Wednesday, February 5, 2014

Austrians and their Incoherent Views on Administered Prices

Of the very few writings by Austrian economists or those heavily influenced by Austrian economics that mention (or supposedly mention) the concept of administered prices/mark-up prices, one can list the following:
(1) Mises, L. von, 2009 [1953]. The Theory of Money and Credit (trans. J. E. Batson), Mises Institute, Auburn, Ala. pp. 163–164.

(2) Rothbard, Murray N. 1959. “The Bogey of ‘Administered Prices,’” The Freeman 39–41.
http://www.fee.org/the_freeman/detail/the-bogey-of-administered-prices#axzz2s3nbZRZX

Rothbard, M. N. 2009 [1962]. Man, Economy, and State, The Scholar’s Edition. Ludwig von Mises Institute, Auburn, Ala. 662–664.

(3) Hazlitt, Henry. 1965. What You Should Know About Inflation (2nd edn.). D. Van Nostrand Company Inc. London and New York. 88–90.

(4) Howard, Irving E. 1966. “Will the Real Price Administrator Please Stand Up!,” The Freeman April 1: 46–50.
http://www.fee.org/the_freeman/detail/will-the-real-price-administrator-please-stand-up#axzz2s3nbZRZX

(5) Poirot, Paul L. 1971. “Cost-Plus Pricing,” The Freeman, January 1: 48–50.
http://www.fee.org/the_freeman/detail/cost-plus-pricing#axzz2s3nbZRZX

(6) Greaves, Bettina B. 1984. Free Market Economics: A Syllabus. Foundation for Economic Education, Irvington-on-Hudson, NY.

(7) Shapiro, Milton M. 1985. Foundations of the Market Price System. University Press of America, Inc. Lanham, MD and London. 365–366.

(8) Lachmann, Ludwig M. 1977. Capital, Expectations, and the Market Process: Essays on the Theory of the Market Economy (ed. Walter E. Grinder). Sheed Andrews and McMeel, Kansas City. 238–239.

Lachmann, L. M. 1986. The Market as an Economic Process. Basil Blackwell. Oxford. 134.

Lachmann, L. M. 1994. “The Salvage of Ideas: Problems of the Revival of Austrian Economic Thought,” in D. Lavoie (ed.), Expectations and the Meaning of Institutions: Essays in Economics. Routledge, London. 159–178, at 165–166.

(9) Reisman, George. 1996. Capitalism: A Treatise on Economics. Jameson Books, Ottawa, Ill. and Chicago. 167–169, 200–201, 414–417.
For reasons explained here, Mises (2009 [1953]: 163–164) is neither a description of mark-up pricing nor a refutation of it.

Rothbard (1959: 39–41; 2009 [1962]: 662–664), Hazlitt (1965: 88–90), Howard (1966), Poirot (1971), Greaves (1984), and Shapiro (1985: 365–366) simply constitute unconvincing denials that any such thing as “administered pricing” even exist, and even worse do not even show basic understanding of the doctrine.

But, by the time we come to Lachmann (1977: 238–239; 1986: 134; 1994: 165–166) and Reisman (1996: 167–169, 200–201, 414–417) suddenly there is an embarrassing volte face: now administered pricing and cost-plus pricing is acknowledged as a reality and not only that but also a significant part of the price systems of modern market economies.

So which is it?

It is absurd for any Austrian to say that “Austrians have refuted the existence of administered pricing,” because two major Austrian economists have frankly admitted their existence and economic significance.

Yet another confusion about what Austrians think about administered prices stems from George Reisman’s Capitalism: A Treatise on Economics (1996), where administered prices are mentioned on p. 417 in a context that suggests that Böhm-Bawerk somehow anticipated the doctrine, when he did not.

Further Reading
“Lachmann and Post Keynesianism on Prices,” August 1, 2012.

“Caldwell on Lachmann on Equilibrium Prices,” November 6, 2012.

“Mises versus Lachmann on Equilibrium Prices,” December 17, 2012.

“Do Modern Austrians ever Read Lachmann?,” October 13, 2013.

“Böhm-Bawerk had No Theory of Administered Prices,” November 10, 2013.

“Does this Passage show that Mises understood Mark-up Pricing?,” February 1, 2014.

“Rothbard’s Non-Refutation of Administered Prices,” February 1, 2014.


BIBLIOGRAPHY
Greaves, Bettina B. 1984. Free Market Economics: A Syllabus. Foundation for Economic Education, Irvington-on-Hudson, NY.

Howard, Irving E. 1966. “Will the Real Price Administrator Please Stand Up!,” The Freeman April 1: 46–50.
http://www.fee.org/the_freeman/detail/will-the-real-price-administrator-please-stand-up#axzz2s3nbZRZX

Lachmann, Ludwig M. 1977. Capital, Expectations, and the Market Process: Essays on the Theory of the Market Economy (ed. Walter E. Grinder). Sheed Andrews and McMeel, Kansas City.

Lachmann, L. M. 1986. The Market as an Economic Process. Basil Blackwell. Oxford.

Lachmann, L. M. 1994. “The Salvage of Ideas: Problems of the Revival of Austrian Economic Thought,” in D. Lavoie (ed.), Expectations and the Meaning of Institutions: Essays in Economics. Routledge, London. 159–178.

Mises, L. von, 2009 [1953]. The Theory of Money and Credit (trans. J. E. Batson), Mises Institute, Auburn, Ala.

Poirot, Paul L. 1971. “Cost-Plus Pricing,” The Freeman, January 1: 48–50.
http://www.fee.org/the_freeman/detail/cost-plus-pricing#axzz2s3nbZRZX

Rothbard, Murray N. 1959. “The Bogey of ‘Administered Prices,’” The Freeman 39–41.
http://www.fee.org/the_freeman/detail/the-bogey-of-administered-prices#axzz2s3nbZRZX

Rothbard, M. N. 2009 [1962]. Man, Economy, and State, The Scholar’s Edition. Ludwig von Mises Institute, Auburn, Ala.

Shapiro, Milton M. 1985. Foundations of the Market Price System. University Press of America, Inc. Lanham, MD and London.

3 comments:

  1. "Yet another confusion about what Austrians think about administered prices stems from George Reisman’s Capitalism: A Treatise on Economics "


    I think you are missing the point about this.

    Bohm-Bawerk described the process by which prices would end up equal to (something like) cost+markup. This is not the same thing as saying .he believed prices were set administratively.

    In my view however this insight may help explain why many firms find AP to be an optimizing strategy.





    ReplyDelete
    Replies
    1. Rob Rawlings,

      Bohm-Bawerk's work on prices is nothing but marginalism with an Austrian twist.

      " This is not the same thing as saying .he believed prices were set administratively. "

      Right. So I am correct in my statement above?

      And I am fully aware that there has been a desperate attempt to make marginalism compatible with mark-up pricing.

      There was a huge debate back in the 1940s-1960s called the "marginalist controversy", but even then the marginalists couldn't their story straight.

      Delete