It's not naive, it's near optimal. The system rewards people who've done well at capital allocation with more capital to allocate, and takes capital away from those who've done poorly at it. And there's no better predict of future performance at allocating capital than past performance.
Well my point was that it might be optimal for the one doing the allocation and maximize their returns. That does not mean its optimal for the economy and society on the whole.
Actually it does mean it is optimal for the economy as opposed to a central planner who somehow has all the information and does planning with precision. These are mainstream views in economics.
Actually markets are always rational, perfectly efficient and there are no speculative bubbles? Of course not.
So its obviously suboptimal, only question if there is a more optimal system.
> central planner who somehow has all the information
Every developed country is balancing that with free markets and its the mainstream view that a balanced system is optimal (the exact ratio is of course something’s that not quite settled).