for that to happen, except maybe if we mean “perfect competition between cultures” producing lots of babies.
Also...
If we’re talking about “Disneyworld without any children”, the accounting profit made by labor is the only part that matters. Corporations making zero accounting profit (after capital cost) is fine, that’s not a problem at all, and of course that’s going to happen in any perfect competition scenario because starting a corporation is trivial in a perfectly competitive market. Corporations are massively abundant in this scenario, so of course the “price” of a corporation is zero. It’s the labor cost which is actually interesting, and it’s the laborers (including management etc) who actually get a profit, because there isn’t an unlimited supply of laborers.
Bottom line: no amount of perfect competition will make economic profits equal to actual profits. Perfect competition just isn’t a sufficient condition for that; it requires massive abundance of workers.