the marginalist controversy, lee

The Marginalist Controversy and the Demise of Full Cost PricingAuthor(s): Frederic S. LeeSource: Journal of Economic Issues, Vol. 18, No. 4 (Dec., 1984), pp. 1107-1132Published by: Association for Evolutionary EconomicsStable URL: http://www.jstor.org/stable/4225508 .

Accessed: 25/06/2014 00:18

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

Association for Evolutionary Economics is collaborating with JSTOR to digitize, preserve and extend access toJournal of Economic Issues.

http://www.jstor.org

This content downloaded from 62.122.78.91 on Wed, 25 Jun 2014 00:18:59 AMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/action/showPublisher?publisherCode=aee

http://www.jstor.org/stable/4225508?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp


J JOURNAL OF ECONOMIC ISSUES Vol. XVIII No. 4 December 1984

The Marginalist Controversy and the Demise of Full Cost Pricing

Frederic S. Lee

In the decade following World War II, U.S. economists engaged in a somewhat polemical controversy over the merits of the full cost pricing doctrine as opposed to marginalism: "The fight was spirited, even fierce. Thousands of students of economics, voluntary or involuntary readers, have been either shocked or entertained by the violence of some of the blows exchanged" [Machlup 1967, p. 1]. The contestants in the debate were concerned with the theoretical compatibility of full cost pricing and marginalism; and the debate ended when the majority of economists became convinced that the two were completely compatible. Thus after a decade of national exposure, the doctrine quickly ceased to be of significant theoretical interest to the majority of U.S. economists.'

Still, economists periodically resurrect it in order to provide a "theoretical" explanation for pressing economic problems, such as inflation, that have not been adequately handled by neoclassical price theory [Okun 1981; Bator 1981; Peterson 1982; and Wachtel and Adelsheim 1976]. Moreover, some economists are now suggesting that the doctrine pro- vides, in part, a theoretical basis on which to develop a non-neoclassical theory of prices [Eichner 1978; and Lee 1983, 1984a]. Thus the demise of full cost pricing in the mid-1950s appears to have been unfortunate and,unwarranted. Still, it happened! Therefore the question that needs to

The author is Assistant Professor of Economics, Roosevelt University. He would like to thank Craig Justice, Dorene Isenberg, and the editor and anonymous referees of this journal for their helpful comments on previous drafts of this article.

1107



1108 Frederic S. Lee

be answered is why the marginalist controversy ended. Yet to answer it requires more than a simple chronological accounting of the events that brought it to a close. What is needed is an investigative analysis of the entire controversy so that the reasons why it came to an end are clearly perceived. Hence this article will deal with the events that led up to the controversy, with the Lester-Machlup exchange, with the events that led to the ending of the controversy, and with the cost curve controversy. Through this approach it will be shown that the demise of the full cost pricing doctrine resulted from a concerted effort by neoclassical economists to eliminate this theoretical challenge to their price theory.

Before beginning, we must define marginalism, neoclassical price theory, and the full cost pricing doctrine. I define marginalism as a body of theory whose principal proposition is that profits are maximized when marginal costs equal marginal revenue and that assumes that firms have complete knowledge (or at least the appropriate amount and kind) when establishing price policies and setting prices. Neoclassical price theory is seen as a more general body of theory whose principal theoretical concepts include demand and cost functions, equilibrium, scarcity, and allo- cative efficiency, and whose objectives of the firm include maximization of profit, sales, growth, and wealth if complete knowledge is assumed, and satisficing of the same if uncertainty and incomplete knowledge are assumed. In the latter instance, it is possible for firms to employ rules-of- thumb and to adopt complex organizational structures in order to, say, discover their "true" cost and demand functions in an effort to efficiently fulfill their objectives. Thus neoclassical price theory includes not only marginalism and managerial theories of the firm (or extended marginalism), but also behavioral theories of the firm; however, it should be noted that neoclassical price theory and marginalism were synonymous up until the early 1950s when attempts to reconcile marginalism with full cost pricing in part brought about the generalization of neoclassical price theory.

The full cost pricing doctrine is seen as including full cost price setting procedures in which the full cost price is set by adding together direct material and labor costs per unit output, plus overhead costs determined at standard volume output, plus a predetermined (conventional) profit margin. Because the pricing procedure is not explicitly designed to maximize profits, the full cost price is not a profit maximizing price or, in fact, a price that maximizes anything. Rather the pricing procedure is designed to enable the firm to reproduce itself and grow. Therefore it is consistent with the firm's price policy promoting price stability, hence firm repro- ducibility in the short term, and price variability, hence firm growth in



The Marginalist Controversy 1109

the long term. In neither instance is the firm's price policy consistent with short or long period profit maximization or maximization of any kind. Thus the full cost pricing doctrine does not appear to be consistent with neoclassical price theory or marginalism.

Background to the Controversy

To adequately understand the marginalist controversy, it is necessary to look at the tumultuous years preceeding 1946. With the implementa- tion of the National Industrial Recovery Act (1933) and the Agricul- tural Adjustment Act (1933), government officials began generating vast amounts of statistical data on prices and detailed descriptions of price setting procedures and price policies used by firms. For example, mem- bers of the National Recovery Administration (NRA) Consumer's Ad- visory Board and Research and Planning Division produced statistical data showing that prices under the NRA had become relatively more stable compared to pre-NRA prices. Concurrently, G. C. Means and other officials of the Agricultural Adjustment Administration argued that the codes of fair competition under the NRA reinforced the stability of industrial prices already made stable by the firm's strong technological base, which grew out of its scale of production and the relative concentration of the manufacturing industries. As a result, they argued, prices in the economy were grossly misaligned, hence promoting the accumulation of excess savings, the failure of mass purchasing power, and the resulting decline in private investment opportunities and prolonging of the depression. Finally, in 1934, Roosevelt established a Cabinet Committee on Price Policy; under the guidance of Walton Hamilton it carried out a number of detailed studies of prices and price policies and eventually published them in 1938 [von Szeliski 1936; Means 1935; Hawley 1966; and Hamilton 1938].

In the light of this data, there emerged two economic policy proposals that in turn generated additional data on prices, price setting procedures, and price policies used by fims. On the one hand, Means accepted the phenomena of stable prices, which he called administered prices, as in- herent in the modern economy, even though they contributed greatly to the depression. He believed that national economic planning would allevi- ate the problem. Consequently, when he became director of the industrial section of the National Resources Committee in 1935, he embarked on a series of investigations that would lead to guidelines and some basic data necessary for effective planning. In particular, he investigated "the structure of prices in order to discover . . . the extent to which they do in




fact contribute to full and effective use of resources" [Means 1939, p. 122]. On the other hand, the neo-Brandeisians accepted Mean's analysis of administered prices, but advocated a rather different remedy. That is, Means argued that administered prices emerged in industries in which firms had developed structures of production that limited the economic space in the industry available to competing firms and that were most efficiently operated if the market price was stable and they administered it. The neo-Brandeisians, however, did not believe that industrial concentration was based on the firms' productive structure; rather they believed it emerged from unsavory business practices. Hence, since administered prices were found in concentrated industries and were the principal cause for the continuation of the depression, they advocated the use of antitrust laws to break up the concentrated industries so that prices could become flexible and prosperity could be restored. This program for action gave rise to a variety of inquiries into the present status of competition and prices conducted by government, private organizations, and economists and to the administered price-concentration controversy [Cox 1981; Backman 1940; Conference Board 1939; Committee on Price Determina- tion 1943; and Nourse and Drury 1938].3 More importantly it resulted in the establishment in 1939 of the Temporary National Economic Commit- tee (TNEC). In the hearings and monographs that followed, politicians and economists alike were treated to a rich descriptive and statistical analysis of prices, pricing, and price policies [Hawley 1966; Lynch 1946; and Brown et al. 1940].

Concurrently with the events described above, data on prices, price policies, and price setting procedures were being brought to light else- where. Concern over the emerging dominance of the chain stores and the increasing requests for and proliferation of fair trade laws resulted in a number of detailed studies of prices, price policies, and pricing procedures used by firms (see for example, [FTC 1934; and Grether 1939]). In addition the concern with basing point pricing generated a great deal of price- related information [Daugherty et al. 1937]. Finally, individual economists undertook detailed investigations of specific industries and firms, and of economic acts such as sales taxes that have a direct impact on firms. From their work emerged information specific to pricing procedures and price policies used by firms [Reynolds 1938, 1940; Gordon 1966; and Due 1941 ].

With the emergence of the above data, economists began to realize by the late 1930s that a wide gap existed between their theory of prices and the real world of prices and pricing. First of all, the data showed that full




cost pricing procedures were widely used by firms, whether industrial or retail. Thus it became apparent that firms did not explicitly employ the marginalist tools when setting their prices. Secondly, the data showed that the behavior of prices, say with respect to fluctuations in demand or to changes in excises or sales taxes, did not conform to the results suggested by neoclassical price theory or appear to be adequately explained by it. On the other hand, the full cost pricing procedures did seem to account for the anomalous price behavior. Finally, in conjunction with the above results, it became widely apparent to economists that firms did not set prices that maximized short period profits (for example, see [Hawkins 1939-40, p. 383; and Reynolds 1938, p. 465]). Thus the data generated throughout the 1930s drove many economists to question marginalism (or neoclassical price theory) or at least its current applicability.4

In light of the apparent gap between reality and theory and the harsh criticism that accompanied it, three different arguments were developed to defuse the attack on marginalism. F. Machlup put forth one argument, but in a very sketchy manner. He argued that marginalism is applicable to markets characterized by perfect competition and monopolistic competition (which he defined as perfect competition with product differentia- tion), where firms are heedless of rivals' reactions-thus permitting the existence of a determinant firm demand curve. His argument implied that marginalism could be used only to answer problems in price theory aris- ing from counterfactual changes in the environment of an "abstract" firm with no control over its environment. Consequently Machlup implied that marginalism could not inherently explain or account for individual firm behavior, especially firm behavior that occurred in oligopolistic markets since determinant firm demand curves do not exist in such markets. The implication of Machlup's argument was that the criticisms of marginalism noted above were irrelevant [Machlup 1937 and 1939].5

A second argument was put forth by E. S. Mason and his associates at Harvard and the National Bureau of Economic Research (NBER). To close the gap between fact and theory, Mason proposed that the price- setting behavior of a firm, hence its price, could be analyzed according to factors internal to it-such as costs, organization, product characteristics, and size-and according to its market structure, including product differ- entiation, demand, and number of firms. In turn, he felt that the internal factors and the elements of the market structure could stand as proxies for the marginalist tools until such time that the tools had been sufficiently well developed so as to be directly usable for empirical research. Thus by assuming that the gap between fact and theory was bridgeable,




Mason became the first to articulate the argument that the absence of marginalist tools in price determination was only a result of their primi- tive state of development [Mason 1939; and Phillips and Stevenson 1974].6

The importance of Mason's argument for the full cost pricing doctrine can be illustrated in two ways. First, Mason argued that firms' adoption of a stable (full cost) price policy could be explained, given the unuse- ability of the marginalist tools, according to the internal and external factors mentioned above. Thus he implied that the full cost price policy (hence full cost pricing procedures and prices) was not inconsistent with marginalism [Mason 1939]. Secondly, in response to the swirling controversy surrounding prices and pricing, and to the establishment of the TNEC, the NBER established a committee under Mason's direction to investigate, among other things, the pricing policies of firms. The committee completed its work in 1941, although its findings were not published until 1943. Apart from the discussion of costs, the importance of the committee's study was its discussion of the full cost pricing doctrine.

While the NBER investigations of firms' pricing policies proceeded, there appeared in England an important article by R. L. Hall and C. J. Hitch on the full cost pricing doctrine [Hall and Hitch 1939]. John Dun- lop, who was a member of the NBER committee, had met both Hall and Hitch while he was at Cambridge in 1937-38 and became quite familiar with the arguments found in their article. Thus, he was not only in a position to impress the importance of the article upon the committee, but in his role of drafting the report he was able to include a discussion of its important features. The committee also became interested in the article's discussion of a firm's pricing and price policy. The kinked demand curve was favorably received since it provided "a realistic picture of the demand situation as envisaged by individual firms in a great number of industrial markets a large part of the time" [Committee on Price Determination 1943, p. 278], as well as an explanation of stable prices that did not appear to be inconsistent with marginalism. The committee was more critical of the full cost pricing doctrine, however. It was acknowledged that it did not provide an explanation for stable prices. Yet the committee could not accept its major premises-that firms neither calculated nor used marginal costs or marginal revenue for pricing purposes. For example, it argued that firms could and did indirectly calculate marginal costs for pricing purposes and that it was a mistake to think otherwise. In addition it argued that the process of selection and rejection that multiproduct firms used to arrive at a product mix that would maximize profits




could give the same results as the marginalist tools. Thus the committee's adoption of Mason's position led it to conclude that the full cost pricing doctrine was not inconsistent with marginalism [Dunlop 1981; Mason 1982; and Committee on Price Determination 1943].

The third argument developed to defuse the attack on marginalism was put forth by two Berkeley-educated economists, E. R. Hawkins and J. F. Due. They started their argument by stating that "the usual pricing method of retailers . . . does not involve the determination of marginal revenue and marginal cost schedules, and the setting of price at such a level as to equate the two" [Due 1941, p. 3851. This preference for non- marginalist pricing procedures existed because (1) in oligopolistic markets, the firm's demand curve does not exist independently of the price charged; (2) firms are ignorant of their demand curves; (3) long-period demand is not independent of short-period demand, implying that short- and long-period firm demand curves are interdependent; and/or (4) re- covering overhead costs is important if the multiproduct retailer is to maintain itself as a going concern. Yet, they concluded, this absence of the use of the marginal cost-marginal revenue pricing method among retailers does not constitute a significant attack on marginalism for two reasons. First, the full cost pricing procedures do produce marginalist results if interpreted in a long period context. Second, the use of full cost pricing procedures can be explained according to marginalist (neoclassical) concepts-such as firm demand curves, marginal cost schedules, and fixed costs-and therefore cannot be theoretically inconsistent with marginalism [Due 1941, 1942; and Hawkins 1939-40].

Despite the vigor with which they were presented, the three arguments did not convince all economists to dismiss the anti-marginalism criticism, to conclude that the gap between fact and theory was indeed bridgeable, or to conclude that the doctrine can be placed within a marginalist context.7 Thus, by the end of 1941, all the ingredients necessary for the erup- tion of a marginalist controversy were present; however, the controversy was preempted by the bombing of Pearl Harbor and the subsequent drafting of many interested economists into the war effort (working for the Department of Price Administration and the War Labor Board). Yet the pressure of war work did not prevent them from discussing the inadequacies of marginalism. Moreover, the war work generated additional data that showed that firms used full cost pricing procedures. Finally, the war years gave economists not directly connected with the above empirical research, such as R. A. Lester and W. Eiteman, time to become skep- tical of the adequacy of marginalism to explain the actual pricing behavior




of firms. Thus by the end of the war a broad groundswell of criticism of marginalism had built up waiting to burst into print [Dunlop 1981; Lester 1981; and Eiteman 1982a].A

The Controversy Opens

The Lester-Machlup Exchange

In 1946, Lester published his well known critique of the marginal productivity theory of wages. He had originally expressed his dissatisfaction with the theory prior to 1941, but the war prevented his views from hav- ing any impact on economists. He became more critical of the theory during his work with the War Labor Board. In 1944, he began a study of North-South wage differentials and later studied the data on the employment effects of the legal minimum wage. The studies, he felt, failed to provide empirical support for marginalism and the marginal productivity theory of wages. It was against this background that Lester wrote his 1946 article [Lester 1941, 1981].

In the article, Lester presented a battery of empirical evidence that appeared inconsistent with marginalism; however, the article's importance lies in the manner in which Lester characterized the inadequacies of marginalism. He felt that his empirical research raised "grave doubts as to the validity of conventional marginal theory and the assumptions on which it rests" in the following ways: (1) market demand was more important in determining a firm's volume of employment than wage rates; (2) the firm's cost structure was not that suggested by "conventional marginalism" and its capital-labor ratio was not tied to its wage rate structure; and (3) "the practical problems involved in applying marginal analysis to the multi-process operations of a modern plant seem insup- erable, and business executives rightly consider marginalism impractical as an operating principle in such manufacturing establishments" [Lester 1946, pp. 81-82]. In delineating these shortcomings, Lester used two arguments. His first and less developed argument was that marginalism was inherently incapable of explaining business behavior. That is, Lester argued that businesspeople did not think or behave marginally, in part because the firm's cost structure was not compatible with marginalism. Therefore, if economists were to explain, say, the wage-employment relationships for the individual firm, a new theory would be needed.9 His second argument was that marginalist tools were not sufficiently developed for businesspeople to use in their work (a Masonian argument) and that specific economic conditions prevented businesspeople from using




the marginalist tools (a Berkelian argument). Consequently, it was ra- tional for them to use rule-of-thumb procedures devoid of marginalist attributes [Lester 1946].

A reply by Machlup quickly followed Lester's article.10 In a carefully designed article, Machlup argued that Lester's first argument was invalid because he incorrectly understood marginalism. Developing more fully the argument he presented before the war, Machlup maintained that marginalism was designed only to explain changes in employment, prices, and output resulting from a change in the firm's environment and, therefore, could not be criticized for failing to be used in the determination of a particular price, output, or wage rate. He strengthened the argument by stating that firms need only equate what they believe to be their marginal costs and revenue when trying to maximize profits and that firms' sub- jectively estimated cost and demand curves included the future effects of actions taken in the present (hence short-period profit maximization was consistent with long-period survival). In short, Machlup attacked Lester's first argument on the grounds that marginalism

[was not] designed to serve to explain and predict the behavior of real firms; instead, it is designed to explain and predict changes in observed prices (quoted, paid, received) as effects of particular changes in condi- tons (wage rates, interest rates, import duties, excise taxes, technology, etcetera). In this causal connection the firm is only a theoretical link, a mental construct helping to explain how one gets from the cause to the effect. This is altogether different from explaining the behavior of a firm [Machlup 1967, p. 9].

Thus Lester had simply mistaken the nature of marginalism and his argument was irrelevant [Machlup 1946].

Machlup also addressed Lester's second argument that marginalism could not be used in practice or because of the existence of specific economic conditions. Using an analogy of an automobile driver, he argued that firms need not consciously realize that they used marginalist tools when reacting to changes in their environment or to establish definite nu- merical estimates of marginal costs, marginal revenue, and price elasticity of demand when reacting to these changes. Hence the rule-of-thumb procedures used by businesspeople were, contrary to appearances, grounded in marginalism. To substantiate this, Machlup showed that the "anti-marginalism" evidence Lester presented could be interpreted as completely supporting marginalism.

Then, surprisingly, Machlup extended his critique of the "anti-marginalism" evidence to the full cost pricing evidence presented by Hall and




Hitch. In his critique, he argued that even though businesspeople may not have understood the concept of price elasticity of demand, they implicitly used it when basing their prices on average total costs, and that the use of average total costs when comparing actual and potential levels of output was simply an indirect way of using marginal revenue and marginal costs."' Thus Machlup concluded that "marginal theory of business con- duct of the firm has not been shaken, discredited, or disproved by the empirical tests discussed in this paper" [Machlup 1946, p. 553].

With the publication of Machlup's article, the controversy between marginalism and the full cost pricing doctrine that had been simmering since 1941 boiled over. By being concerned with Hall and Hitch's study and, more importantly, by arguing that their data was consistent with marginalism, Machlup provided a broad forum in which economists could debate the adequacy of marginalism with respect to the full cost pricing doctrine. In particular, economists, upon rejecting Machlup's first argument and hence the notion that the doctrine is really different from marginalism, drew upon his critique of full cost pricing to develop their own Masonian or Berkelian analyses of the situation. Hence, the controversy became much narrower in focus and addressed only the problem of the realism, applicability, and compatibility of the marginalist tools and concepts in explaining business behavior. Thus the subsequent discussion became more of a groping toward a unified, coherent explanation showing that full cost pricing was consistent with neoclassical price theory in general and marginalism in particular.

Eiteman's Critique of Marginalism

Concurrent with the controversy over the full cost pricing doctrine, a different critique of marginalism was brewing. At the same time Lester was formulating his critique of marginalism as it applied to pricing: "I was teaching 'principles' at Duke [circa 19401 presenting the conventional approach when it suddenly occurred to me that as treasurer of a construc- tion company I had set prices and talked with others who set prices and yet I had never heard any price setter even mention marginal costs. I said 'this MC=MR stuff is non-sense' ' [Eiteman, 1981a]. He began to piece together a critique of marginalism aimed at its production and cost foundations.

Eiteman first criticized marginalism in 1945 when, employing a Berk- elian argument, he argued that it was not feasible for a multi-process firm to determine the marginal product for each variable input with respect to each process. That is, when a firm employed two or more dis-




jointed but interlocked production processes to produce its output, a positive increment of a variable input to any production process would not increase "final" output, while an incremental decrease of a variable input to any production process would result in a multiple decline in "final" output. Moreover the negative marginal product of a variable input would have different values if the input were used in different production processes. Consequently, the firm would face a hopelessly compli- cated task of determining the marginal product of a variable input since its value could simultaneously be zero and less than zero. (This situation cannot be circumvented if the variable input unit is expanded to include the proportions of the other variable inputs needed to achieve a single synchronized expansion of output since the relative proportions of the variable inputs can vary at different flow rates of output.) Therefore, Eiteman concluded, businesspeople do not try to determine the marginal products of their variable inputs, and hence to achieve marginalistic economic efficiency; rather, they are more interested in effectively synchro- nizing the production process when faced with variations in output. As a result, businesspeople do not employ marginal cost curves when setting prices and therefore eschew marginalist price setting procedures altogether [Eiteman 1945-46].

Eiteman's critique of marginalism was very close to Lester's second argument against marginalism. Therefore it is not surprising that he employed Lester's first argument-that marginalism depended on a specific structure of costs-when expanding his critique of marginalism in an article in 1947. Starting with the premise that marginalism "implies that entrepreneurs actually adjust their scales of operation so as to equate marginal costs and marginal revenue" [Eiteman 1947], Eiteman argued that businesspeople must face average total cost curves that permit the play of marginal costs required for marginal calculations. More specifically, the businesspeople must face a U-shaped average total cost curve whose minimum point is substantially below full capacity. However, Eiteman pointed out that such a cost curve is not generally found in multi-process firms because engineers design multiprocess plants to be most efficient at full capacity. Consequently the plants have the following properties: (1) up to full capacity, the application of any particular variable input (such as labor) results in increasing average product; (2) at full capacity, each of the variable inputs are employed in the most efficient manner with respect to the fixed capital and to each other; and (3) beyond full capacity, not only are many of the individual variable inputs encountering falling average product, but when taken as a whole, they are encountering falling total product and negative marginal product. Eiteman concluded that




the businesspeople faced a declining average total and marginal cost curves up to full capacity, where they stop (see appendix). As a result, not only is the firm driven, independently of marginal calculations, to produce at full capacity but not beyond, it also does not use marginal calculations to determine price [Eiteman 1947].12

Marginalism and the Rationalization of Full Cost Pricing

One line of discussion saw the conflict between full cost pricing and marginalism as primarily a theoretical problem. That is, while it did not dispute the empirical data concerning full cost pricing procedures, it did disagree with its anti-marginalist theoretical interpretation. However, to show that the pricing procedures and marginalism were compatible, it had to show that the full cost price was theoretically identical to the marginalist price. Proving this required that the cost and mark-up constitu- ents of the full cost pricing procedure be compatible with their marginalist counterparts.

Drawing on the Berkelian conclusion that full cost prices could be analyzed in a marginalist context, it was argued that if average direct costs of production were constant with respect to different flow rates of output, they would coincide with marginal costs. As for the mark-up, it was argued that if it were based on short- or long-period demand considerations and were sufficiently flexible, it could stand as a proxy for the price elasticity of demand [Machlup 1946; Cartwright 1951; Clark 1952; and Hawkins 1950]. Therefore, if the two conditions were fulfilled, then the businessperson would in fact be equating marginal cost and marginal revenue when using full cost pricing procedure to set (profit maximizing) price. Moreover the argument can account for the existence of stable prices associated with the pricing procedures.13

This simple but elegant theoretical argument, initially suggested by E. A. G. Robinson in his review of Hall and Hitch's article in 1939, was adopted by economists and widely propagated via textbooks and articles. The argument's acceptance was a result of its elegance and of the numerous references to empirical cost studies showing constant marginal costs, and to demand considerations embodied in the mark-up. Thus by 1952, there existed a widespread belief that full cost pricing was marginalism in a different language. All that was needed to crystallize this belief into an economic canon and put an end to this aspect of the controversy was a well-known article by an authority in the field of pricing supporting that argument [Apel 1948; Tarshis 1947; Bain 1948; and Scitovsky 1951].




In June 1952, Richard B. Heflebower presented a paper at the Con- ference on Business Concentration and Price Policy that did indeed put an end to this aspect of the marginalist controversy. Inspired by the earlier work of the committee on price determination (published in Cost Be- havior and Price Policy), the NBER-Universities Committee in 1950 de- cided to sponsor a conference on business concentration and price policy since these topics were of current interest to economists. As a result Hefle- bower, a Berkeley-educated economist well known in the area of industrial pricing through his work at the office of Price Administration and at The Brookings Institution, was invited to give a paper showing the extent to which one needed to reconcile marginal theory with business practice -an assignment that implicitly meant showing that the full cost doctrine was marginalism in a different language. In fact, Heflebower accom- plished his assignment rather easily since there already existed the theoretical argument showing that full cost pricing can be viewed completely in marginalist terms and since "the abstract theorists [were] so nearly unanimous and severe in condemning it" [Clark to Saville 1948], thus preventing a more open dialogue on the doctrine [Adelman 1982; Mach- lup 1981; Markham 1954; Grether 1981; and Ruggles 1981].

To accomplish his task, Heflebower had to show that the procedures businesspeople used to set and to change prices were not inconsistent with marginalism. Presupposing that full cost pricing could be described in marginalist terms, Heflebower proceeded to show that the empirical evidence supported such an interpretation. First, he laid out the empirical evidence showing the constancy of marginal costs and concluded that the firm's price level and price changes depended on the price elasticity of its demand curve and how it changes as demand changes. Secondly, he argued that the mark-up incorporated elements of demand and indirectly responded to changes in demand. On the one hand, he showed that vari- ous formulations of full cost pricing incorporated demand assumptions when stating that the height of the mark-up was dependent upon good- will, long-period demand considerations, and the reactions of competi- tors. On the other hand, he showed that transaction prices differed from full cost (list) prices and varied positively with changes in demand, thus implying that businesspeople do take demand into account when setting prices. Taking together the above considerations, Heflebower concluded that the mark-up was sufficiently demand-influenced so as to make it amenable to marginal analysis [Heflebower 1955].

By showing that each constituent part of the full cost price was consistent with marginalism, Heflebower implied that full cost pricing was consistent with marginalism. This in turn implied that businesspeople




adopt pricing procedures and policies that appear non-marginalist, but in fact produce the marginalist results. Hence the ultimate conclusion that could be drawn from Heflebower's analysis was that the only difference between marginalism and full cost pricing is the language used to de- scribe them. In fact these were precisely the conclusions of the conference participants:

I had the impression, at the end of reading his paper, that if the full-cost principle was still standing it was only because it was supported by two old gentlemen, one of whom was certainly Demand and the other of whom looked uncommonly like Marginal Analysis. It is clear from Hefle- bower's masterly survey that many of the arguments used by supporters of the full-cost principle are in no way inconsistent with orthodox economic theory [Coase 1955].

The moral of the Heflebower paper, it seems to me, was that business executives go through a somewhat round-about procedure to do what they would do more directly if they had a lot of information they don't have [Adelman 19811.

As a result, the marginalist controversy ceased to exist since there were seemingly no conflicting issues between full cost pricine and marginalism. Thus with the ending of the conference on June 19, 1952, this aspect of the marginalist controversy came to an end: "In effect, Heflebower gave the game away, and from then on no issues were seen to exist. Full cost pricing was seen as the practical businessman's approach to implementing 'true marginal analysis' " [Ruggles 1981].

The Generalization of Neoclassical Price Theory and the Absorption of Full Cost Pricing

A second line of discussion saw the conflict between full cost pricing and marginalism as a problem with the realism and applicability of the marginalist tools to explaining business behavior. That is, drawing on the Masonian and Berkelian arguments, economists produced a synthesis that explained the use of non-marginalist pricing procedures according to irreducible complexity, ignorance, and uncertainty that characterized the business world and that suggested that marginalism could be served if its theoretical core were generalized. Many economists contributed to the development of this synthesis, but it was Robert A. Gordon's 1948 article that fully articulated it and presented it to economists for adoption. Gor- don's view of the conflict between full cost pricing and marginalism "was influenced to a significant extent by the numerous interviews with busi-




ness executives that he conducted in connection with his work on Business Leadership in the Large Corporation" [Gordon 1983]. So in 1947, at the annual meeting of the Pacific Coast Committee on Price Policy, Gordon presented a paper on "Issues in the Current Marginal Analysis Contro- versy" in which he stated the core ideas of his 1948 article. Reacting to the criticism of the conferees, who included J. Bain, W. Fellner, E. T. Grether, L. G. Reynolds, and possibly T. Scitovsky, Gordon wrote his well-known article "Short-Period Price Determination in Theory and Practice" [Social Science Research Council 1947].

In the article, Gordon criticized not neoclassical price theory itself, but some of its unrealistic assumptions that render many of its analytical tools less useful than they should be for the economist investigating business behavior. Attacking the assumption of profit maximization, and the strict formulation of the cost and revenue functions, he presented a twofold argument for why firms adopt full cost price policies and full cost pricing procedures: (1) because businesspeople are largely ignorant and uncertain about their economic environment, they are unable to obtain the information needed for marginalist decision making; consequently they employ full cost price policies and pricing procedures that make the most of their limited information (and entrepreneurial ability); (2) because businesspeople view their firm as a going concern, short period profit maximization is not adopted as a policy since it would lead to the firm's demise in the long period. Thus, instead of striving to maximize profits, businessmen strive for satisfactory profits; instead of trying to calculate accurate marginal costs, given the presence of common costs, they opt for average total costs as determined by their cost accountants; and instead of trying to calculate marginal revenue (or the price elasticity of demand) associated with every shift in the unknowable short period demand curve, the businessman was more apt to maintain a fixed full cost price and let output adjust to the new conditions.14

Since firms cannot behave in the manner assumed by marginalism, Gor- don concluded that the conventional analytical tools of the empirical economists were of little help to him in his investigations. However, all is not lost, Gordon suggested, if the analytical core of marginalism is generalized, that is, made more useful: "While this paper is, in a limited sense, 'antimarginalist,' it is not intended to be antitheoretical. It is a plea for new and more useful analytical tools than those which empirical workers now have at their disposal.... The theory of the firm needs to reshape its tools to fit more closely than heretofore the facts of commodity and labor markets" [Gordon 1948, pp. 287-88].

The arguments contained in Gordon's article were widely disseminated




(see [Fellner 1948; Scitovsky 1951; Bain 1952; and Reynolds 1948]), but they did not immediately result in arguments that reconciled full cost pricing with marginalism; rather Gordon's article began bearing fruit nearly a decade after being published. In the intervening years two arguments slowly took form, each centering on the assumption of profit maximization but from a different perspective. One argument replaced the assumption with some other maximization assumption while maintaining the strict formulation of the cost and revenue functions. That is, starting with Hicks [1935] and Higgins [1939], there began emerging the view- point that under imperfectly competitive conditions, firms can adopt objectives other than profit maximization-such as utility maximization [Higgins 1939; Papandreou 1952], sales maximization [Lynch 1940], and maximization of the firm's present value [Committee on Price Deter- mination 1943]. In the 1950s, economists recognized that these nonprofit maximizing objectives not only were consistent with the neoclassical notions of rationality and efficiency, but they were also entirely consistent with marginalism [Papandreou 1952]. Therefore when economists armed with models of the firm based on these nonprofit maximizing objectives, such as Baumol [1959], turned their attention to the full cost pricing doctrine, they found that the doctrine was compatible and consistent with the new extended marginalism. So by generalizing marginalism, economists were able to make neoclassical price theory appear more realistic and, in doing so, reconcile it with the full cost pricing doctrine.

A second argument that arose replaced the profit maximizing assumption with a satisfactory profit objective and assumed that uncertainty and incomplete information exist with respect to both the firm's cost and revenue functions. That is, starting in the 1940s, a line of thought began developing that saw the firm as a complex bureaucratic organization situ- ated in a complex environment that it has incomplete and uncertain information about. Therefore the firm pursues satisfactory profits, and, more importantly, institutes "rule-of-thumb" procedures-such as inven- tory procedures to generate demand information and cost accounting procedures to generate accurate cost information-designed to improve its chances of survival in the long period. In this case, the full cost pricing procedures came to be viewed as one of many rules-of-thumb the firm employs as a guide to making price decisions. Because this line of reason- ing (called the behavioral theory of the firm) accepted the general framework of neoclassical price theory while simultaneously repudiating marginalism, its absorption of the full cost pricing procedures meant that the doctrine itself ceased to be viewed as inconsistent with neoclassical price theory [Cyert and March 1963; Cyert and Pottinger 1979].




With the emergence of the managerial and behavioral theories of the firm, the full cost pricing doctrine ceased to be anomalous. In the former case, the extension of marginalism removed, in one sense, the conflict between it and the doctrine; in the latter case, the doctrine was shown to be consistent with the framework of neoclassical price theory although not with marginalism (extended or not). With the generalization of neoclassical price theory and the articulation of these new theories of the firm, this phase of the marginalist controversy came to an end.

Marginal Backlash: The Dismissal of Eiteman's Critique

The response to Eiteman's critique was extensive. Economists who agreed with the critique felt that it destroyed the foundations upon which marginalism stands [Eiteman 1949, p. vi; Eiteman 1982b]; the economists who disagreed with the critique thought that it was nonsense [Haines 1983]. However, when the responses were published the following year in the September 1948 issue of the Amrican Economic Review, only the negative ones were printed.'5 Thus the substance of Eiteman's critique was virtually ignored by the economics profession.'6 Undaunted by the criticism, Eiteman tried to substantiate his thesis that marginalism was predicated on the shape of the average total cost curve by promulgating a survey. The survey showed that businesspeople believed that they faced average total cost curves that sloped downward up to full capacity or turned upward only near full capacity. Eiteman concluded that "short-run marginal price theory should be revised in the light of reality" [Eiteman and Guthrie 1952]. Again Eiteman received numerous letters, especially from the businesspeople, supporting his results, none of which appeared in print while the comments of economists who disagreed with the article did [Eiteman 1982b].'7 In fact, one comment went so far as to state that the cost controversy was a sham if the "AC and MC [are] practically co- incidental for most of the relevant part of their ranges" [Bronfenbrenner 1953]-a statement that was in fact incorrect [Bronfenbrenner 1983]. In the final analysis, Eiteman's critique of marginalism was completely rejected and with it the notion that the costs that the firm uses in its pricing procedures are inconsistent with marginalism.

Conclusion

The outcome of the marginalist controversy was, quite obviously, that economists viewed the full cost pricing doctrine as being compatible with




neoclassical price theory and more specifically with marginalism. This victory was clearly evident in the economics textbooks where, for example, a weak marginalist rationalization of full cost pricing was replaced by a very strong one in which the mark-up was interpreted according to price elasticity of demand [Lee 1 984b].

However, the triumph of neoclassical price theory was a bit tainted. Its triumph did not result entirely from its supposedly theoretical superi- ority; it also rested upon the doctrinal nature of the neoclassical price theory paradigm itself. On the one hand, most of the neoclassical economists interested in the controversy were simply unable to see that the full cost pricing doctrine could be theoretically different from neoclassical price theory or marginalism.18 Therefore when critical arguments were directed toward its "hardcore" (to use a Lakatosian phrase), the neoclassical economists would find them misdirected and their proponents rather stupid. This was not only the basis of Machlup's response to Lester and the reason why Machlup initially rejected Lester's article, but it was also the basis of the virulent criticism directed toward Eiteman and his attack on marginalism. Moreover, in response to the criticism, the neoclassical economists suitably adjusted the auxiliary hypotheses of their research program in order to accommodate the criticism. This kind of response was obviously the basis for the emergence of extended marginalism, the marginalist rationalization of full cost pricing, and the behavioral theory of the firm-all of which were able to absorb the full cost pricing doctrine. On the other hand, because any criticism of the "hardcore" threatens their theoretical beliefs, we find neoclassical economists engaging in explicit (or apparently explicit) acts to bring about the demise of the doctrine. One example was Heflebower's assignment to reconcile full cost pricing with marginalism. Another example was that the supporters of the full cost pricing doctrine were apparently denied access to print (as in the case of the cost controversy) or conferences where the doctrine was debated (no proponent of the doctrine appears to have been invited to the Conference on Business Concentration and Price Policy).

The moral of this article is that the demise of the full cost pricing doctrine was largely based on the doctrinal need to deflect any criticism of the "hardcore" of neoclassical price theory. This doctrinal need was also, one could venture, present in the "marginalization" of other concepts and theories developed outside of neoclassical micro or macro theory, such as Michel Kalecki's short period theory of unemployment. However, if one is not concerned with doctrinal purity or even the need to maintain neoclassical theory, then the demise of full cost pricing doctrine need not




be accepted, and more importantly can be viewed as a partial theoretical basis on which to develop a non-neoclassical theory of price.

APPENDIX

Eiteman's argument in his 1947 article is rather difficult to see. There- fore let us simplify it by assuming that there is a single variable input x, two production processes, and a single output. The input-output relation- ship can be denoted as q = f(x1, x2, x12) and it has the following properties:

(i) if q/x < maximum, then A q/ A x > A (q/x) / A x > 0 even though A (q/x1)/ ax1 <0 or A (q/x2)/ Ax2 <0, and A2q/ Ax2 < 0.

(ii) if q is pushed beyond full capacity, then A q/ A x < 0 and A (q/x1) / A xl < 0, A (q/x2) / A x2 < 0, and A (q/x12) /Ax12 < 0.

Consequently production could not take place when the average product is falling while the total product is increasing. Translating the production properties into costs, we have:

(i) if q is less than or equal to full capacity, then marginal costs < average total costs; and

(ii) if q is greater than full capacity, then marginal costs are negative.

Now it is appropriate to ask whether it makes economic sense to say that the marginal cost curve is vertical at full capacity. Eiteman argued that the statement made no economic sense since a counterfactual statement concerning marginal costs would result in a negative value. Therefore he concluded that the marginal cost curve simply stopped at full capacity.

Notes

1. This does not mean, however, that the doctrine ceased to be of empirical interest to U.S. economists. Since 1956 there have been more than fifteen empirical investigations into the price setting behavior of firms and an untold number of econometric investigations of full cost pricing by U.S. economists.

2. Other full cost pricing procedures include mark-up pricing and target return pricing procedures. It should be noted that although Hall and Hitch [1939] were the first to present the full cost pricing doctrine, the doctrine itself is centered on the pricing procedures themselves and the implications derived from them (see [Lee 1983, 1984a] for a more detailed discussion of the doctrine).




3. Although Means introduced the concept of administered prices in a manner that would suggest that it was theoretically incompatible with marginalism, most economists did not view the concept in that manner. This was primarily a result, ironically, of Means's presentation of it, in that on the one hand, he presented administered prices as an addition to the theory of prices under competitive conditions and used the perfectly competitive theory of prices as an heuristic device for interpretating an economc system made up of administered prices, and on the other hand, he did not explicitly contrast it with marginalism as found in Edward H. Chamberlin's monopolistic competition or in Joan Robinson's imperfect competition (for a similar view of administered prices, see [Nourse and Drury 1938, pp. 250-75]). In addition, Means stated many times that there was a connection between administered prices and market concentration. Therefore economists viewed administered prices as simply an empirical phenomena to be investigated and not as a concept represen'ting an empiricial phenomena that contradicted marginalism. Hence administered prices, while contributing to the background of the marginalist controversy, did not have any direct theoretical impact on it as seen in the eyes of the participating economists [Means 1935, 1939, and 1939- 40; Gruchy 1947; Cox 1981].

4. In the following quote, J. F. Due captures this theoretical quandary as seen by the economists involved:

My early interest in what came to be called full cost pricing began when I had work in marketing at both the undergraduate and graduate level at Berkeley from E. T. Grether.... Grether was particularly interested in questions of retail pricing and price maintenance and mark- up systems and the like, and it was obvious that mark-up systems did not involve a marginal cost approach to pricing. I wrote my disserta- tion on the theory of incidence of sales taxation and, of course, en- countered the feature that the most casual empirical observations suggested that when excises or sales taxes were increased, typically manu- facturers or retailers raised prices, more or less by the same amounts. Later more serious empirical work validated this. The question was: how did this behavior conform with marginal cost pricing? Clearly it did not (emphasis added) [Due 1983].

5. Machlup also advanced a subsidiary argument in which he questioned the accuracy of empirical investigations of the pricing behavior of firms based on questionnaires and interviews. This argument as well as his principle argument were developed more fully in his 1946 reply to Lester.

6. It should be noted that Mason, unlike Machlup, assumed that the marginalist tools were applicable to any market structure, including oligopoly.

7. For example, see [Reynolds 1942]. As indicated in the following quote, Reynolds was not then convinced by the arguments:

I suppose the main thing which led me to take a rather strong antimarginalist position was experience in field interviews with business executives about wage and price decisions. At Harvard in the late 'thir- ties I worked mainly on pricing.... During World War 1I I was deeply involved with wages as a staff member of the National War




Labor Board; and after coming to Yale in 1945 I started my large study of the New Haven labor market. This immersion in empirical data made me very conscious of the wide gap between marginal theory and actual behavior [Reynolds 1983].

8. If one can generalize from a single letter, then graduate students in economics were perplexed and confused over the "practicality of employing the theoretical 'tools' of the economists in real markets" as early as 1943. Lloyd Saville to J. M. Clark, 9 July 1948, Clark Papers.

9. He strengthened the argument further in later articles by arguing that price following firms do not think in terms of marginal revenue and price elasticity of demand, and that the concepts of short period had little if any theoretical meaning [Lester 1947-48, 1949].

10. The reason for the quick response by Machlup was that when Lester sub- mitted his article to American Economic Review (AER), the regular editor, Paul Homan, was away and Macblup was the acting editor. Machlup initially rejected the manuscript, but Homan, upon returning, asked Lester to give him a chance to obtain other opinions, and it was on the strength of these opinions that the article was accepted for publication. Upon hearing this, Machlup wrote his rebuttal, which appeared in the September 1946 issue of American Economic Review [Lester 1981].

11. Machlup also argued that the study carried out by the Oxford economists rested primarily on a questionnaire and poorly conducted interviews and, moreover, that the only fruitful empirical inquiry into pricing requires close personal contact with those making the pricing decisions. The first part of the Machlup argument is simply wrong (see [Lee 1983, pp. 122- 30]); the second part implies that all the empirical data supporting the full cost pricing doctrine is faulty and therefore can not support the anti- marginalism interpretation given to it.

12. Eiteman temnered his comments on price setting by stating that the firm's demand curve was not extremely inelastic. However this made him quite vulnerable to the criticism that a downward sloping average total cost curve was not necessarily inconsistent with marginalism. He corrected this mistake in a later article by specifying that the firm's demand curve was horizontal, or high and nearly horizontal rEiteman 1948].

13. The argument can be summarized in the following manner: let MC = marginal costs, which is constant over the relevant range of output; now in equilibrium MC = MR (marginal revenue) or the price P = MC[1/ (I-I/ed)] where e, is the price elasticity of demand. Letting l/(l-l/ed) = 1 + k, we have P = MC(1 + k) where is the percentage mark up and is equal to 1/ (ed - 1). Assuming a constant k with respect to shifts in demand (that is, assuming a constant ed), P will not change because MC is constant. This argument was used in both a short and long period context.

14. In the following quote, Scitovsky succintly captures the above argument as it was seen by other economists involved:

As to full cost pricing, my reaction at the time was to regard it as a confirmation of my suspicion that the practical obstacles to empir- ically calculating marginal cost (especially in a multi-product firm) were insurmountable, and that average direct costs were a kind of best




approximation to the calculation of marginal cost. The addition to average direct costs of a percentage margin to cover overheads and an allowance for profit seemed like a good rule of thumb for estimating the profit-maximizing mark-up. In other words, I tended to ignore or slue over the oligopoly case and to regard pricing by adding a mark-up to estimated average direct costs as profit-maximizing behavior under real-life circumstances, given the businessman's inability to estimate the two quantities dear to the economist's heart: marginal cost and price elasticity of demand [Scitovsky 1982].

15. Why this was the case cannot be determined since the AER papers for the Homan years do not exist.

16. Acceptance of Eiteman's criticism was also tempered because he appeared to offer nothing in its place. As a result he wrote Price Determination in which prices were set by full cost pricing procedures and price changes were based on the rate of turnover of working capital. However because his explanation eschewed marginalism, it was also rejected [Eiteman 1982a].

17. Again the reason for this cannot be determined since the AER papers for the Haley years do not exist.

18. An example of such closed-mindedness can be seen in the following quote:

I think that it's rather obvious that someone trained at Chicago in the early 1950s would only be baffled by an attack on marginal cost pricing, which is merely an elaboration of the assumption that firms maximize profits. Full cost pricing is not possible if one assumes profit maximization and/or competitive markets.... As for my 'colleagues' at Chicago, whether professors or students, I assume that it never occurred to them that microeconomics could be based on anything other than marginalism. This is, after all, nothing more than what the founders of the neoclassical school of economics-Jevons, Menger, and Walras -took to be the foundations of economic theory [Kaplan 1983].

References

Adelman, M. A. 1982. Personal communication. 4 February. Apel, Hans. 1948. "Marginal Cost Constancy and Its Implications." The

American Economic Review 38 (December): 870-85. Bain, Joe S. 1948. Pricing, Distribution, and Employment. New York: Henry

Holt and Company. Bain, Joe S. 1952. "Price and Production Policies." In A Survey of Contempo-

rary Economics, ed. Howard S. Ellis, pp. 129-73. Homewood: Richard D. Irwin.

Bator, Francis. 1981. "The sins of wages." The Economist (21 March). Baumol, William J. 1959. Business Behavior, Value, and Growth. New York:

Macmillan. Backman, Jules. 1940. Price Flexibility and Inflexibility. New York: New

York University School of Law.




Bronfenbrenner, M. 1953. "The Shape of the Average Cost Curve: Com- ment." American Economic Review 43 (September: 627-28.

Bronfenbrenner, M. 1983. Personal communication. 5 July. Cartwright, Philip W. 1951. "Marginalism and Price Theory Reconsidered."

The Canadian Journal of Economics and Political Science 17 (November): 543-50.

Clark, John M. 1948. Letter to Lloyd Saville. 13 July. Clark Papers. Clark, John M. 1952. Notes, Full Cost Pricing, 17 October. Clark Papers. Clark, John M. Papers. New York: Columbia University. Coase, Ronald. 1955. "Full Cost, Cost Changes, and Prices: Comment." In

Business Concentration and Price Policy, pp. 393-94. Princeton: Princeton University Press.

Committee on Price Determination for the Conference on Price Research. 1943. Cost Behavior and Price Policy. New York: National Bureau of Eco- nomic Research.

Conference Board. 1939. Conference Board Stuidies in Enterprise and Social Progress. New York: National Industrial Conference Board.

Cox, Charles C. 1981. "Monopoly Explanations of the Great Depression and Public Policies Toward Business." In The Great Depression Revisited, ed. Karl Brunner, pp. 174-207. Boston: Martinus Nijhoff.

Cyert, Richard M., and James G. March. 1963. A Behavioral Theory of the Firm. Englewood Cliffs, N.J.: Prentice-Hall.

Cyert, Richard M., and Garrel Pottinger. 1979. "Toward a Better Microeco- nomic Theory." Philosophy of Science 46 (June): 204-22.

Daugherty, Carroll R., et al. 1937. The Economics of the Iron and Steel In- dustry. New York: McGraw-Hill.

Due, John F. 1941. "A Theory of Retail Price Determination." Southern Eco- nomic Journal 7 (January): 3 80-97.

Due, John F. 1983. Personal communication. 29 August. Due, John F. 1942. The Theory of Incidence of Sales Taxation. New York:

Kings Crown Press. Dunlop, John T. 1981. Personal communication. 29 December. Eichner, Alfred S. 1978. Review of Studies in Pricing by P. W. S. Andrews

and Elizabeth Brunner. Journal of Economic Literature 16 (December): 1436-38.

Eiteman, Wilford J. 1944-45. "The Equilibrium of the Firm in Multi-Process Industries." Quarterly Journal of Economics 59 (February): 280-86.

Eiteman, Wilford J. 1947. "Factors Determining the Location of the Least Cost Point." American Economic Review 37 (December): 910-18.

Eiteman, Wilford J. 1948. "The Least Cost Point, Capacity, and Marginal Analysis: A Rejoinder." American Economic Review 38 (December): 899-904.

Eiteman, Wilford J. 1982a. Personal communication. 9 February. Eiteman, Wilford J. 1982b. Personal communication. March. Eiteman, Wilford J. 1949. Price Determination. University of Michigan: Bu-

reau of Business Research, no. 16. Ann Arbor: University of Michgan. Eiteman, Wilford J., and Glen E. Guthrie. 1952. "The Shape of the Average

Cost Curve." American Economic Review 42 (December): 832-38.




Fellner, William. 1948. "Average-Cost Pricing and the Theory of Uncer- tainty." The Journal of Political Economy 56 (June): 249-52.

Gordon, Margaret S. 1983. Personal communication. 10 June. Gordon, R. A. 1966. Business Leadership in the Large Corporation. Berkeley:

University of California Press. Gordon, R. A. 1948. "Short-Period Price Determination in Theory and Prac-

tice." The American Economic Review 38 (June): 265-88. Grether, E. T. 1981. Personal communication. 17 December. Grether, E. T. 1939. Price Control Under Fair Trade Legislation. New York:

Oxford University Press. Gruchy, Allan G. 1947. Modern Economic Thought. New York: Prentice-

Hall. Haines, Walter W. 1983. Personal communication. 6 July. Hall, R. L., and C. J. Hitch. 1939. "Price Theory and Business Behavior."

Oxford Economic Papers 2 (May): 12-45. Hamilton, Walton, et al. 1938. Price and Price Policies. New York: McGraw-

Hill. Hawkins, E. R. 1939-40. "Marketing and the Theory of Monopolistic Com-

petition." Journal of Marketing 4 (April): 382-89. Hawkins, E. R. 1950. "Vertical Price Relationships." In Theory in Marketing,

ed. R. Cox and W. Alderson, pp. 179-92. Chicago: Richard D. Irwin. Hawley, Ellis W. 1966. The New Deal and the Problem of Monopoly. Prince-

ton: Princeton University Press. Heflebower, Richard B. 1955. "Full Costs, Cost Changes, and Prices." In

Business Concentration and Price Policy, pp. 361-92. Princeton: Princeton University Press.

Hicks, John R. 1935. "Annual Survey of Economic Theory: The Theory of Monopoly." Econometrica 3 (January): 1-20.

Higgins, Benjamin H. 1939. "Elements of Indeterminancy in the Theory of Non-Perfect Competition." American Economic Review 29 (September): 468-79.

Kaplan, Marshall A. 1983. Personal communication. 15 July. Lee, Frederic S. 1983. "Full Cost Pricing: An Historical and Theoretical

Analysis." Ph.D. diss. Rutgers. Lee, Frederic S. 1984a. "Full Cost Pricing: A New Wine in a New Bottle."

Australian Economic Papers 23 (June). Lee, Frederic S. 1984b. "Whatever Became of the Full Cost Principle?" In

Economics in Disarray, ed. P. Wiles and G. Routh. Oxford: Basil Black- well.

Lester, Richard A. 1947-48. "Absence of Elasticity Considerations in Demand to the Firm." Southern Economic Journal 14 (January): 285-89.

Lester, Richard A. 1941. Economics of Labor. New York: Macmillan. Lester, Richard A. 1949. "Equilibrium of the Firm." American Economic

Review 30 (March) :478-84. Lester, Richard A. 1981. Personal communication. 12 March. Lester, Richard A. 1946. "Shortcomings of Marginal Analysis for Wage-Em-

ployment Problems." American Economic Review 36 (March): 63-82. Lynch, David. 1946. The Concentration of Economic Power. New York:

Columbia University Press.




Lynch, Edward Stephen. 1940. "A Note on Mr. Higgins's 'Indeterminacy in Nonperfect Competition.'" American Economic Review 30 (June): 347-48.

Machlup, Fritz. 1937. "Monopoly and Competition: A Classification of Mar- ket Positions." American Economic Review 27 (September): 445-51.

Machlup, Fritz. 1939. "Evaluation of the Practical Significance of the Theory of Monopolistic Competition." American Economic Review 29 (June): 227-36.

Machlup, Fritz. 1946. "Marginal Analysis and Empirical Research." Ameri- can Economic Review 36 (September): 519-54.

Machlup, Fritz. 1967. "Theories of the Firm: Marginalist, Behavioral, Man- agerial." American Economic Review 57 (March): 1-33.

Machlup, Fritz. 1981. Personal communication. 9 December. Markham, Jesse W. 1954. "Industrial Pricing-Discussion." American Eco-

nomic Review: Slupplement 44 (May): 152-54. Mason, Edward S. 1982. Personal communication. 12 January. Mason, Edward S. 1939. "Price and Production Policies of Large-Scale En-

terprise." American Economic Review, Supplement 29 (March): 61-74. Means, Gardiner C. 1939-40. "Big Business, Administered Prices, and the

Problem of Full Employment." Journal of Marketing 4 (April): 370-81. Nourse, Edwin G., and Horace B. Drury. 1938. Indrustrial Price Policies and

Economic Progress. Washington, D.C.: The Brookings Institution. Okun, Arthur M. 1981. Price and Qutantities: A Macroeconomic Analysis.

Washington, D.C.: The Brookings Institution. Papandreou, Andreas G. 1952. "Some Basic Problems in the Theory of the

Firm." In A Survey of Contemporary Economics, vol. 2, ed. Bernard F. Haley, pp. 183-219. Homewood, Ill.: Richard D. Irwin.

Peterson, Wallace C. 1982. Our Overloaded Economy. Armonk, N.Y.: M. E. Sharpe.

Phillips, Almarin, and Rodney E. Stevenson. 1974. "The Historical Develop- ment of Industrial Organization." History of Political Economy 6 (Fall): 324-42.

Reynolds, Lloyd G. 1938. "Competition in the Rubber-Tire Industry." Ameri- can Economic Review 28 (September): 459-68.

Reynolds, Lloyd G. 1940. The Control of Competition in Canada. Cambridge: Harvard University Press.

Reynolds, Lloyd G. 1972. "Relations between Wage Rates, Costs, and Prices." American Economic Review 32 (March): 275-89.

Reynolds, Lloyd G. 1948. "Toward a Short-Run Theory of Wages." American Economic Review 38 (June): 289-308.

Reynolds, Lloyd G. 1983. Personal communication. 3 October. Robinson, Austin. 1939. Review of Oxford Economic Papers, ed. R. F. Har-

rod, et al. The Economic Journal 49 (September): 53 8-43. Ruggles, Richard. 1981. Personal communication. 9 December. Scitovsky, Tibor. 1951. Welfare and Competition. Chicago: Richard D. Irwin. Scitovsky, Tibor. 1982. Personal communication. 18 January. Social Science Research Council. 1947. Report of the Pacific Coast Commit-

tee on Price Policy, 1947. By Roy W. Jastram. Tarshis, Lorie. 1947. The Elements of Economics. Boston: Houghton Mifflin.




U.S. Congress. Joint Economic Committee. 1976. The Inflationary Impact of Unemployment: Price Markups During Postwar Recessions, 1947-70. By Michael M. Wachtel and Peter D. Adelsheim. Washington, D.C.: U.S. Government Printing Office.

U.S. National Recovery Administration. Division of Review. 1936. Statistical Background of the NRA. U.S. Government Printing Office. By Victor S. von Szeliski. Work Materials No. 7. Washington, D.C.

U.S. National Resources Committee. Industrial Committee. 1972. The Struc- ture of the American Economy: Basic Characteristics, ed. Gardiner C. Means. Washington, D.C.: U.S. Government Printing Office, 1939; re- printed ed. New York: Da Capo Press.

U.S. Congress. Senate. 1934. Chain Stores: Chain-Store Price Policies. Fed- eral Trade Commission. S. Doc. 85, 73rd Cong., 2nd sess.

U.S. Congress. Senate. 1935. Industrial Prices and Their Relative Inflexibility. By Gardiner C. Means. S. Doc. 13, 74th Cong. 1st sess.

U.S. Congress. Senate. 1942. Temporary National Economic Committee. In- dustrial Wage Rates, Labor Costs and Price Policies. By Douglass V. Brown, et al. Senate Committee Print, Monograph No. 5. Washington, D.C.: U.S. Government Printing Office.



the marginalist controversy, lee

Documents

jstor terms

cost pricing frederic

cost pricing doctrine

jstor archive

marginalist controversy

majority of economists

terms conditions of

amall use subject