Less-efficient producers get outcompeted and driven out of business by more-efficient producers, yes; but what's the problem?
It doesn't follow that the less-efficient producer starves to death. He almost certainly finds another, more profitable occupation (either as an employee-shepherd, or in some other sector altogether). And if not, there's nothing to prevent him from continuing as before, producing only for his own consumption. The "market economy" is so named not because people are required to produce for the market, but because virtually everyone chooses to do so when given the opportunity (since it means much higher incomes).
The entrepreneur can "create dislocations," as you put it, or respond to natural dislocations (e.g. changing consumer preferences).At equilibrium in a free market with no barriers to entry and so on, one only makes an profit equivalent to the risk rate plus a small premium related to cost of entry. So if an individual wants to create a profit they must create a dislocation. There are bad ways to do this, but the good ways are technology innovation, organisational innovation, market innovation, branding, or anything else that creates a temporary concrete difference between your product and that of everyone else. Either you can make something cheaper, more appropriately, or something new. One can't make a noteworthy profit by doing the same thing as everyone else in a competitive market.
Sure, some won't be retrainable, but this isn't the "curse of capitalism."This is the blessing and curse of capitalism, a permanent revolution. We tolerate millions being made obsolete en masse, because what they were doing was sub-optimal, and now they can do something better. But maybe they can't, not all of them as individuals, or maybe they all can, maybe they need a boost, maybe they need to be left to become desperate enough to create the next dislocation.
People who can't feed themselves in the market economy will have ever greater trouble feeding themselves in any other system.
Capitalism is a welfare system because to make a profit you have to improve the world measurably. In aggregate everyone is better off over time, by a lot, and it doesn't matter why you want that profit. But if you just invested a lot in being able to build canals, you better pray to god you can retool to build railway lines in a hurry.
It's a welfare system ...because it's a meritocracy?
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