The Argument for Idealism versus Realism

I’ll try once again below to evaluate the argument for idealism, but first properly describe the argument for idealism and in formal terms.

Let us just note that legitimate forms of argument must use the following forms:

(1) Deduction, yielding necessary truth (e.g., various types of syllogism)
(2) Induction, yielding probable truth, and further divided into

(1) induction by simple enumeration;
(2) inductive argument by analogy;
(3) statistical syllogism, and
(4) induction to a particular.

(3) Inference to the best explanation/abduction, yielding probable truth.

One should note that “inference to the best explanation” is frequently considered a form of inductive argument, but some classify it as a sui generis form of reasoning. Whatever the classification one choices, however, the fact remains that it is (1) an important and legitimate form of reasoning and (2) firmly in the same general category as induction as a method of argument that yields non-necessary truth.

The idealist and indeed the realist can appeal to direct personal experience as a posteriori evidence of the following:

Proposition 1: the only things I have direct and immediate experience of are

(i) my own mind, and
(ii) ideas that are presented to the mind, further divided into

(a) ideas over which I have control (imaginations, thoughts expressed in language, etc.) and
(b) ideas over which I have no control (some perceptions of the senses).

So from this the idealist can establish a posteriori the following proposition:

There exist ideas in my mind over which I have no control (perceptions of the senses).

But, furthermore, the idealist or realist can continue and construct an inductive argument, to support the idea that other minds exist.

To do this, an inductive argument by analogy can be used, and such arguments have the following general form:

a, b, c, d all have the properties P and Q
a, b, c all have the property R
Therefore d probably has the property R

where a, b, c, d are things or events, and P, Q, and R are properties of the former things.

Therefore we can construct the following argument:

“a, b, c, d, … n have the properties P, Q, R, S
a has the property of T
Therefore b, c, d, … n probably have the property of T,”

where a = myself
b = a thing that appears to be a person with a mind
c = a second thing that appears to be a person with a mind
d = a third thing that appears to be a person with a mind, etc. to
n = 14th thing that appears to be a person with a mind.

P = speaks language,
Q = seems to have emotions
R = responds to pain
S = can report descriptions of objects seen
T = a conscious mind.

Of course, you could extend the analogy to every person you meet and strengthen the argument, but the induction by analogy is clear: it is probable that the humans we experience who claim to have other minds really do have conscious minds in the same way any individual person who experiences consciousness directly does.

Note that this inductive argument has no necessary truth: it has only probable truth, and certainly does not exhaust the list of possible explanations for our experience of things that claim to be minds like us.

For example, the idealist is also subject to the Cartesian evil demon argument: how can the idealist know that all his perceptions of objects he cannot control are not caused by some malevolent force that is deceiving him? After all, he has already given an inductive argument that it is probable that other minds exist, but that argument has no necessary truth. It might be that only some of the things that claim to be other minds really have minds, or that there are only two minds: myself and the evil demon.

We could list other possible reasons:

(1) an evil demon is deceiving me;

(2) I do have a single mind, but I am dreaming or hallucinating all other minds (by some process internal to my mind that I do not understand), and other minds do not exist.

(3) I am some entity like a “brain in a vat” whose consciousness is given to me by some unknown minds for reasons unexplained.

This does not exhaust the possibilities. You can construct increasingly outlandish ones that nevertheless might be possible as long as they are at least logically possible.

So how can the idealist justify the view that his inductive argument by analogy is the best explanation of the things that seem like other minds, when such minds might not exist and be delusions? How can the idealist (or realist) answer the radical skeptic? This is not a trivial point, but a fundamental one.

It is at this point that we need to invoke the type of reasoning called inference to the best explanation (Harman 1965; Vogel 1990; Scruton 1994: 20), a form of induction or (alternatively) a legitimate non-deductive reasoning like induction.

That is, if you can provide good reasons why your theory offers a better and systemic explanation of the evidence, and show why the rival theories do not (or show that they explain very little at all), then you are rationally justified in choosing the theory that is the best explanation.

First, the evil demon. If the skeptic refuses to give reasons for why the demon caused experience x or y, or why the demon consistently causes us to have belief z, and says merely that the demon just causes them and nothing more, we already have a good reason for believing that the “demon theory” makes for a poor explanation. Even when ad hoc explanations are offered in response to such questions, things are not much better. By contrast, we can construct better explanations for so many experiences involving other minds using the theory that they exist and are not there to deceive us. We can even predict many types of behaviour of other minds based on our theory.

Furthermore, “demon theories” really do have no systemic explanation of why and how the demon deceives. After all, many experiences do not turn out to be obviously deceptive or inconsistent in the way you would expect if some force was really trying to deceive you.

Idea (3) above has less explanatory value than (1), for it openly admits that things happen for unexplained reasons.

If we move to (2) above, we can argue that dreams and hallucinations have different properties than what we call conscious, non-dreaming existence: dreams are usually more fragmented, less clear, and often inconsistent, and lack the constancy we find in “waking” conscious existence. Does the dreaming hypothesis offer a powerful explanatory theory for many aspects of the consistency of waking life, as compared with the hypothesis that waking consciousness contains other minds like ours? Not really.

By inference to the best explanation, one can argue that the behaviour, properties and consistency of our experience of other minds suggest that they do exist and other explanations are inferior on present evidence.

Note how, as we have seen, even the idealist must invoke a non-deductive inference to the best explanation to choose between competing theories and overcome the skeptics.

Now let us proceed to the next proposition that the idealist must accept:

“There are ideas over which I have no control with a causal origin external to me.”

The idealist must accept this, as it follows on logically from his rejection of the sceptical “dreaming” theory above.

For it is possible that, although I exist as a real mind, my entire conscious life might be a dream generated by some internal process inside my mind that I do not understand. Why? The reason is that it is clear, by direct personal experience, that we do not understand many aspects of our cognition and thought (e.g., why do we make Freudian slips, or sometime forget things we easily remember on other occasions?). There is no reason a priori why our latter “dreaming” explanation is necessarily false.

So the idealist is committed to the view that some external cause is the explanation for those ideas over which we have no control (e.g., constant perceptions of the senses).

How does he provide a rational justification for this? Again, it is by inference to the best explanation: the other theories positing a mere unknown internal cause of the ideas over which we have control are judged to be inferior explanations.

We now have three propositions:

Proposition (1): There are ideas over which I have no control (perceptions of the senses).

Proposition (2): It is probable that the humans we experience who claim to have other minds really do have conscious minds in the same way any individual person who experiences consciousness directly does.

Proposition (3): There are ideas over which I have no control with a causal origin external to me.

But notice how these propositions can be accepted by any realist too, who will have used the same type of arguments to defeat the Cartesian skeptic. It is at this point that the idealist and indirect realist part company.

For the question is now:

What is the external cause which is the causal origin of those ideas over which we have no control?

Some of the earlier sceptical theories are still relevant. But the list of possible explanations or theories is larger.

If we have given an inductive argument for the probability of an external cause, then no logically possible external cause can be ruled out a priori.

Here the skeptic will demand that his theories at least be considered as possibilities, but also the theistic idealist, non-theistic idealist, realist and panpsychist will add other theories too:

(1) an evil demon is the external cause (skeptic);

(2) we are “brains in a vat” whose consciousness is given by some unknown minds for reasons unexplained (skeptic);

(3) a god of classical theism is the mind that is external cause (theistic idealist);

(4) a “super-mind” that is not the god of classical theism is the external cause;

(5) we live in a purely mental world, but every object of our perception is invested with a mind and hence there are multiple external causes for all constant objects we perceive (a variant on panpsychism);

(6) there are non-mental objective external objects that are the causal origin of our perceptions of them (indirect realist).

Other possibilities could be added of course, but these make a useful list.

Can the idealist rule out any of these other possibilities a priori without simply begging the question by already assuming idealism is true? I do not think so.

All must be regarded as at least possibilities.

And at this point it is induction and inference to the best explanation that must be invoked to decide which one is true.

The idea that the indirect realist does not use legitimate logic or induction is untrue, for we need only consider the induction by analogy arguments that can be invoked by the realist or the idealist:

(1) the idealist:
We observe directly things that claim to be minds that probably have minds (e.g., people). On analogy, there might be an unobserved super-mind that is the external cause.

(2) the realist:
We observe directly in our minds objects that appear to have no minds and probably do not have minds (e.g., tables, chairs, rocks, books). On analogy, there may be unobserved non-mental objects that are the external causal origin of our perceptions of these things.

These are both inductions by analogy: in this step, the realist and idealist are on the same epistemological ground.

But who is right? We now need to move beyond this to inference to the best explanation.

Does the idealist theory of the super-mind explain the vast set of experiences and evidence we see around us?

E.g.,

(1) what are fossils under the idealist theory? Presumably they are mere ideas that existed in the super-mind in the past.

(2) but this just raises the question: why did the super-mind create in its thought a world 541 to 485 million years ago devoid of human minds with Cambrian aquatic animals and plants? To what purpose?

For some unexplained reason the super mind imagined all these animals. Then thought of the idea of “mass extinctions.” But then thought of vast numbers of new animals in later eras, only to cause more “mass extinctions” by its ideas. Why?

The questions that the idealist cannot give coherent answers to multiply to huge numbers quickly:

(1) did dinosaurs have minds?

(2) when did animals first have real minds? Did the “mass extinctions” cause suffering to animals if they had minds?

(3) why did the super-mind “destroy” the dinosaurs?

(4) why are some humans colour blind?

When pressed, there is little the idealist can say in response precisely because his theory has poor explanatory power. These questions remain mysterious puzzles.

But, as I have shown in the last post, the indirect realist materialist has an interpretation of the natural sciences that has great explanatory power and can give coherent and powerful explanations of all these questions and thousands more, and is superior to the idealist theory.

The universe really exists as a material external world and requires no god or mind for its existence and operation. Nor will it do for the idealist to say that idealism just follows natural science in its explanation of the world but stripped of matter: for natural science says the universe is an independent entity and has autonomous natural laws that do not require any god or super-mind to create events and objects in it. That is the whole thrust of modern science since Newton!

All life on earth exists in an external world and evolved by Darwinian natural selection: the result of (1) chance mutation or combination of real DNA and (2) the deterministic process of survival of fitter animals.

DNA is a real external object that creates animals by genetics and biochemistry.

And of course once realism is accepted it is but a short step by inductive evidence to the probable conclusion that minds are causally dependent on brains.

There is a vast research literature about animal minds: they are dependent on the complexity of brains that really exist inside the organisms as external objects in the real world. We have a probable inductive theory about why the dinosaurs died out: a chance contingent event caused their destruction when an asteroid hit the earth. Precisely the type of chance event that can happen in a real external universe like ours with real asteroids flying around our solar system.

Human beings experience colour blindness because of genetic defects and disease, and so on, and so forth.

In short, an inference to the best explanation supports realist materialism as the most powerful explanatory theory. It is rational, powerful and supported by evidence.

BIBLIOGRAPHY
Harman, Gilbert H. 1965. “The Inference to the Best Explanation,” Philosophical Review 64: 88–95.

Moser, Paul. 1990. “Two Roads to Skepticism,” in M. D. Roth and G. Ross (eds.), Doubting: Contemporary Perspectives on Skepticism. Kluwer, Dordrecht. 127–139.

Scruton, R. 1994. Modern Philosophy: An Introduction and Survey. Penguin Books, London.

Vogel, Jonathan. 1990. “Cartesian Skepticism and Inference to the Best Explanation,” The Journal of Philosophy 87.11: 658–666.

More Problems with Idealism

By “idealism” I refer to either

(1) George Berkeley’s (1685–1753) theistic subjective idealism (or immaterialism) that invokes a god of classical theism as the “greater mind” that creates both finite minds and the ideas given to minds, or

(2) a non-theistic idealism that is agnostic about what the “greater mind” actually is.

It is interesting that Berkeley’s idealism was clearly directed both against (1) the radical skeptics of his day and (2) the materialist atheists (Grayling 2005: 166–167).

For the empiricists of Berkeley’s era had opened up profound epistemological problems by stressing the differences between

(1) appearances (our conscious experiences and sensations), and

(2) reality (some posited external world).

In the terminology of Berkeley, there is thus a gap between (1) human “ideas” and (2) “things” (of the external world) (Grayling 2005: 168). Our internal sensations (or ideas) do not give us direct access to the external world, so how can we have knowledge of it? The latter was the question asked by radical skeptics.

Berkeley’s answer was to simply argue that the material “things” of the external world do exist (Grayling 2005: 168): only ideas and minds exist. Therefore we have direct experience of ideas – the only things that exist apart from minds.

Under Berkeley’s idealism, god is the external cause of finite human minds and the consistent and non-illusory ideas we have. For, given that there are many consistent ideas not under our control, Berkeley admits that the order seen in such consistent ideas must have some systematic cause: hence it is god (Mackie 1982: 71).

One of Berkeley’s maxims is the idea that “to exist is to be perceived” (or in Latin esse est percipi), and thus our existence and the ideas of our conscious life are causally dependent on god’s “perception.” Thus, for example, Berkeley accepts that the table in your kitchen still exists when nobody is in the room perceiving it, because it is still perceived by god.

By contrast, the non-theistic idealist does not necessarily need a god of classical theism, just a “super-mind” or “uber-consciousness” that is the cause of our finite human minds and our ideas. In what follows, I will refer to the non-theistic idealist’s greater mind as the “super-mind.”

I argue that these are crucial points in any debate with idealists:

(1) Epistemologically speaking, the idealist is in the same fundamental position as the indirect realist materialist: the idealist posits an external and directly unobserved cause of our given consistent ideas and perceptions. For neither (1) the external world of realism nor (2) the god or “super-mind” of idealism is directly observable or directly experienced in immediate conscious life.

Now I stress that this is not necessarily a problem for the idealist, but it is an important observation that means that in this respect the idealist position is not epistemologically superior to the realist one;

(2) Epistemologically speaking, the idealist – unless he can provide a valid and sound deductive argument or arguments – must use inductive arguments on the basis of indirect evidence to prove his hypothesis of a god or “super-mind.”

But that means, epistemologically speaking, that the idealist and the realist are also on the same ground, since the indirect realist’s belief in an external world is also an inductive inference on the basis of indirect evidence.

So again in this respect the idealist position is not epistemologically superior to the realist one, but on a par;

(3) Berkeley’s argument that “an idea can be like nothing but an idea” is unconvincing;

(4) Berkeley’s theistic god is a clear weak point in this theory, and it is not a simpler theory than realist materialism;

(5) on many issues, idealism of any type has weak explanatory power and often no explanatory power at all.

I think I have already explained (1) and (2) above, so let us proceed to (3), (4) and (5) below.

(3) An idea can be like nothing but an idea?
Berkeley makes this argument in The Principles of Human Knowledge, section 8.

J. L. Mackie shows why the indirect realist position is not refuted by Berkeley:

“… that an idea can be like nothing but an idea, collapses when we see what sort of likeness or resemblance the materialist view requires. This is just, for example, that when I am in a perceptual state whose content is describable by saying that I seem to be seeing something square, there should be something that is (approximately) square. Or again, that when it is with me as if I were seeing two objects of similar shape and size, say two billiard balls, there should really be two similarly shaped and sized objects in the neighbourhood. The likeness or resemblance required is just that where the content is as of an X, the reality should be (roughly) an X. There simply is no a priori impossibility or even implausibility about something other than an idea being like an idea in this sense.” (Mackie 1982: 72).

Perfect or exact resemblance between our sensory states and objects of the real world is unnecessary for the indirect realist position.

All we need is (1) an approximate similarity and/or (2) a relationship of causal dependence from objects in the external world running to some of our sensations, which does not exclude that, in a modern scientific sense, the object of the external world that is the causal origin of some perception has many properties not observable to us.

(4) Berkeley’s theism is fraught with difficulty
Berkeley’s idealism is based on a theistic conception of human minds: that humans are created by a god, and (presumably) fundamentally different from animals.

First, a problem here is: do animals have minds? How does the idealist offer an answer to this question? It is not clear what Berkeley thought (Cummins 2005: 190).

Secondly, as we have seen, for Berkeley god is the external cause of the regularity in many of our ideas.

So Berkeley needs to prove the existence of god. But the history of attempts to use deductive arguments for the existence of god is one of utter failure (and I rely on Michael Martin’s [1990] survey and critique here), so Berkeley’s argument must fall back on inductive arguments.

The problems with Berkeley’s actual argument for god are well known (Mackie 1982: 64–80). For one thing, the cause of the consistency of the ideas beyond our control might not be unitary. Why can’t it be explained by many “super-minds” or panpsychism? (Mackie 1982: 71).

Even if we put all those difficulties aside, there is still a severe problem: the hypothesis of a theistic god is much more complex and more extravagant than a realist materialist hypothesis.

Berkeley, of course, argued that his idealist hypothesis with a god was the simpler explanation invoking Occam’s razor. But this contention is unconvincing.

Consider the attributes of the god of classical Judeo-Christian theism, with additional ones required by Berkeley:

(1) god is a personal and conscious mind;

(2) god is omnipotent;

(3) god is omniscient;

(4) god is perfectly good;

(5) god constantly maintains the existence of finite minds and their ideas in a process we can’t understand but which appears miraculous.

I submit to you that these attributes make the god invoked by Berkeley an extremely complex entity, possibly the most complex thing you could postulate.

In fact, there is still debate about whether properties like omnipotence, omniscience, and perfect goodness in one being can even be logically possible (Martin 1990: 278–316).

By contrast, look at the attributes of a real physical universe as postulated by science:

(1) the external universe of matter and energy is not conscious nor it is a personal entity, and in this respect is a simpler entity than a theistic god;

(2) following from (1) the universe is not omnipotent, omniscient, nor perfectly good, and in this respect is a simpler entity than a theistic god;

(3) the universe consists of matter and energy and its relations governed by a limited set of regularities we call “physical laws,” which can be discovered by humans through inductive and experimental science. Thus the external universe is a simpler entity than the miraculous powers of a theistic god.

(4) all complex things in the universe like life and minds have been built up and created over many billions of years by relatively simple and well understood processes like Darwinian evolution by natural selection. The existence of minds does not require some inexplicable miracle, but is explicable under a realist materialist view.

One can add that the realist materialist view also explains evil and suffering in a far better way than theistic idealism, amongst its many merits.

In short, the realist materialist position is the simpler and better explanation – and, under the principle of Occam’s razor, the preferable one.

Furthermore, even Berkeley’s master argument, if it is really taken to be a devastating argument against the existence of a real external world of objects, would apply to other minds and to the “super-mind”:

“Secondly, if the [sc. Master] argument were sound, it would prove too much. Although … [sc. Berkeley] states it with regard to sensible objects like houses and books, their nature as sensible objects plays no part in the argument; so, if it held at all, it would hold equally against the suggestion that I can conceive that there are minds that are not conceived by me; thus it would establish solipsism, in which I would reject as not even conceivable the existence not only of material things but also of other minds and spirits, including God, except in so far as they are conceived by me. This line of argument is, therefore, not only fallacious but also, in these two ways, misdirected.” (Mackie 1982: 68).

That is, think of a mind that you do not perceive now. There is a vast amount of empirical evidence that other minds exist even though you do not perceive them.

But if we cannot conceive of a mind without it being perceived, it follows that in any initial thinking through idealist philosophy, you have no good reason to think any minds exist that you do not immediately perceive. But, says Berkeley, god perceives them, so they do exist. But Berkeley’s argument works just as well against god or the “super-mind”!

If we have no direct perception of the “super-mind,” who perceives the “super-mind” and causes its existence? And who perceives the “super-super-mind,” and so on?

That is, Berkeley’s philosophy must cut off an infinite chain of explanation by positing “god” or the “super-mind” as a “brute fact” that is inexplicable. But, in that respect at least, it is no better than a materialist viewpoint that posits the universe as the ultimate “brute fact,” the difference being, as we have seen, that the hypothesis of a real universe is simpler and by Occam’s razor a better hypothesis.

(5) Realist Science has great explanatory power and Idealism does not
Our natural sciences have produced a vast set of theories that explain the world we experience, and under the indirect realist interpretation we can posit an external world of real objects of matter and energy affected by forces.

As just a sample, consider the following theories:

(1) the Big Bang theory;

(2) the theory of the development of gases, stars, planets and galaxies;

(3) the theory of the origin of life by biochemical processes;

(4) the theory of Darwinian natural selection acting on self-replicating biochemical compounds and living things, producing a great diversity of life over many billions of year on earth;

(5) the theory that human beings evolved from lower life-forms and that various types of minds too evolved gradually and incrementally as a product of evolution.

If one takes an idealist view, whether Berkeley’s or a non-theistic idealism, none of these theories can be literally true, for there is no external word of matter and energy.

Minds were created by god or the “super-mind” and did not arise by gradual material processes.

But we have a vast amount of empirical evidence available to our senses that can be used in inductive argument to support the truth of these theories.

Our realist materialist science has a strong explanatory power explaining the wealth of data we see, but idealist philosophy – whether of Berkeley or a non-theistic idealism – has weak explanatory power and often no explanatory power at all.

This point is very easy to prove, I think.

We need only think of fossils. Our conscious life presents to us things we call fossils, and by inductive inference we infer that they are the remains of living things long dead. A realistic materialist science explains what fossils are, and indeed can use them to reconstruct a history of life on earth: things that really existed in an external world, including a specific long line of animal life forms from which human beings are descended.

But what explanation can an idealist offer for fossils? As we have seen the idealist faces difficulties answering the question whether higher animals even have minds. If animals do not have minds, then they must be mere “ideas” given to the mind by god or the super-mind. I feel certain that no idealist would content that plants have minds, so how does the idealist explain plant fossils?

What explanation can the idealist give under his theory, except to say it is another mystery?

And why has god or the super-mind given us a wealth of sensory ideas that lead us to inductively infer that our “world” once had living animals and plants now dead? Is god or the super-mind engaged in deception and fraud? If so, why?

Or take another example: why is it that some people have different perceptions of colour? (e.g., colour blindness). Why does god or the super-mind that create minds with different types of colour perception?

A realist materialist gives us a clear explanation: colour blindness is either (1) genetic and a problem with genes or (2) caused by certain diseases.

Again and again, I contend we can find endless puzzling problems from our conscious life that realist materialist science gives a powerful explanation of, but which cannot be adequately explained by idealism.

Update
Philip Pilkington has a response to me on idealism here:

Philip Pilkington, “The Mystery of Matter: A Response to Lord Keynes on Berkeley’s Idealism,” Fixing the Economists, February 27, 2014.
http://fixingtheeconomists.wordpress.com/2014/02/27/the-mystery-of-matter-a-response-to-lord-keynes-on-berkeleys-idealism/

BIBLIOGRAPHY
Cummins, Phillip D. 2005. “Berkeley on Minds and Agency,” in Kenneth P. Winkler (ed.), The Cambridge Companion to Berkeley. Cambridge University Press, Cambridge and New York. 190–229.

Dicker, Georges. 2011. Berkeley’s Idealism: A Critical Examination. Oxford University Press, Oxford and New York.

Grayling, A. C. 2005. “Berkeley’s Argument for Immaterialism,” in Kenneth P. Winkler (ed.), The Cambridge Companion to Berkeley. Cambridge University Press, Cambridge and New York. 166–189.

Mackie, John Leslie. 1982. The Miracle of Theism: Arguments for and against the Existence of God. Clarendon Press, Oxford.

Martin, Michael. 1990. Atheism: A Philosophical Justification. Temple University Press, Philadelphia.

Michael Ayers on Berkeley’s Idealism

This is an old interview by Bryan Magee with the philosopher Michael Ayers on Berkeley, from The Great Philosophers (1987) series of interviews, and it gives a short overview of Berkeley’s Idealism.

The first video begins with the end of their discussion of John Locke. Discussion of Berkeley begins at 6.45 in the first video.

Berkeley’s Idealism: A Critique

I enjoy a good debate in philosophy. Philip Pilkington puts up a strong defence of idealism in the comments of the last post, and I’m interested enough in idealism to examine in greater detail why I don’t think it is convincing.

George Berkeley’s (1685–1753) philosophy of subjective idealism (which he called “immaterialism”) has two bold and fundamental assertions about reality:

Proposition (1): that the only things that exist are (i) minds and (ii) objects of perception (ideas), and

Proposition (2): the objects of perception only exist at the same time when they are perceived by a mind (Stoneham 2009: 119).

It follows from this that the external world of matter we normally think exists does not exist, under Berkeley’s ontology.

I think any non-dogmatic realist would accept that it is possible that these propositions might be true. Also, I doubt whether any idealist can prove such propositions with necessary or apodictic truth. Also, I assume that a non-dogmatic idealist would also admit that it is possible that the realist position might be true.

Realists and materialists who reject Berkeley’s idealism come in two main groups:

(1) indirect or representative realists (and modern scientific realists), and

(2) direct realists. (Stoneham 2009: 120–121).

Direct realists would argue that actual physical objects in the external world are amongst the “objects of perception,” whereas the indirect realists argue that physical objects in the external world are not amongst Berkeley’s “objects of perception.”

Thus it is possible for an indirect realist to accept Berkeley’s proposition (2) above, but reject as untrue proposition (1) above.

On realism, I take position (1): the indirect or representative realist view. This states that it is highly probable that there is an external physical world of objects or things/events that corresponds indirectly to some objects of perception in the sense that some objects of perception are causally dependent on real objects.

But we do not have direct access to the external objects of reality, but only to some conscious “objects of perception” that are causally dependent on them. That is to say, the objects and events of the world of matter and energy described by science are not objects of immediate experience/“objects of perception”.

So the indirect realist/materialist’s inductive argument does not say that the external object and the internal “objects of perception” are absolutely equivalent (as noted in Stoneham 2009: 121).

The human mind’s “objects of perception” are representations (with colour sensations, shapes and so on) of sense data from the external world such as, for example, from the swarm of particles called a tree, and this system of internal representation is the product of Darwinian evolution, and one could conceive of a mind capable of representing the same tree in different ways from different data beyond the visible spectrum (e.g., infrared or x-rays).

Furthermore, the actual qualities we perceive in our minds like green and red are not qualities of the actual object existing in material reality, but are merely causally dependent on them to some extent (e.g., light waves reflected off the object are the causal factor for perception of colours).

So we see that the indirect realist makes a crucial distinction between (1) “objects of perception” and (2) external objects that we do not experience directly. Our argument for the existence of an external world of events/objects is an inductive one based on empirical evidence. Its truth is at most very probable, not certain.

But to return to Berkeley’s arguments, as Stoneham (2009: 121) notes, Berkeley has a great many arguments for his two fundamental positions, such as

(1) the argument that there is no serious difference between primary qualities (such as size, motion and shape) and secondary qualities (colour, taste and texture), against Locke’s claim that primary qualities inhere in the external objects we perceive, and

(2) the so-called “master argument”;

These major arguments are presented in The Principles of Human Knowledge (1710) and Three Dialogues between Hylas and Philonous (1713).

I intend below to focus on what has come to be called Berkeley’s “master argument” (coined by Gallois 1974) because Berkeley intended it to be a crucial argument in support of his idealism.

I. The Master Argument
First, let us look at the master argument as written in The Principles of Human Knowledge (1710):

“22. …. Insomuch that I am content to put the whole upon this issue – if you can but conceive it possible for one extended moveable substance, or, in general, for any one idea, or anything like an idea, to exist otherwise than in a mind perceiving it, I shall readily give up the cause. And, as for all that compages of external bodies you contend for, I shall grant you its existence, though you cannot either give me any reason why you believe it exists, or assign any use to it when it is supposed to exist I say, the bare possibility of your opinions being true shall pass for an argument that it is so.

23. But, say you, surely there is nothing easier than for me to imagine trees, for instance, in a park, or books existing in a closet, and nobody by to perceive them. I answer, you may so, there is no difficulty in it; but what is all this, I beseech you, more than framing in your mind certain ideas which you call books and trees, and at the same time omitting to frame the idea of any one that may perceive them? But do not you yourself perceive or think of them all the while? This therefore is nothing to the purpose it only shews you have the power of imagining or forming ideas in your mind; but it does not shew that you can conceive it possible the objects of your thought may exist without the mind. To make out this, it is necessary that you conceive them existing unconceived or unthought of, which is a manifest repugnancy. When we do our utmost to conceive the existence of external bodies, we are all the while only contemplating our own ideas. But the mind, taking no notice of itself, is deluded to think it can and does conceive bodies existing unthought of or without the mind, though at the same time they are apprehended by or exist in itself. A little attention will discover to any one the truth and evidence of what is here said, and make it unnecessary to insist on any other proofs against the existence of material substance.” (The Principles of Human Knowledge §21–22).

Next, the master argument in Three Dialogues between Hylas and Philonous (1713). In this philosophical dialogue, Philonous is Berkeley’s mouthpiece:

“Philonous: Either, Hylas, you are jesting, or have a very bad memory. Though indeed we went through all the qualities by name one after another, yet my arguments or rather your concessions, nowhere tended to prove that the Secondary Qualities did not subsist each alone by itself; but, that they were not at all without the mind. Indeed, in treating of figure and motion we concluded they could not exist without the mind, because it was impossible even in thought to separate them from all secondary qualities, so as to conceive them existing by themselves. But then this was not the only argument made use of upon that occasion. But (to pass by all that hath been hitherto said, and reckon it for nothing, if you will have it so) I am content to put the whole upon this issue. If you can conceive it possible for any mixture or combination of qualities, or any sensible object whatever, to exist without the mind, then I will grant it actually to be so.

Hylas: If it comes to that the point will soon be decided. What more easy than to conceive a tree or house existing by itself, independent of, and unperceived by, any mind whatsoever? I do at this present time conceive them existing after that manner.

Philonous: How say you, Hylas, can you see a thing which is at the same time unseen?

Hylas: No, that were a contradiction.

Philonous: Is it not as great a contradiction to talk of conceiving a thing which is unconceived?

Hylas: It is.

Philonous: The tree or house therefore which you think of is conceived by you?

Hylas: How should it be otherwise?

Philonous: And what is conceived is surely in the mind?

Hylas: Without question, that which is conceived is in the mind.

Philonous: How then came you to say, you conceived a house or tree existing independent and out of all minds whatsoever?” (Three Dialogues between Hylas and Philonous, first dialogue).

It seems clear that Berkeley thinks of “sensible objects” or “ideas” as the objects of perception (Stoneham 2009: 119).

Now since both passages above present an informal argument, let us re-write it as the following mixed conditional syllogism:

Major premise: If conscious ideas/sensations cannot even be conceived without a mind, then conscious ideas/sensations cannot exist externally or independently of a mind.

Minor premise: Conscious ideas/sensations cannot even be conceived without a mind

Conclusion: Therefore conscious ideas/sensations cannot exist externally or independently of a mind.

This argument is formally valid. Let us assume that its major premise is sound, to make it easy for the idealist.

It follows that the conclusion is necessarily true.

What does this prove? It certainly does not prove that an external world of matter, containing objects on which some of our ideas/sensations/perceptions are causally dependent, does not exist.

As Stoneham (2009: 121) argues, it is only evidence in support of Berkeley’s proposition (2) above. That is, it proves only that conscious sensations or ideas of any type cannot exist independently of minds. But this is not denied by modern indirect realist materialists/physicalists.

In short, the “master argument” is no devastating demolition of the indirect realist arguments for the reality of an external world of matter and energy as described by science: it is consistent with it.

If Berkeley has some definitive argument against the existence of an external world of matter, the master argument does not qualify for such an argument.

Let us now turn to some other criticisms of both Berkeley’s idealism and the non-theist versions.

II. The Consistency of Conscious Experience
There is a high degree of consistency in the passive sense data or certain “objects of perception” that we cannot control, both between different people and in the same mind over time.

Berkeley does not deny this. Berkeley admits that some ideas of sensation and perception (as opposed to dreams or imagination) are given to the mind and not freely determined by the conscious mind (Musgrave 1993: 127). Regularities in our experience are “laws of nature” for Berkeley (Musgrave 1993: 128).

It would appear that the consistency requires an explanation. In fact, Berkeley did invoke a common cause and an external cause (external to the mind of the individual) to account for it: a theistic god. His explanation is that a theistic god of the type familiar from Judeo-Christian theology is the cause of the consistency of our sensory experiences, and he must be a benevolent one for he does not engage in pernicious and confusing changes in our normally consistent “objects of perception.”

But that raises a whole set of assumptions and the need for a rock-solid argument for the existence of god, something which, as modern philosophy has shown, is a highly problematic exercise.

But what about the non-theistic idealist? The observation about consistency becomes a “brute fact” for the non-theistic idealist. He cannot really explain it, and this leads me into my third criticism.

III. Non-Theistic Idealism has weak Explanatory Power
A final argument against non-theistic idealism is that it is utterly incapable of providing any answers to fundamental question about existence:

(1) why do we have a conscious existence with a high degree of consistency and what looks like external constraints facing us?;

(2) where do minds come from?;

(3) in fact, how can you justify the view that other minds even exist? (why doesn’t non-theistic idealism collapse into solipsism?);

(4) if the idealist accepts that other minds exist, do animals have minds?

One could add a welter of other questions to these, but the conclusion is clear: the explanatory power of idealism is feeble and weak (Musgrave 1988: 241), and the idealist must shrug his or her shoulders and proclaim that we cannot even begin to seriously answer these questions.

By contrast, the indirect realist materialist can provide convincing answers to all these questions from our best scientific theories and inductive argument.

For example, take point (3): the charge that non-theistic idealism leads to solipsism. If the only direct experience you have of conscious minds is inside your own conscious mind and one does not believe in the existence of an external world of matter, then what reason is there to think that any other minds even exist?

For the materialist, one strong and straightforward argument is that we have a strong degree of empirical evidence that human minds are causally dependent on brains, and empirical investigations of other human beings show that they have brains (either by non-invasive scanning technologies or sometimes surgery on living humans or autopsies on dead ones). It is therefore a convincing inductive inference that other human minds exist.

In short, here as in numerous other questions, an indirect realist materialism provides a theory with a rich and powerful explanatory power, which is lacking in idealism.

Further Reading
For a defence of idealism and a somewhat different interpretation of the master argument, see Philip Pilkington’s posts here:

Philip Pilkington, “Berkeley’s ‘Master Argument’ Doesn’t Exist,” Fixing the Economists, January 3, 2014.
http://fixingtheeconomists.wordpress.com/2014/01/03/berkeleys-master-argument-doesnt-exist/

Philip Pilkington, “Faith-Based Arguments in Empirical, Causal and Probabilistic Reasoning,” Fixing the Economists, October 4, 2013.
http://fixingtheeconomists.wordpress.com/2013/10/04/faith-based-arguments-in-empirical-causal-and-probabilistic-reasoning/

Philip Pilkington, “The Theory of Relativity: Anticipated at the Turn of the Seventeenth Century by George Berkeley,” Fixing the Economists, October 5, 2013.
http://fixingtheeconomists.wordpress.com/2013/10/05/the-theory-of-relativity-anticipated-at-the-turn-of-the-seventeenth-century-by-george-berkeley/

Philip Pilkington, “Berkeley’s ‘Master Argument’ Doesn’t Exist,” Fixing the Economists, January 3, 2014
http://fixingtheeconomists.wordpress.com/2014/01/03/berkeleys-master-argument-doesnt-exist/


BIBLIOGRAPHY
Freeley, and Austin and David Steinberg. 2014. Argumentation and Debate: Critical Thinking for Reasoned Decision Making (13th edn.). Wadsworth Cengage Learning, Boston, MA.

Gallois, A. 1974. “Berkeley’s Master Argument,” Philosophical Review 83: 55–69.

Grayling, A. C. 2005. “Berkeley’s Argument for Immaterialism,” in Kenneth P. Winkler (ed.), The Cambridge Companion to Berkeley. Cambridge University Press, Cambridge and New York. 166–189.

Mandik, Pete. 2014. This is Philosophy of Mind: An Introduction. Wiley Blackwell, Chichester.

Musgrave, Alan. 1988. “The Ultimate Argument for Scientific Realism,” in R. Nola (ed.), Relativism and Realism in Science. Kluwer Academic Press, Dordrecht. 229–252.

Musgrave, Alan. 1993. Common Sense, Science and Scepticism: A Historical Introduction to the Theory of Knowledge. Cambridge University Press, Cambridge and New York.

Rickless, Samuel Charles. 2013. Berkeley’s Argument for Idealism. Oxford University Press, Oxford.

Robinson, Howard. 2003. “Berkeley,” in Nicholas Bunnin and E. P. Tsui-James (eds.), The Blackwell Companion to Philosophy (2nd edn.). Blackwell, Malden, Mass. and Oxford, UK. 694–708.

Stoneham, Tom. 2009. “Berkeley. Arguments for Idealism,” in Robin Le Poidevin, Peter Simons, Andrew McGonigal, Ross Cameron (eds.), The Routledge Companion to Metaphysics. Routledge, London and New York. 119–130.

Limits of Artificial Intelligence

Futurist and inventor Ray Kurzweil – author of such books as The Age of Spiritual Machines (1999) and The Singularity is Near: When Humans Transcend Biology (2005) – is interviewed here in a somewhat breathless interview in the Observer:

Carole Cadwalladr, “Are the Robots about to rise? Google’s New Director of Engineering thinks so…,” The Observer, 23 February 2014.

Something that looks uncomfortably like a cult has arisen around Kurzweil’s idea of “the Singularity,” which is “a hypothetical moment in time when artificial intelligence will have progressed to the point of a greater-than-human intelligence, radically changing civilization, and perhaps human nature.”

Of course, there seems little doubt that the rise of increasingly sophisticated machines such as computers and robots will revolutionise economic and social life as we go forward into the future.

Indeed, a substantial part of the industrial revolution is simply the profound changes in production by labour-saving machines.

But the economic problems that are, and will be, created by increasing automation, structural unemployment and loss of aggregate real income should be of profound concern to economists. Indeed, an interesting warning of the possible economic problems that could be caused by technology is given, not by an economist, but by the computer engineer Martin Ford in his The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (2009) (though I think some of his predictions are too dire).

But, to return to my main point, this interview with Kurzweil contains so many questionable ideas, it is difficult to know where to start.

Take the central idea:

“Ray Kurzweil … believes that … computers will gain what looks like a lot like consciousness in a little over a decade is now Google’s director of engineering.”

But if we read the whole interview and Kurzweil’s statements elsewhere, it appears that Kurzweil thinks that computers will actually attain consciousness, not just simulate it.

There is a fundamental difference between (1) merely simulating something and (2) actually having that property.

The crude behaviourist Turing test, for example, does not test for whether an entity has conscious life, but merely whether it simulates human intelligence. Thus even if future computers all start passing Turing tests, it is not going to be some shocking milestone in human history: all it will show is that software programs have become sophisticated enough to fool us into thinking machines have conscious minds as we do, even though they do not.

This point has been brilliantly made by the analytic philosopher John Searle, who, in my view, has written outstanding work on philosophy of mind (e.g., Searle 1990; Searle 2002; Searle 1992).

When I was an undergraduate, I did a course on cognitive science, and Searle’s work, such as the Chinese room argument, was rightly required reading.

John Searle convincingly argues that external behaviour of computers – no matter how sophisticated – does not provide any good evidence that computers really have conscious thought as humans do.

This is why the “computer” metaphor for the brain is potentially misleading. Brains are often compared to computers. There is no doubt that computers are based on information processing, and in some sense this is also what the brain does.

But it does not follow that the consciousness of the human mind is just information processing that can be reproduced in other synthetic materials, such as in silicon chips in digital computers. After all, DNA and its behaviour exhibit a type of information processing and storage as well, but DNA is not conscious.

As Searle points about in the video below, all the empirical evidence suggests that consciousness is a biological phenomenon in the brain causally dependent on neuronal processes and biochemical activity, but one that can be explained by physicalist science, not some discredited supernatural ideas about souls or Cartesian dualism.



The crucial term here is biological: consciousness is a biological property of complex living systems like humans and higher animals.

Exactly what causes it and how it emerges is a profoundly difficult scientific question, but it is fairly clear that consciousness is a complex emergent property of the brain, its neurons and biochemical processes.

If that is so, no matter how sophisticated any digital computer is, it remains as unconscious and unfeeling as your washing machine or pet rock. Once this is accepted, it follows that a lot of Ray Kurzweil’s more outlandish claims are ridiculous, such as, for example, that a human being could transfer his or her conscious mind into a digital computer. Perhaps you could create a believable simulation of a human mind with a digital computer, but again it is extremely unlikely that such a thing would be conscious.

I have to stress that this is not some obscurantist, religious objection to artificial intelligence (I am completely non-religious): it is grounded in good science.

As John Searle has argued, science may well be capable of creating truly conscious and self-aware artificial intelligences in the future, but it is unlikely that they will be digital computers.

An artificial intelligence will have to directly reproduce or replicate the biological processes in the brain that cause consciousness. Perhaps an “artificial” intelligence – in the sense of not being a normal human being – will need to have organic or biochemical structures in its “brain” in order for it to be fully and truly conscious.

Such entities, if they were fully conscious, would create all sorts of ethical issues. They would probably have to be imbued with moral/ethical principles as humans are, for example. Probably they would have to be granted some kind of human rights at some point, so that we could not treat them as slaves. And what actually would they do? What work would they perform?

I suspect virtually all the work of production – especially the difficult, unpleasant, and backbreaking work that humans hate – can one day be done by machines. But what we want for this task is unthinking, unfeeling, and unconscious machines: machines that can be treated like slaves with no ethical problems arising. For example, nobody needs to worry that the household washing machine is being mistreated or exploited, because such concepts do not, and cannot, apply to unthinking and unfeeling machines. But with a truly artificial intelligence, suddenly such ethical question would arise.

But such musings can only remain speculations, and whole issue of whether truly conscious artificial intelligence can be created is a matter for a future science that has first completely mastered what human (and higher animal) consciousness actually is.

Further Reading
Gary Marcus, “Ray Kurzweil’s Dubious New Theory of Mind,” The New Yorker, November 15, 2012
http://www.newyorker.com/online/blogs/books/2012/11/ray-kurzweils-dubious-new-theory-of-mind.html

BIBLIOGRAPHY
Ford, Martin. 2009. The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future. Acculant Publishing.

Kurzweil, Ray. 1999. The Age of Spiritual Machines: When Computers exceed Human Intelligence. Penguin Books, New York.

Kurzweil, Ray. 2005. The Singularity is Near: When Humans Transcend Biology. Viking, New York.

Searle, John. R. 1980. “Minds, Brains, and Programs,” Behavioral and Brain Sciences 3: 417–424.

Searle, John. R. 1980. “Intrinsic Intentionality,” Behavioral and Brain Sciences 3: 450–456.

Searle, John R. 1982. “The Chinese Room Revisited,” The Behavioral and Brain Sciences 5: 345–348.

Searle, John. R. 1990. “Is the Brain a Digital Computer?,” Proceedings and Addresses of the American Philosophical Association 64: 21–37.

Searle, John R. 1992. The Rediscovery of the Mind. MIT Press, Cambridge, Mass and London.

Searle, John. R. 2002. “Why I Am Not a Property Dualist,” Journal of Consciousness Studies 9.12: 57–64.

Philip Pilkington Interviews Philip Mirowski

Here:

Philip Pilkington, “An Interview With and Overview of the Work of Philip Mirowski,” Fixing the Economists, February 21, 2014.

The interview ranges widely over many fascinating subjects, but, above all, the origin of neoclassical economics in the late 19th century marginalist revolution and its questionable derivation of fundamental ideas, such as general equilibrium, from classical physics, when those ideas are not warranted in a social science like economics.

US Unemployment in the 1890s Again

Just to illustrate the difficulties of studying US economic history in the 19th century, we need only look at the graph below to see the diverging estimates of US unemployment in the 1890s.

Whatever estimates you use, it is clear that the US economy had serious problems in the 1890s (from 1893 onwards) and rising and then high unemployment until 1898.

The actual estimates of unemployment come from

(1) Lebergott (1964);

(2) Romer (1986);

(3) Vernon (1994), and

(4) Weir (1992), with two unemployment measures:

(1) a standard civilian unemployment rate (deducting employment in the armed forces), and

(2) a “private nonfarm unemployment” rate that deducts agricultural and government employment.

We can see the height of unemployment estimates range from 8% (in Vernon) to 18% (in Lebergott).

The question of who is right hinges on whether (1) labour force participation rates were countercyclical (in the sense of rising during recessions) before 1914 and (2) whether Okun’s law actually applies to the 19th century.

BIBLIOGRAPHY
Lebergott, S. 1964. Manpower in Economic Growth: The American Record since 1800. McGraw-Hill, New York.

Romer, C. D. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94: 1–37.

Weir, D. R. 1992. “A Century of U.S. Unemployment, 1890–1990: Revised Estimates and Evidence for Stabilization,” Research in Economic History 14: 301–346.

Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.

Sources and Data for US Economic History under the Gold Standard

Hanes (2013) provides a highly useful survey of the data and sources for US economic history, especially the 19th century and gold standard era until 1914, which I review below.

First, some miscellaneous facts. The US became part of the international gold standard in 1879, though it had no central bank until 1913. The US went off the gold exchange standard in 1933, and from the late 1930s/1940s shifted to a fundamentally different monetary and fiscal system.

One of these changes was that the government started to collect detailed economic data, whereas we lack such high quality data for the period before the 1940s.

Estimates for many pre-1914 economic variables are hardly definitive.

Hanes notes that we should sometimes be careful about making strict comparisons between estimates of some economic variables before the 1930s with the post-1945 data, because the two sets of data are often uneven and difficult to compare properly.

Take inflation rates. Historical price indices before the 1930s include a higher degree of “less-processed goods” or flexprice goods rather than manufactured goods (which tend to be fixprice), so that the volatility of pre-1945 inflation rates is higher than post-1945 rates, and that pre-war volatility may be a result more of the data used (Hanes 1999).

In general, pre-1914 business cycles appear to share the following traits with post-1945 cycles:

(1) Consumption and investment were procyclical

(2) net exports were not procyclical, and

(3) agricultural real output is volatile and acyclical (Hanes 2013: 118).

Pre-1914 recessions, however, were often marked by financial crises, bank runs or mass withdrawals of deposits and contraction of credit supply, whereas these problems have been rarer after 1945 (Hanes 2013: 119).

An interesting fact about real GDP is that fluctuations of agricultural output often have no relation to movements in the business cycle, since the weather, plant diseases, insect pests and other exogenous factors mainly influence farming output (Hanes 2013: 117).

I. Unemployment Data
From 1890, some US states began recording unemployment data in manufacturing and the Interstate Commerce Commission (ICC) on railroad employment (Hanes 2013: 119), but many gaps remain.

For pre-1914 unemployment data, a number of estimates have been made, as follows:

(1) Lebergott, S. 1964. Manpower in Economic Growth: The American Record since 1800. McGraw-Hill, New York.

(2) Romer, C. D. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94: 1–37.

(3) Weir, D. R. 1992. “A Century of U.S. Unemployment, 1890–1990: Revised Estimates and Evidence for Stabilization,” Research in Economic History 14: 301–346.

(4) Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.

It is generally thought that Lebergott’s estimates are too high, but there are counterarguments (James and Thomas 2007).

Weir (1992) provides a useful “private nonfarm unemployment rate” that can be used to show how unemployment was considerably more volatile before 1914 than after 1945.

II. Real GDP
For pre-1914 real GDP, the following estimates have been made:

(1) the Kuznets-Kendrick-Gallman series:

Kuznets, Simon S. 1946. National Product since 1869. National Bureau of Economic Research, New York.

Kendrick, John W. 1961. Productivity Trends in the United States. Princeton University Press, Princeton, N.J.

Gallman, R. E. 1966. “Gross National Product in the United States 1834–1909,” in D.S. Brady (ed.), Output, Employment, and Productivity in the United States after 1800. Columbia University Press, New York.

(2) Romer’s estimates:

Romer, C. D. 1989. “The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869–1908,” Journal of Political Economy 97.1: 1–37.

(3) Balke and Gordon’s estimates:

Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.

But none of these estimates can be considered definitive, although Balke and Gordon’s (1989) figures seem to be widely used.

Hanes (2013: 121) argues that there is no general agreement about which of the series is the best one.

However, there are valuable alternative measures of business cycles: production indices.

III. Production Indices
A number of indices of industrial production are available for the pre-1914 era, as follows:

(1) Fabricant, Solomon. 1940. The Output of Manufacturing Industries, 1899–1937. National Bureau of Economic Research, New York
http://papers.nber.org/books/fabr40-1

(2) Frickey, Edwin. 1947. Production in the United States, 1860–1914 (Harvard economic studies v. 82). Harvard University Press, Cambridge.

(3) Miron, Jeffrey A. and Christina D. Romer. 1990. “A New Monthly Index of Industrial Production, 1884–1940,” The Journal of Economic History 50.2: 321–337.

(4) Davis, Joseph H. 2004. “An Annual Index of U. S. Industrial Production, 1790–1915,” The Quarterly Journal of Economics 119.4: 1177–1215.

Davis, Joseph H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66.1: 103–121.

Davis (2004) provides what is generally considered to be the best index, with many more products and services used to calculate it (Hanes 2013: 121).

Since business cycles are generally fluctuations in non-agricultural output, a manufacturing index like Davis (2004) provides a good method for comparing the volatility of pre-1914 recessions with post-1945 ones by simply comparing it with a post-1945 industrial index (Hanes 2013: 121). Such a comparison finds that percentage changes in annual fluctuations in pre-1914 industrial production were larger than after 1945 (Hanes 2013: 121).

IV. Prices and Wages
Warren and Pearson (1932) provide an index of wholesale prices from 1720 to 1932, but this index cannot provide a good comparison with post-1945 wholesale price changes because it is biased towards prices of raw materials and less-finished goods in a way that does not reflect the composition of wholesale output in this period (Hanes 2013: 122).

Hanes (1998) provides a better wholesale price index for all periods.

Hoover (1960) and Rees (1961) provide consumer price indices for most of the later 19th century even though many goods are not covered, and Long’s (1960) index for 1880–1890 relies on limited data.

Genuinely reliable GDP price indices and deflators are not available for the pre-1914 era (Hanes 2013: 122).

Extensive wage data for manufacturing, railroads and mining exist from the late 19th century. Douglas (1930), Long (1960), Hanes (1992) provide wage indices, mainly for these sectors.

While nominal wage cuts appear common in the pre-1914 era (Hanes and James 2003), real wage trends may well have been similar to the post-1945 era (Hanes 1996).

Post-1945 data shows strong downward nominal wage rigidity in many types of wages (Hanes 2013: 118), and absolute cuts in nominal wages rates are very rare, even during recessions (Lebow et al. 2003).

V. Financial Crises
Banking panics and financial crises are studied by Wilson et al. (1990), Calomiris and Gorton (1991), and Wicker (2000), and such crises occurred in 1884, 1890, 1893, and 1907, which amplified and worsened downturns in the business cycle already under way (Hanes 2013: 125).

VI. Causes of Recessions
Davis et al. (2009) argue that a number of recessions in the pre-1914 era (such as those in 1884, 1893, 1896 and 1910) were set off by changes in the US cotton harvest.

Cotton was a major US export. When bad harvests reduced output, the US exported less, reducing the flow of gold into the US and hence causing interest rates to rise, which impacted negatively on the economy.

Hanes and Rhode (2012) also argue that a decline in European demand for American assets (either by interest rate hikes in Europe or fire sales of American assets by Europeans) was probably also a factor causing business cycles in the pre-1914 era.

BIBLIOGRAPHY
Backus, David K. and Patrick J. Kehoe. 1992. “International Evidence on the Historical Properties of Business Cycles.” The American Economic Review 82.4: 864–888.

Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.

Calomiris, C. W. and G. Gorton. 1991. “The Origins of Banking Panics: Models, Facts, and Bank Regulation,” in R. Glenn Hubbard (ed.), Financial Markets and Financial Crises. University of Chicago Press, Chicago. 107–173.

Davis, Joseph H. 2004. “An Annual Index of U. S. Industrial Production, 1790–1915,” The Quarterly Journal of Economics 119.4: 1177–1215.

Davis, Joseph H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66.1: 103–121.

Davis, Joseph H., Hanes, Christopher and Paul W. Rhode. 2009. “Harvests and Business Cycles in Nineteenth-Century America,” The Quarterly Journal of Economics 124.4: 1675–1727.

Douglas, Paul Howard. 1930. Real Wages in the United States, 1890–1926. Houghton Mifflin Company, Boston and New York.

Fabricant, Solomon. 1940. The Output of Manufacturing Industries, 1899–1937. National Bureau of Economic Research, New York
http://papers.nber.org/books/fabr40-1

Frickey, Edwin. 1947. Production in the United States, 1860–1914 (Harvard economic studies v. 82). Harvard University Press, Cambridge.

Gallman, R. E. 1966. “Gross National Product in the United States 1834–1909,” in D.S. Brady (ed.), Output, Employment, and Productivity in the United States after 1800. Columbia University Press, New York.

Hanes, Christopher. 1992. “Comparable Indices of Wholesale Prices and Manufacturing Wage Rates in the United States, 1865–1914,” in Roger L. Ransom, Richard Sutch, and Susan B. Carter (eds.), Research in Economic History 14: 269–292.

Hanes, Christopher. 1996. “Changes in the Cyclical Behavior of Real Wage Rates, 1870–1990,” The Journal of Economic History 56.4: 837–861.

Hanes, C. 1998. “Consistent Wholesale Price Series for the United States, 1860–1990,” in Trevor J. O. Dick (ed.), Business Cycles since 1820: New International Perspectives from Historical Evidence. E. Elgar, Cheltenham, UK and Northampton, MA.

Hanes, Christopher. 1999. “Degrees of Processing and Changes in the Cyclical Behavior of Prices in the United States, 1869–1990,” Journal of Money, Credit and Banking 31.1: 35–53.

Hanes, Christopher. 2013. “Business Cycles,” in Robert Whaples and Randall E. Parker (eds.), Routledge Handbook of Modern Economic History. Routledge, Abingdon, Oxon and New York. 116–135.

Hanes, Christopher and John A. James. 2003. “Wage Adjustment under Low Inflation: Evidence from U.S. History,” The American Economic Review 93.4: 1414–1424.

Hanes, Christopher and Paul W. Rhode. 2012. “Harvests and Financial Crises in Gold-Standard America,” NBER Working Paper No. 18616, December
http://www.nber.org/papers/w18616

Hoover, Ethel D. 1960. “Retail Prices after 1850,” in Trends in the American Economy in the Nineteenth Century (Studies in Income and Wealth, vol. 24), Princeton University Press, Princeton, N.J.

James, J. A. and M. Thomas, 2007. “Romer Revisited: Long-Term Changes in the Cyclical Sensitivity of Unemployment,” Cliometrica 1.1: 19–44.

Kendrick, John W. 1961. Productivity Trends in the United States. Princeton University Press, Princeton, N.J.

Kuznets, Simon S. 1946. National Product since 1869. National Bureau of Economic Research, New York.

Lebergott, S. 1964. Manpower in Economic Growth: The American Record since 1800. McGraw-Hill, New York.

Lebow, David E., Saks, Raven E. and Beth A. Wilson. 2003. “Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index,” Advances in Macroeconomics 3.1: 1–28.

Long, Clarence D. 1960. Wages and Earnings in the United States, 1860–1890. Princeton University Press, Princeton.

Miron, Jeffrey A. and Christina D. Romer. 1990. “A New Monthly Index of Industrial Production, 1884–1940,” The Journal of Economic History 50.2: 321–337.

Rees, Albert. 1961. Real Wages in Manufacturing, 1890–1914. Princeton University Press, Princeton.

Romer, C. D. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94: 1–37.

Romer, C. D. 1989. “The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869–1908,” Journal of Political Economy 97.1: 1–37.

Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.

Warren, G. F. and F. A. Pearson. 1932. Wholesale Prices for 213 years, 1720 to 1932. Cornell University, Ithaca, N.Y.

Weir, D. R. 1992. “A Century of U.S. Unemployment, 1890–1990: Revised Estimates and Evidence for Stabilization,” Research in Economic History 14: 301–346.

Wicker, Elmus. 2000. Banking Panics of the Gilded Age. Cambridge University Press, Cambridge.

Wilson, Jack W., Sylla, Richard E. and Charles P. Jones. 1990. “Financial Market Panics and Volatility in the Long Run, 1830–1988,” in Eugene N. White (ed.), Crises and Panics: The Lessons of History. Dow Jones/Irwin, Homewood.

Mark-up Pricing in 11 Nations and the Eurozone: the Empirical Evidence

There is a mountain of empirical evidence available for many years now that shows that administered prices are the majority of prices in most modern market economies. These prices are also sometimes called “mark-up prices,” “average cost prices,” “full cost prices,” “normal cost prices,” or “cost-plus prices.”

This post lays out what administered prices/mark-up prices/full cost prices are, and the empirical evidence for them from 11 nations and the Eurozone.

Mark-up prices are set by businesses through their cost accounting conventions in an ex ante manner before transactions take place, on the basis of (1) total average unit costs plus (2) a profit mark-up, at a given, estimated, projected or target quantity of output or level of sales (from which of course the ex post or actual quantity of output produced or sold in a given time period might differ).

Empirical evidence shows us that mark-up prices are generally inflexible with respect to demand, but tend to change – though it is by no means a necessary or universal process – when total average unit costs change or when the business wants to change its profit mark-up.

The early empirical work and theory development on administered prices/mark-up prices was done by Gardiner C. Means (1935, 1936, 1939–1940, 1962, 1992 [1933], and 1972, which are discussed here and here), Hall and Hitch (1939) (discussed here and here), P. W. S. Andrews (1949, 1949a, 1964), Kalecki (1954, 1971), A. D. H. Kaplan (Kaplan et el. 1958), and others.

But much more empirical evidence has been done over the past 50 years too (much of it listed here or in Appendix 1 below, including literature from the related “marginalist” controversy), and especially by central bank surveys on price setting over the past 10 years that were inspired by Blinder’s influential direct surveys on US business price setting (Blinder 1998).

The standard Post Keynesian works on mark-up pricing are Lee (1998) and Downward (1999).

The most recent empirical evidence on mark-up pricing in many nations can be seen below, with longer analysis given in separate posts I link to at the end of each “literature” section:

(1) The United States

Literature:
Kaplan, A. D. H., Dirlam, J. B. and Lanzillotti, R. F. 1958. Pricing in Big Business: A Case Approach. The Brookings Institution, Washington DC.

Lanzillotti, R. F. 1964. Pricing Production and the Marketing Policies of Small Manufacturers. Washington State University Press, Pullman, Washington.

Gordon, L. A., Cooper, R., Falk, H., and D. Miller. 1981. The Pricing Decision. National Association of Accountants, New York.

Govindarajan, V. and R. Anthony. 1986. “How Firms use Cost Data in Price Decisions,” Management Accounting 65: 30–34.

Shim, Eunsup, and Ephraim Sudit. 1995. “How Manufacturers Price Products,” Management Accounting 76.8: 37–39.

Blinder, A. S. et al. (eds.). 1998. Asking about Prices: A New Approach to Understanding Price Stickiness. Russell Sage Foundation, New York.

Downward, Paul and Frederic Lee. 2001. “Post Keynesian Pricing Theory ‘Reconfirmed’? A Critical Review of Asking about Prices,” Journal of Post Keynesian Economics 23.3: 465–483.

“Two Marketing Studies on US Administered Prices,” November 16, 2013.

Govindarajan and Anthony (1986) and Shim and Sudit (1995) are two marketing surveys that found that from the 1980s to the 1990s mark-up pricing accounted for roughly 70% to 85% of US industrial prices.

In a much broader and more representative survey for the US economy as a whole, Blinder et al. (1998: 200–201) found that 56.8% of the firms they surveyed said that the idea that prices and price changes depend mainly on costs of production ranked as “very important” (38.8%) or moderately important (18%).

(2) Canada

Literature:
Amirault, D., Kwan, C. and G. Wilkinson. 2004. “A Survey of the Price-Setting Behaviour of Canadian Companies,” Bank of Canada Review 2004/2005: 29–40.
http://www.bankofcanada.ca/2006/09/publications/research/working-paper-2006-35/

“Mark-up Pricing in Canada,” January 7, 2014.

Amirault, Kwan, and Wilkinson (2004) examine price setting in Canada, and report the results of a survey of 170 private, unregulated, non-primary sector firms in the sectors of construction (10%), manufacturing (26%), trade (14%), and services (49%), in a sample which should give representative results for about 70% of Canada’s output in 2002 (Amirault, Kwan, and Wilkinson 2004: 3–4).

An impressive 67.1% of firms surveyed attributed price inflexibility to “cost-based pricing” – that is, to mark-up pricing (Amirault, Kwan, and Wilkinson 2004: 21).

(3) Eurozone

Literature:
Fabiani, S., M. Druant, I. Hernando, C. Kwapil, B. Landau, C. Loupias, F. Martins, T. Mathä, R. Sabbatini, H. Stahl and A. Stokman. 2006. “What Firms’ Surveys tell us about Price-Setting Behavior in the Euro Area,” International Journal of Central Banking 2.3: 3–47.

Fabiani, Silvia, Suzanne Loupias, Claire, Monteiro Martins, Fernando Manuel and Roberto Sabbatini. 2007. Pricing Decisions in the Euro Area: How Firms set Prices and Why. Oxford University Press, New York.

“Administered Prices in the Eurozone: Some Empirical Data,” October 16, 2013.

The wide-ranging survey of Fabiani et al. (2006) and (2007) on prices in the Eurozone from many central bank studies finds that the average for mark-up pricing throughout the Eurozone is 54%, a majority of firm prices.

In goods markets in Germany, the largest economy in Europe, a strikingly high 73% of firms have administered prices (Fabiani et al. 2006: 18, Table 4).

(4) the UK

Literature:
Greenslade, Jennifer V. and Miles Parker. 2012. “New Insights into Price-Setting Behaviour in the UK: Introduction and Survey Results,” Economic Journal 122.558: F1–F15.

Hall, S., Walsh, M. and A. Yates. 2000. “Are UK Companies’ Prices Sticky?,” Oxford Economic Papers 52.3: 425–446.

“Mark-up Pricing in the UK,” February 15, 2014.

“Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 8,” January 23, 2014.

Hall, Walsh, and Yates (2000) report the results of a survey of 654 UK companies in 1995 carried out by the Bank of England, and mostly of large companies in manufacturing (68% of the survey), as well as some in services (13%), retailing (13%), and construction (6%) (Hall, Walsh, and Yates 2000: 426–428).

The survey also asked firms if they recognised a specific “pricing theory as being important” for explaining their pricing behaviour. It was found that 47.1% of firms chose cost-based pricing as the second most important theory (the theory of constant marginal costs came first at 53.8%).

Greenslade and Parker (2012) report the results of a new survey of 693 UK firms (conducted in December 2007 and February 2008) chosen to be representative of the private sector economy of the UK as a whole, including manufacturing, electricity and gas supply, construction, services, and retail trade, but excluding public sector firms or those under regulatory price control (Greenslade and Parker 2012: F13–F14).

When asked how prices for their main product were determined, 68% of firms said that competitors’ prices were “very important” or “important” in determining price (Greenslade and Parker 2012: F9).

The second most important explanation was mark-up pricing, with variable mark-ups (58%) and constant mark-ups (44%) both being important (Greenslade and Parker 2012: F10).

Downward (1999, Chapter 8) presents a survey of 283 UK manufacturing enterprises (Downward 1999: 150–151). When asked whether the firm set its prices for its products by means of a mark-up on average costs, 63.7% of firms said either “very often” (29.9%) or “often” (33.8%). A further 17.3% said “sometimes.” Only 7% said “rarely,” and only 8.1% said “not at all” (Downward 1999: 160).

(5) Norway

Literature:
Langbraaten, Nina, Nordbø, Einar W. and Fredrik Wulfsberg. 2008. “Price-setting Behaviour of Norwegian Firms – Results of a Survey,” Norges Bank Economic Bulletin 79.2: 13–34.
http://www.norges-bank.no/en/about/published/publications/economic-bulletin/economic-bulletin-22008/price-setting-behaviour-of-norwegian-firms--results-of-a-survey/

“Mark-up Pricing in Norway,” November 23, 2013.

Langbraaten et al. (2008) cite a well-sampled survey of 725 firms throughout many sectors of the Norwegian economy that found that 69% of Norwegian businesses use mark-up pricing.

(6) Ireland

Literature:
Keeney, Mary, Lawless, Martina, and Alan Murphy. 2010. “How Do Firms Set Prices? Survey Evidence from Ireland,” Central Bank of Ireland, Research Technical Papers, no 7/RT/10.
http://ideas.repec.org/p/cbi/wpaper/7-rt-10.html

“Mark-up Pricing in Ireland,” November 22, 2013.

Keeney et al. (2010) report the results of a survey of 1000 Irish firms and finds that the largest type of pricing is mark-up pricing at 44% of firms. Other evidence from their paper, presented in my post here, suggests that the real percentage is higher than this, since when firms were asked how likely it was that they would adjust prices downwards in response to a negative demand shock, 66.5% of firms said that negative demand shocks were of little or no relevance to pricing decisions.

(7) Iceland

Literature:
Ólafsson, Thorvardur Tjörvi, Pétursdóttir, Ásgerdur, and Karen Á. Vignisdóttir. 2011. “Price Setting in Turbulent Times: Survey Evidence from Icelandic Firms,” Working Paper Central Bank of Iceland
www.sedlabanki.is/lisalib/getfile.aspx?itemid=8891‎

“Mark-up Prices in Iceland,” November 25, 2013.

Ólafsson et al. (2011) cite a survey of 580 Icelandic firms and finds that mark-up pricing is the largest type of pricing at 45%. Evidence suggests that more mark-up prices are concealed in the other categories in the survey, so that the real percentage is higher than this.

(8) Sweden

Literature:
Apel, Mikael, Friberg, Richard and Kerstin Hallsten. 2005. “Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms,” Journal of Money, Credit and Banking 37.2: 313–338.

“Mark-up Pricing in Sweden,” January 9, 2014.

Apel et al. (2005) provide data on price setting behaviour in Sweden, from a survey of about 600 private sector firms (Apel et al. 2005: 314) weighted to create a more representative sample of the Swedish economy (Apel et al. 2005: 316), but their study fails to directly ask firms how they set price.

Interestingly, when asked why they leave prices unchanged in response to small changes in demand, many firms said “it is better to leave the price unchanged as long as the costs do not change” (Apel et al. 2005: 323), which gives some support to the view that mark-up pricing is important.

(9) Japan

Literature:
Hsu, Robert. 1999. “Pricing Practices in Japan,” Global Business and Economics Review 1.2: 164–171.

Nakagawa, S., R. Hattori and I. Takagawa, 2000. “Price-Setting Behaviour of Japanese Companies,” Bank of Japan Research Paper
http://www.boj.or.jp/en/research/brp/ron_2000/ron0009b.htm/

“Mark-up Pricing in Japan,” November 29, 2013.

Nakagawa and Takagawa (2000) cite a survey of 630 Japanese companies. As interpreted by Fabiani et al. (2007: 190), the data suggest that least 54% of Japanese firms use mark-up pricing.

(10) New Zealand

Literature:
Parker, Miles. “Price-Setting Behaviour in New Zealand”
https://cama.crawford.anu.edu.au/amw2013/doc/Parker,Miles.pdf

“Mark-up Pricing in New Zealand,” November 30, 2013.

Parker cites a survey of around 5,300 New Zealand firms that finds that mark-up prices account for about 54% of business prices.

(11) Australia

Literature:
Park, Anna, Rayner, Vanessa and Patrick D’Arcy. 2010. “Price-Setting Behaviour – Insights from Australian Firms,” Reserve Bank of Australia Bulletin (June Quarter): 7–14.
http://www.rba.gov.au/publications/bulletin/2010/jun/bu-0610-2a.html

“Mark-up Pricing in Australia,” November 30, 2013.

Park, Rayner, and D’Arcy (2010) cite a survey of around 700 Australian firms that finds that mark-up prices account for at least 49% of firm prices. Once we add likely mark-up prices concealed in the other categories in the survey, the percentage will be higher than this.

(12) Pakistan

Literature:
Malik, W. S., ul HaqSatti, A. and G. Saghir. 2010. “Price Setting Behaviour of Pakistani Firms: Evidence from Four Industrial Cities of Punjab,” PIDE Working Papers
http://www.eaber.org/node/23069

Malik et al. (2010) provides some interesting evidence on mark-up pricing in Pakistan, and reports the results of a 2008 survey of 343 manufacturing firms in four industrial cities of the Punjab Province (Malik et al. 2010: 2–4).

About 75% of these firms reported that they had more than 20 competitor firms (Malik et al. 2010: 2).

Furthermore, of the 57% of the firms that reported that they set their own prices, 62% reported that they set prices as a mark-up over costs (Malik et al. 2010: 7–8). A further 30% reported that the price of their main competitor was used to set price, and, as in other surveys, it is likely that this category also conceals mark-up pricing.

So even in developing nations, mark-up pricing is significant.

BIBLIOGRAPHY
Amirault, D., Kwan, C. and G. Wilkinson. 2004. “A Survey of the Price-Setting Behaviour of Canadian Companies,” Bank of Canada Review 2004/2005: 29–40.
http://www.bankofcanada.ca/2006/09/publications/research/working-paper-2006-35/

Andrews, P. W. S. 1949. “A Reconsideration of the Theory of the Individual Business,” Oxford Economic Papers n.s. 1.1: 54–89.

Andrews, P. W. S. 1949a. Manufacturing Business. Macmillan, London.

Andrews, P.W.S. 1964. On Competition in Economic Theory. Macmillan, London.

Apel, Mikael, Friberg, Richard and Kerstin Hallsten. 2005. “Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms,” Journal of Money, Credit and Banking 37.2: 313–338.

Berle, Adolf A. and Gardner C. Means. 1932. The Modern Corporation and Private Property. Macmillan, New York.

Blinder, A. S. et al. (eds.). 1998. Asking about Prices: A New Approach to Understanding Price Stickiness. Russell Sage Foundation, New York.

Davidson, P. 1992. “Would Keynes be a New Keynesian?,” Eastern Economic Journal 18.4: 449–463.

Downward, Paul. 1999. Pricing Theory in Post-Keynesian Economics: A Realist Approach. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.

Downward, Paul and Frederic Lee. 2001. “Post Keynesian Pricing Theory ‘Reconfirmed’? A Critical Review of Asking about Prices,” Journal of Post Keynesian Economics 23.3: 465–483.

Fabiani, S., M. Druant, I. Hernando, C. Kwapil, B. Landau, C. Loupias, F. Martins, T. Mathä, R. Sabbatini, H. Stahl and A. Stokman. 2006. “What Firms’ Surveys tell us about Price-Setting Behavior in the Euro Area,” International Journal of Central Banking 2.3: 3–47.

Fabiani, Silvia, Suzanne Loupias, Claire, Monteiro Martins, Fernando Manuel and Roberto Sabbatini. 2007. Pricing Decisions in the Euro Area: How Firms set Prices and Why. Oxford University Press, New York.

Govindarajan, V. and R. Anthony. 1986. “How Firms use Cost Data in Price Decisions,” Management Accounting 65: 30–34.

Greenslade, Jennifer V. and Miles Parker. 2012. “New Insights into Price-Setting Behaviour in the UK: Introduction and Survey Results,” Economic Journal 122.558: F1–F15.

Hall, R. L. and C. J. Hitch. 1939. “Price Theory and Business Behaviour,” Oxford Economic Papers 2: 12–45.

Hall, S., Walsh, M. and A. Yates. 2000. “Are UK Companies’ Prices Sticky?,” Oxford Economic Papers 52.3: 425–446.

Hill, Greg. 1996. “Capitalism, Coordination, and Keynes: Rejoinder to Horwitz,” Critical Review 10: 373–387.

Kalecki, M. 1954. Theory of Economic Dynamics. Allen and Unwin, London.

Kalecki, M. 1971. Selected Essays on the Dynamics of the Capitalist Economy. Cambridge University Press, Cambridge.

Kaplan, A. D. H., Dirlam, J. B. and Lanzillotti, R. F. 1958. Pricing in Big Business: A Case Approach. The Brookings Institution, Washington DC.

Keeney, Mary, Lawless, Martina, and Alan Murphy. 2010. “How Do Firms Set Prices? Survey Evidence from Ireland,” Central Bank of Ireland, Research Technical Papers, no 7/RT/10.
http://ideas.repec.org/p/cbi/wpaper/7-rt-10.html

Langbraaten, Nina, Nordbø, Einar W. and Fredrik Wulfsberg. 2008. “Price-setting Behaviour of Norwegian Firms – Results of a Survey,” Norges Bank Economic Bulletin 79.2: 13–34.
http://www.norges-bank.no/en/about/published/publications/economic-bulletin/economic-bulletin-22008/price-setting-behaviour-of-norwegian-firms--results-of-a-survey/

Lee, Frederic S. 1998. Post Keynesian Price Theory. Cambridge University Press, Cambridge and New York.

Malik, W. S., ul HaqSatti, A. and G. Saghir. 2010. “Price Setting Behaviour of Pakistani Firms: Evidence from Four Industrial Cities of Punjab,” PIDE Working Papers
http://www.eaber.org/node/23069

Means, G. C. 1992 [1933]. “The Corporate Revolution,” in Frederic S. Lee and Warren J. Samuels (eds.), The Heterodox Economics of Gardiner C. Means: A Collection. M.E. Sharpe, Armonk, N.Y.

Means, G. C. 1935. Industrial Prices and their Relative Inflexibility. US Senate Document no. 13, 74th Congress, 1st Session, Government Printing Office, Washington DC.

Means, G. C. 1936. “Notes on Inflexible Prices,” American Economic Review 26 (Supplement): 23–35.

Means, G. C. 1939–1940. “Big Business, Administered Prices, and the Problem of Full Employment,” Journal of Marketing 4: 370–381.

Means, G. C. 1962. Pricing Power and the Public Interest. Harper and Brothers. New York.

Nakagawa, S., R. Hattori and I. Takagawa, 2000. “Price-Setting Behaviour of Japanese Companies,” Bank of Japan Research Paper
http://www.boj.or.jp/en/research/brp/ron_2000/ron0009b.htm/

Ólafsson, Thorvardur Tjörvi, Pétursdóttir, Ásgerdur, and Karen Á. Vignisdóttir. 2011. “Price Setting in Turbulent Times: Survey Evidence from Icelandic Firms,” Working Paper Central Bank of Iceland
www.sedlabanki.is/lisalib/getfile.aspx?itemid=8891‎

Park, Anna, Rayner, Vanessa and Patrick D’Arcy. 2010. “Price-Setting Behaviour – Insights from Australian Firms,” Reserve Bank of Australia Bulletin (June Quarter): 7–14.
http://www.rba.gov.au/publications/bulletin/2010/jun/bu-0610-2a.html

Parker, Miles. “Price-Setting Behaviour in New Zealand”
https://cama.crawford.anu.edu.au/amw2013/doc/Parker,Miles.pdf

Pittman, Russell. 2009. “Who Are You Calling Irrational? Marginal Costs, Variable Costs, and the Pricing Practices of Firms,” Economic Analysis Group Discussion Paper 09-3
http://www.justice.gov/atr/public/eag/248394.htm

Shim, Eunsup, and Ephraim Sudit. 1995. “How Manufacturers Price Products,” Management Accounting 76.8: 37–39.

Appendix 1
Below are the main surveys and articles in the “full cost” and marginalist pricing debate of the 1940s to 1970s

Against Marginalism
Kaplan, A. D. H., Dirlam, J. B. and Lanzillotti, R. F. 1958. Pricing in Big Business: A Case Approach. The Brookings Institution, Washington DC.

Lanzillotti, Robert F. 1958. “Pricing Objectives in Large Companies,” American Economic Review 48.5: 921–940.

Kahn, Alfred E. 1959. “Pricing Objectives in Large Companies: Comment,” American Economic Review 49.4: 670–678.

Lanzillotti, Robert F. 1959. “Pricing Objectives in Large Companies: Reply,” American Economic Review 49.4: 679-687.

Barback, R. H. 1964. Pricing of Manufactures. Macmillan and Co Ltd., London.

Wentz, Theodore E. 1966. “Realism in Pricing Analyses,” Journal of Marketing 30.2: 19–26.

Skinner, R. C. 1970. “The Determination of Selling Prices,” Journal of Industrial Economics 18.3: 201–217.

Sizer, John. 1971. “Note on ‘the Determination of Selling Prices,’” The Journal of Industrial Economics 20.1: 85–89.

Hague, D. C. 1971. Pricing in Business. George Allen and Unwin, London.

Burck, G. 1972. “The Myths and Realities of Corporate Pricing,” Fortune 85.4: 85–89, 125–126.

Atkin, B. and Skinner, R. 1975. How British Industry Prices. Industrial Market Research Limited, London.

Shipley, David D. 1981. “Pricing Objectives in British Manufacturing Industry,” The Journal of Industrial Economics 29.4: 429–443.

Gordon, L. A., Cooper, R., Falk, H., and D. Miller. 1981. The Pricing Decision. National Association of Accountants, New York.

Hankinson, A. 1985. A Study of Pricing Behaviour of Dorset-Hampshire Small Engineering Firms. Dorset Institute of Higher Education, Poole, Dorset.

Bruegelman, T., Haessly, G., Wolfangel, C. P. and Schiff, M. 1985. “How Variable Costing is used in Pricing Decisions,” Management Accounting 66: 58–61, 65.

Samiee, S. 1987. “Pricing in Marketing Strategies of US- and Foreign-based Firms,” Journal of Business Research 15: 17–30.

Defending Marginalism
Gordon, R. A. 1948. “Short Period Price Determination in Theory and Practice,” American Economic Review 38: 265–288.

Hague, D. C. 1949–1950. “Economic Theory and Business Behaviour,” Review of Economic Studies 16: 144–157.

Edwards, R. S. 1952. “The Pricing of Manufactured Products,” Economica 19: 298–307.

Simon, H. A. 1952. “A Behavioural Model of Rational Choice,” Quarterly Journal of Economics 69: 99–118.

Simon, H. A. 1959. “Theories of Decision Making in Economies,” American Economic Review 49: 253–283.

Shackle, G. L. S. 1955. “Businessmen on Business Decisions,” Scottish Journal of Political Economy 2: 32–46.

Earley, James S. 1956. “Marginal Policies of ‘Excellently Managed’ Companies,” American Economic Review 46.1: 44–70.

Cook, A. C., Dufty, N. F. and Jones, E. H. 1956. “Full Cost Pricing in the Multiproduct Firm,” The Economic Record 32: 142–147.

Pearce, I. F. 1956. “A Study in Price Policy,” Economica n.s. 23.90: 114–127.

Pearce, I. F. and Amey, L. R. 1956–1957. “Price Policy with a Branded Product,” The Review of Economic Studies 24: 49–60.

Fog, B. 1960. Industrial Pricing Policies: An Analysis of Pricing Policies of Danish Manufacturers. North Holland Publishing, Amsterdam.

Knox, R. L. 1966. “Competitive Oligopolistic Pricing,” Journal of Marketing 30: 47–51.

Neutral Studies
Alt, R. M. 1949. “The Internal Organisation of the Firm and Price Formation: An Illustrative Case,” Quarterly Journal of Economics 63: 92–110.

Woodruff, W. 1953. “Early Entrepreneurial Behaviour in Relation to Costs and Prices,” Oxford Economic Papers 5: 41–64.

Blackwell, R. 1953–1954. “The Pricing of Books,” Journal of Industrial Economics 2: 174–183.

Cook, A. and Jones, F. 1954. “Full Cost Pricing in Western Australia,” The Economic Record 30: 272–274.

Balkin, N. 1956. “Prices in the Clothing Industry,” Journal of Industrial Economics 5.1: 1–15.

Lazer, W. 1956–1957. “Price Determination in the Western Canadian Garment Industry,” Journal of Industrial Economics 5: 124–136.

Pool, A. G. and Llewellyn, G. 1957. The British Hosiery Industry: A Study in Competition. Leicester University Press, Leicester.

Lydall, H. F. 1958. “Aspects of Competition in Manufacturing Industry,” Institute of Economics and Statistics Bulletin 20: 319–337.

Haynes, W. W. 1962. Pricing Decisions in Small Business. University of Kentucky Press, Lexington, KY.

Haynes, W. W. 1964. “Pricing Practices in Small Firms,” The Southern Economic Journal 30: 315–324.

Lanzillotti, R. F. 1964. Pricing Production and the Marketing Policies of Small Manufacturers. Washington State University Press, Pullman, Washington.

Rosendale, R. B. 1973. “The Short Run Pricing Policies of Some British Engineering Exporters,” National Institute Economic Review 65: 44–51.

Nowotny, Ewald and Herbert Walther. 1978. “The Kinked Demand Curve—Some Empirical Observations,” Kyklos 31: 53–67.

Forgionne, G. A. 1984. “Economic Tools used by Management in Large American Operated Corporations,” Business Economics 19: 5–17.

Jobber, D. and Hooley, G. 1987. “Price Behaviour in the UK Manufacturing Service Industries,” Managerial and Decision Economics 8.2: 167–171.

Smiley, Robert. 1988. “Empirical Evidence on Strategic Entry Deterrence,” International Journal of Industrial Organization 6.2: 167—180.

Blinder, Alan S. 1991. “Why are Prices Sticky? Preliminary Results from an Interview Study,” American Economic Review 81.2: 89–96.

Additional Studies
Alchian, A. A. 1950. “Uncertainty, Evolution and Economic Theory,” Journal of Political Economy 58: 211–221.

Robinson, A. 1950. “The Pricing of Manufactured Products,” Economic Journal 60: 771–780.

Machlup, F. 1946. “Marginal Analysis and Empirical Research,” American Economic Review 36: 519–554.

Heflebower, R. F. 1955. “Full Costs, Cost Changes, and Prices,” in National Bureau of Economic Research, Business Concentration and Price Policy. Princeton University Press, Princeton. 361–392.

Coase, R. 1955. “Full Cost, Cost Changes, and Prices: Comment,” in National Bureau of Economic Research, Business Concentration and Public Policy. Princeton University Press, Princeton. 392–394.

Wiles, P. 1950. “Empirical Research and the Marginal Analysis,” Economic Journal 60: 515–530.

Robinson, J. V. 1953. “Imperfect Competition Revisited,” Economic Journal 63: 579–593.