5.2 
By assuming perfectly flexible prices, it excludes from consideration the 
process of price formation, which to understand is essential for understanding 
the problems of inflation; and by focusing attention on the competitive 
jidt' 
elimination of profits, it slurs over the badland one of the good sides of 
profits: their distributive aspect and their function as a buffer against 
external shocks and the ups and downs of economic life. 
Related are the shortcomings of perfectly competitive equilibrium as an 
ideal of perfection. For one thing, it focuses too exclusively on resource 
allocation and distribution, although the economy also has other functions, 
which I hope to make clear presently. For another, our model of perfectly com 
petitive equilibrium is, in a sense too perfect. It makes the economy resemble an 
intricate clockwork whose wheels interlock tightly, without any free play. 
As if every change in any price reverberated throughout the economy and 
affected all other prices. That depicts admirably the transmission of 
information and the market's response to it; but it fails to depict the 
market's resilience and ability to absorb shocks without transmitting them 
as further shocks to the rest of the economy. Yet, that is also an 
advantage worthy of the economist's attention ana calls for an economic 
model that features it. 
The alternative model I have in mind is a model of pure capitalism, 
by which I mean a society dominated by capitalists, who take the initiative, 
make the important decisions, and are among the earners of the highest 
incomes. The individual capitalist's great market power and high income 
are limited only by the competition of other capitalists, whose presence 
may or may not be assured by free entry to the capitalist's profession; 
but, unlike in modern capitalism, they are not limited by the countervailing 
power of labor or any other social groups. Hence the term pure capitalism. t