Sunday, October 27, 2013

Lee’s Post Keynesian Price Theory: Chapter 12

Chapter 12 of Frederic S. Lee’s Post Keynesian Price Theory (Cambridge, 1998) is the final chapter and conclusion of Lee’s book.

A capitalist economy has a productive structure of input and output. In any given capitalist economy, 24% to 50% of output is itself used as input intermediate goods (Lee 1998: 220). This circular production model includes all primary sector, industrial, wholesale, and retail markets. Administered prices can occur in any one of these types of markets.

The calculation of costs of production for a product depends on the accounting procedure used and with the degree of mark-up will determine the administered price (Lee 1998: 228).

Administered prices are neither market-clearing nor profit-maximising prices in the neoclassical sense (Lee 1998: 228).

Above all, economic coordination in modern capitalist economies is not a straightforward function of the price system, in view of the prevalence of administered pricing (Lee 1998: 230) – a fundamental conclusion which cannot be emphasised enough.

The profit mark-up is mostly determined by custom, convention, reasonableness, fairness and short and long-term competitive pressures (Lee 1998: 226).

Finally, the administrative procedure of setting prices by means of a profit mark-up undermines the Marxist, classical and Sraffian view that there exists a tendency towards a uniform rate of profit throughout a competitive capitalist economy (Lee 1998: 226, n. 17).

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

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