Post Keynesian Price Theory ThisbooksetsoutthefoundationofPostKeynesianpricetheorybydeveloping an empirically grounded pricing model and production schema. The admin- istered,normalcost,andmarkuppricedoctrinesareexplainedinpartsI–IIIof the book, as many of their theoretical arguments are important for developing the subsequent foundation. The work of Gardiner Means, Philip Andrews, and MichalKaleckiisdiscussed,aswellasthatofthedevelopersofthedoctrinessuch asEdwinNourse,PaoloSylosLabini,HarryEdwards,JosefSteindl,andAlfred Eichner. Drawing upon the arguments and formal modeling offered by the doctrinesinconjunctionwithempiricalevidencefrom100studiesonpricingand production, an empirically grounded pricing model and production schema are developed;itisthenarguedthatthemodelandtheschematogetherconstitutethe foundationforPostKeynesianpricetheory. FredericS.Lee isaReaderinEconomicsatDeMontfortUniversity.Hehas taught and researched at numerous institutions in both the United States and England.HereceivedtheHelenPotterAwardinSocialEconomicsin1988. This Page Intentionally Left Blank Post Keynesian Price Theory FREDERIC S. LEE DeMontfortUniversity P UBLISHED BY CAMBRIDGE UNIVERSITY PRESS (VIRTUAL PUBLISHING) FOR AND ON BEHALF OF THE PRESS SYNDICATE OF THE UNIVERSITY OF CAMBRIDGE The Pitt Building, Trumpington Street, Cambridge CB2 IRP 40 West 20th Street, New York, NY 10011-4211, USA 477 Williamstown Road, Port Melbourne, VIC 3207, Australia http://www.cambridge.org © Cambridge University Press 1999 This edition © Cambridge University Press (Virtual Publishing) 2003 First published in printed format 1999 A catalogue record for the original printed book is available from the British Library and from the Library of Congress Original ISBN 0 521 32870 5 hardback ISBN 0 511 00923 2 virtual (netLibrary Edition) Contents Listoffiguresandtables page vii Acknowledgments viii Introduction 1 PartI Thedoctrineofadministeredprices 1 Theoriginofthedoctrineofadministeredprices:fromthe moderncorporationtoindustrialprices 19 2 GardinerMeans’doctrineofadministeredprices 44 3 Developmentsinthedoctrineofadministeredprices 67 PartII Thedoctrineofnormalcostprices 4 Theoriginofthedoctrineofnormalcostprices:theOxford Economists’ResearchGroupandfullcostpricing 83 5 PhilipAndrews’theoryofcompetitiveoligopoly 100 6 Developmentsinthedoctrineofnormalcostprices 117 PartIII Thedoctrineofmarkupprices 7 Theoriginofthedoctrineofmarkupprices:MichalKalecki’s microanalysis 143 8 Kalecki’smicroanalysisandthewaryears 153 9 KaleckiandtheCambridgecontributions 165 10 JosefSteindlandthestagnationthesis 186 v vi Contents PartIV ThegroundedpricingfoundationofPostKeynesian pricetheory 11 Pricingandprices 201 12 Thepricingmodel,thegroundedpricingfoundation,and PostKeynesianpricetheory 219 AppendixA Studiesoncostaccountingandcostingpractices 232 AppendixB Studiesonpricing 235 Bibliography 241 Index 275 Figures and tables Figures 4.1 Thekinkeddemandcurve page 92 4.2 TheHall–Hitchmarginalistexplanationfortheexistence ofstableprices 93 5.1 Andrews’normalcostprice 110 Tables IA.1 SurveysofPostKeynesianeconomics,1975–96 11 IA.2 Pricingproceduresandproductionmodelsutilizedby PostKeynesians,1971–96 12 11.1 DistributionofpricingproceduresreportedinappendixB 207 11.2 Pricingproceduresandpricestability 210 11.3 ProductgroupsandinfrequentpricechangesforUS manufacturedproducts,1926–33,1954–6,and1957–66 211 11.4 FrequencyofpricechangesforUKmanufactureproducts, July1987–December1991 212 12.1 Input–outputcharacteristicsofcapitalisteconomies,1919–90 221 vii Acknowledgments IamgratefultoL.Boggio,J.Carson,J.Davies,P.Earl,H.R.Edwards, G. Harcourt, J. King, J. Kregel, J. Irving-Lessmann, P. Reynolds, A. Robinson, R.Robinson,P.Skott,andI.Steedmanforearlier comments on various chapters of the book. I would especially like to thank the former members of the Oxford Economists’ Research Group whose reminiscencesprovidedtheinitialimpetusforthebook.Iwouldalsolike to thank the late Alfred S. Eichner for his support of my unfashionable interest in the non-Kaleckian contributions to Post Keynesian price theory. Earlier versions of several chapters have been published in academic journals and chapters in books: parts of chapter 1 in the JournalofEconomicIssuesandintheReviewofSocialEconomy;anearly versionofchapter2inArestisandKitromilides(1990);partsofchapter4 in Young and Lee (1993), in Banca Nazionale del Lavoro Quarterly Review,andinAustralianEconomicPapers;anearlyversionofchapter5 in British Review of Economic Issues; and parts of chapters 11 and 12 in ReviewofPoliticalEconomyandGroenewegen(1993). viii Introduction PovertyofPostKeynesianpricetheory IfoneisgoingtowriteabookonPostKeynesianpricetheory,itwould, from the reader’s viewpoint, be nice to know what ‘‘Post Keynesian economics’’ is. However, this is the wrong way of looking at it. Post Keynesian economics is not a set creed which can be looked up in some dictionaryofeconomicterms;norcanitbedefinedassimplyasanything which is anti-neoclassical economics, for coherence does count. At the present time, Post Keynesian economics is rather what Post Keynesian economists say it is. Thus, whereas it would appear that Post Keynesian economics is in a state of anarchy, it is in fact not so, because Post Keynesianeconomistshaveacommonreferencepoint–thatofengaging inworkwhich moves the Keynesian analysis forward to encompass more realistic analyses of pricing,distribution,investmentanddynamicgrowthpaths,bothlong-runsteady state and short-period disequilibrium, than are to be found within The General Theory;andtheworkofthosepost-Keynesianeconomistslikeyourself[Gardiner Means]canbedistinguishedfromthatofthepre-Keynesianswhostillposit19th Centuryinstitutionalarrangementsandmarketprocesses.(Eichner,1978am,p.2) Surveyors of Post Keynesian economics have consequently concentrated on the contributions of specific individuals, the ‘‘paradigms’’ of ideas on which they draw, and their attempts to move the Keynesian analysis forward. Hence, when they cast their net widely, Post Keynesian economistsincludesuchindividualsasPieroSraffa,JoanRobinson,Paul Davidson, Piero Garegnani, Michal Kalecki, and Nicholas Kaldor and the paradigms of ideas which they draw upon have been identified as classical political economy, Marxism, Sraffian economics, Institution- alism, and Keynesian economics. On the other hand, when they draw their net rather narrowly then we have Post Keynesian economics vs. 1