Economic Essays PDF
Preview Economic Essays
ECONOMIC ESSAYS By the same author THE LIFE OF JOHN MAYNARD KEYNES TOWARDS A DYNAMIC ECONOMICS REFORMING THE WORLD'S MONEY MONEY FOUNDATIONS OF INDUCTIVE LOGIC SOCIOLOGY, MORALS AND MYSTERY (The Chichele Lectures, I970) INTERNATIONAL ECONOMICS (Cambridge University Press) ECONOMIC ESSAYS ROY HARROD SECOND EDITION MACMILLAN ST. MAR TIN'S PRESS This book is copyright in all countries which are signatories to the Berne Convention. Preface to the Second Edition and Essay I6 © Roy Harrod I972 Softcover reprint of the hardcover 2nd edition 1972 978-0-333-13536-5 All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, without permission. First Edition I952 Second Edition I972 Published by THE MACMILLAN PRESS LTD London and Basingstoke Associated companies in New York Toronto Dublin Melbourne Johannesburg and Madras SBN 333 I 3536 9 ISBN 978-1-349-01496-5 ISBN 978-1-349-01494-1 (eBook) DOI 10.1007/978-1-349-01494-1 Biddies Ltd, Guildford, Surrey CONTENTS PREFACE TO THE SECOND EDITION Vll PREFACE TO THE FIRST EDITION Xlll I. MAN-POWER I. THE POPULATION PROBLEM 3 2. EQ.UAL PAY FOR MEN AND WoMEN 42 II. COMPETITION 3· NoTES oN SuPPLY 77 4· THE LAw OF DECREASING CosTs 89 5· A FuRTHER NoTE oN DECREASING CoSTs I03 6. THE EQUILIBRIUM oF DuoPOLY 108 7· DocTRINEs oF IMPERFECT CoMPETITION I I I 8. THEORY OF IMPERFECT CoMPETITION REVISED I 39 9· THEORY OF PROFIT I 88 IO. PROFITEERING: AN ETHICAL STUDY 208 III. EMPLOYMENT II. THE EXPANSION OF CREDIT IN AN ADVANCING CoMMUNITY 22I I2. KEYNES AND TRADITIONAL THEORY 237 I3· AN EssAY IN DYNAMIC THEORY 254 I4. SuPPLEMENT ON DYNAMIC THEORY 278 IV. GENERAL I 5· PROFESSOR F. A. VON HAYEK ON INDIVIDUALISM 293 r6. INCREASING RETURNS 302 v PREFACE TO THE SECOND EDITION IN I 95 I I set myself to collect together a number of essays that I had written before that year, which seemed worthy of publication in a single volume. They were concerned with different aspects of economics. Mter the volume appeared, I wondered whether I had made a mistake. Would someone interested primarily in, say, imperfect competition be prepared to spend the extra money and occupy the extra bookshelf space just to possess the additional material about popu lation, economic dynamics and Professor von Hayek's fascin ating views on individualism? I pleaded on behalf of the book that it all bore on topics in which the general economist has to interest himself. Since that time specialisation has greatly increased; the interests of each separate economist tend to be more sharply focused on his own theme. I was accordingly delighted and gratified when Macmillan, whose judgement I trust, pro posed a new edition of this volume. There is only one piece that was not in the original vol ume, namely Essay I 6 entitled 'Increasing Returns'. This was first published in the Essays in Honor ofE . H. Chamberlin (I g67). It should be read immediately after Essays 3-Io. These nine essays between them give the sole available complete account of my contribution to the theory of imperfect competition; I have never published a separate volume on this subject. Essays 3, 4 and 5 appeared in the Economic Journal before Pro fessor Joan Robinson and Professor E. H. Chamberlin pub lished their celebrated works on this subject. Essay 6 supplies my own theoretic solution of the problem of duopoly which holds also for oligopoly, a prevalent condition. Essay 7 was published shortly after the appearance of the Robinson and Chamberlin treatises and I regard its last section (III) as of the first order of importance. Essay 8 was published more than twenty years after my Vll Economic Essays original contributions to the subject. Meanwhile my thinking had undergone some change. During the 'twenties, personal field work, which I undertook alone, established that 'in creasing returns' were widely prevalent in industry. The original doctrines of imperfect competition implied that this was so. To date there appears to be no reason to modify this tenet. But in certain other respects the theory, as so far evolved, began to seem unsatisfactory, notably as regards the tendency for excess capacity to be built up wherever there was imper fect competition. The theory that each firm would aim at operating at a level that equated its marginal revenue to its marginal cost, entailed that either on average the firms, taking good times with the bad, would continue to make super normal profit, or that too many firms would be attracted into the business of producing each article. When during the 'thirties the Oxford Economists Re search group made more systematic enquiries of business men, there was strong resistance to the idea that, in fixing their prices, they would have regard to marginal revenue, a con cept that they even found it difficult to understand. And, apart from those enquiries, common sense seemed to suggest to my mind that there was something unrealistic about the idea that, throughout the wide field of imperfect competition, there must either be supernormal profit or a tendency to the build-up of an excessive number of businesses. There must, I thought, surely be some fault in the theory. The eighth essay, published in this book for the first time (1952), was my attempt to redress the theory, so as to avoid this unrealistic conclusion. I argued that, while the accepted doctrine dealt with the interrelations between short-and long period costs, on the demand side, only short-period marginal revenue was considered by it. But this was irrational. Any loss of profit in future, consequent on at present charging a price high enough to attract new competitors into invading the market, should be subtracted from short-term marginal revenue in assessing long-term marginal revenue. The inter section of the long-period curves would indicate the right price to charge; this would be lower than if only short-period marginal revenue were taken into account; normally short- Vlll Preface to the Second Edition period marginal revenue would continue indefinitely to be below marginal cost. In many cases the equilibrium price would be equal to full cost (i.e. including overheads and profit). This conclusion was not only theoretically correct, but much more conformable with the testimony of practical people. Another sixteen years had passed when I was invited to contribute (in some hastt>) to the Festschrift for Chamberlin. Its sponsors were anxious that Chamberlin, who was then seriously ill, should see the volume. He did see it, but was by then too far gone in sickness to read it. I devised a construc tion, based on some reasonable, although not logically neces sary, assumptions, by which at equilibrium the average cost curve and the long-period average revenue (called in this essay 'average net proceeds') curve are once more tangential. The demand curve, however, intersects downwards at the point of tangency. The price is determined by the point of intersection. The marginal cost curve and the marginal net proceeds curve intersect at a point vertically below this. But in equilibrium the short-period marginal revenue is below the marginal cost. I liked to think that this construction was a fitting tribute to Chamberlin. Essays 9 and IO were written for this volume and had not previously appeared. Essay IO ('Profiteering: an Ethical Study') contains a rational explanation of the notion of moral obligation, which I first expounded in an article in Mind ('Utilitarianism', revised, I936). Its theory links economics to ethics, because a beneficial course of action becomes a moral obligation, only when there are 'increasing returns to scale'; i.e. when x +I actions of a certain type in relation to a certain type of situation lead to more than an (x +I) fx net increase in humap. welfare. Thus the theory of moral obligation and the theory of increasing returns to scale in imperfect competition are shown to be basically merely different applications of the same fundamental axiom -shall we call it of logic or of the principles of human reason?-as exemplified both in theory (logic) and in practice, namely in the principles that should govern the maximisation of human welfare (economics). This volume contains also my early contributions to the theory of 'growth economics'. I call attention, in particular, IX Economic Essays to Essay II, entitled 'The Expansion of Credit in an Advanc ing Community' (first published, August 1934). It already seemed to me at that time that the controversy then raging between Keynes and von Hayek could not be resolved, to the intellectual satisfaction of its auditors, on the basis of the current values of the determinants of prices and income distribution that were operating at a given point of time. I deemed that we could form a valid judgement only by reference to the nature of the determinants of increase in an 'advancing community'. About three years later Keynes's famous General Theory of Employment, Interest and Money, the proofs of which I had read and re-read, appeared. A few months later I attempted to summarise it at an international conference at Oxford in a lecture which is included in this volume (Essay 12). I draw attention to its concluding page, which explains that there was no theory of economic dynamics in Keynes. His creative contribution was a masterly construction of a system of ideas that constitutes what in later language we call macro-statics. During that year I worked with great assiduity on incor porating a dynamic element in the Keynesian scheme. The book embodying this, entitled the Trade Cycle, appeared in the bookshops in the same year as the General Theory-pub lishing delays were then not so long as they became after the war. The essence of my book was a conflation of Keynes's 'multiplier' theory with what has since come to be called the 'acceleration principle'; as regards the latter I drew inspira J. tion from M. Clark's Strategic Factors in the Business Cycle. But my Trade Cycle still contained no basic axiom relating to growth theory. I continued thinking furiously, and two years later excogitated such an axiom, which is formulated in Essay 13 of this volume. Essay 14, first published in this volume, was my rejoinder to a criticism of my growth formula made by Professor Sidney Alexander. Some might hold that Essay I ('The Population Problem') would have been better suppressed in this reprint. It consists of a memorandum submitted to a Royal Commission on Population, to which I also gave oral evidence, in I944, and recommends measures designed to encourage larger families. X
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