The Economics of the Short Period

221 Pages·1989·17.972 MB·English

by  Richard Kahn (auth.)

THE ECONOMICS OF THE SHORT PERIOD
Also by Richard Kahn
SELECTED ESSAYS ON EMPLOYMENT AND GROWTH
INTEREST AND PRICES
THE EFFECTS OF PUBLIC EXPENDITURE ON INFLATION AND THE
BALANCE OF PAY MENTS (with M. V. Posner)
THE MAKING OF KEYNES'S GENERAL THEORY
THE ECONOMICS
OF THE SHORT
PERIOD
RICHARD KAHN
Emeritus Professor of Economics, University of Cambridge
Fellow of King's College, Cambridge
Palgrave Macmillan
ISBN 978-1-349-09819-4 ISBN 978-1-349-09817-0 (eBook)
DOI 10.1007/978-1-349-09817-0
© Richard Kahn, 1989
Softcover reprint of the hardcover 1s t edition 1989
All rights reserved. For information, write:
Scholarly and Reference Division,
St. Martin's Press, Inc., 175 Fifth Avenue, New York, N.Y. 10010
First published in the Uni ted States of America in 1989
ISBN 978-0-312-02516-8
Library of Congress Cataloging-in-Publication Data
Kahn, Richard F. (Richard Ferdinand), 1905-
The economics of the short period I Richard Kahn.
p. cm.
Bibliography: p.
Includes index.
ISBN 978-0-312-02516-8: $40.00 (est.)
1. Economics. 1. Title.
HB171.K26 1989
33O-dc 19 88-23363
CIP
CONTENTS
Preface viii
Acknowledgements x
Introduction xxiii
CHAPTER 1 DEFINITIONS 1
I The short period 1
11 Overhead cost, fixed cost, prime cost, and prime profit 4
111 Depreciation cost 5
IV The distinction between fixed cost and overhead cost 10
V Technical fixed cost and financial fixed cost 10
VI Temporary dose-down and shut-down cost 11
VII Permanent dose-down 11
VIII Perfect competition: polypoly and perfect market 12
CHAPTER 2 THE SUPPLY SCHEDULE OF A
SINGLE FIRM UNDER PERFECT
COMPETITION 14
I The prime cost curves 14
11 Production at a prime loss 17
CHAPTER 3 THE EFFECTS OF A LOSS 21
I Scope of the chapter 21
11 How a loss is met 21
111 Importance of the level of the fixed cost 22
IV Alternative policies 24
V Financial fixed cost 27
VI Repercussions on productive efficiency 28
VII The exdusion of prime depreciation from prime cost 34
CHAPTER 4 SUPPLY SCHEDULE OF AN
INDUSTRY UNDER PERFECT
COMPETITION 37
I The aggregate supply schedule 37
11 A common fallacy 38
v
vi CONTENTS
III Diagrammatic representation: part played by overhead
cost 40
IV The predominance of prime cost in general and of
wages cost in particular 42
CHAPTER 5 SHAPE OF THE PRIME COST
CURVES 45
I General features 45
II Means of varying output 46
III Collapse of assumption of perfect competition 59
IV The marginal doctrine in the short period 61
CHAPTER 6 FURTHER CONSIDERATION OF A
STATE OF PERFECT COMPETITION 64
I lustification of this chapter 64
II An ideal case: prices in a depressed industry 64
III Wage disputes in this ideal case 67
IV The effect of ftuctuations in the ideal case 75
V A less ideal case: prime costs not all equal 78
CHAPTER 7 IMPERFECTION OF THE MARKET 83
I Introductory 83
II Effects in the short period 86
III Specialities and standardisation 88
IV Simplifying assumptions 89
V Preference and transport imperfection 90
VI The simplest kind of preference imperfection 92
VII Professor Sraffa on the price attained in an imperfect
market 93
VIII Assumptions underlying the individual demand curve 95
CHAPTER 8 EQUILIBRIUM IN AN IMPERFECT
MARKET 119
I Equilibrium of a single firm 119
II General conclusions 121
III Supply schedule of a single firm and of an industry
consisting of identical firms 123
IV Purpose of the next chapter 124
CONTENTS vii
CHAPTER 9 MATHEMAT ICAL TREATMENT OF
THE EQUILIBRIUM OF AN
INOUSTRY IN AN IMPERFECT
MARKET 126
I Constancy of the annihilation coefficient 126
II Equilibrium of an industry 133
CHAPTER 10 CHANGES IN PRIME COST ANO IN
HO URS IN AN IMPERFECT MARKET 149
I Scope of the chapter 149
II Changes in prime cost 149
III Effects on profits 151
IV Changes in hours 155
CHAPTER 11 THE BUSINESS MAN IS NOT A
TRUE ECONOMIC MAN 159
I Failure to comprehend the marginal principle 159
II Restraints on reducing prices in an imperfect market 164
III Effect of financial fixed costs in the cotton industry 167
CHAPTER 12 THE CORPORATE INSTINCT 170
CHAPTER 13 OE-RATING 174
Bibliography 182
Index 191
PREFACE
The raison d' etre of this Preface is to be found in the College
Regulations. The Candidate has to provide a general statement of
'the sources from which his information is taken, the extent to which
he has availed himself of the work of others, and the portions of the
dissertation which he claims to be original'. To the tyro in economic
writing such a task involves considerable embarrassment. Economics
is a subject in which, perhaps more than in most subjects, the
inexperienced writer requires much daring to assert a claim to
originality; 'he has availed himself of the work of others' to a greater
extent, very often, than he is consciously aware.
It is, of course, evident that the foundations of the treatment of
the short period were laid by Marshall. In particular his conception
of quasi-rent and the discussion on the short period in Chapter V of
Book V of the Principles have provided, together with the additions
of later economists, the material that I have tried to elaborate a little.
Where I think that I have departed furthest from the traditional
treatment is at the position of prominence that I have assigned in the
later stages of the dissertation to the imperfection of the market. I
refer to the attitudes of some economists towards this subject in
Chapter 5, § 28, and in Chapter 7, § 2. Chapter 7 derives its inspi
ration from an article by Professor Sraffa, and I have had the benefit
of Professor Sraffa's criticisms on a first draft of this chapter. But the
mathematical conclusions of Chapters 8, 9 and 10 I imagine to be
new. And it is on widening these conclusions and on furthering their
practical verification, with which a very sm all beginning is made
in this dissertation, that I place the greatest hope for further
development.
I have had access to the literature and statistics issued by the
now defunct Cotton Yarn Association. Though these were issued
confidentially and are not intended for publication, I have been
permitted to make use of them for the limited purposes of this study.
I have also had an interview in Manchester with two officials of the
Association, Captain John Ryan and Mr L. J. Tattersall, to whom I
should like to express my thanks. This contact with the cotton
industry, which I have found extraordinarily useful, I owe entirely to
the influence of Mr Keynes. But this represents only a very sm all
part of my complete debt of gratitude to Mr Keynes for his
viii
PREFACE ix
constant stimulation and advice. It is difficult, also, to make sufficient
acknowledgment of the advantage that I have derived through having
been taught by Mr Shove. Much of wh at I now believe to be my own
must in reality belong to hirn.
RICHARD KAHN