Showing papers in "Economica in 1937"

The Nature of the Firm

Abstract: Economic theory has suffered in the past from a failure to state clearly its assumptions. Economists in building up a theory have often omitted to examine the foundations on which it was erected. This examination is, however, essential not only to prevent the misunderstanding and needless controversy which arise from a lack of knowledge of the assumptions on which a theory is based, but also because of the extreme importance for economics of good judgement in choosing between rival sets of assumptions. For instance, it is suggested that the use of the word “firm” in economics may be different from the use of the term by the “plain man.”1 Since there is apparently a trend in economic theory towards starting analysis with the individual firm and not with the industry,2 it is all the more necessary not only that a clear definition of the word “firm” should be given but that its difference from a firm in the “real world,” if it exists, should be made clear. Mrs. Robinson has said that “the two questions to be asked of a set of assumptions in economics are: Are they tractable? and: Do they correspond with the real world?”3 Though, as Mrs. Robinson points out, “more often one set will be manageable and the other realistic,” yet there may well be branches of theory where assumptions may be both manageable and realistic. It is hoped to show in the following paper that a definition of a firm may be obtained which is not only realistic in that it corresponds to what is meant by a firm in the real world, but is tractable by two of the most powerful instruments of economic analysis developed by Marshall, the idea of the margin and that of substitution, together giving the idea of substitution at the margin.

The Principle of Increasing Risk

Abstract: THE subject of this paper is the determination of the size of investment undertaken in a certain period by a given entrepreneur. He intends, for instance, to build a factory producing a certain product. He is faced with given market conditions: he knows the price of the product in question, the level of wages and of prices of raw materials, the cost of construction and the rate of interest. Besides he has some rather vague ideas as to the probable future change of prices and costs. This knowledge is the basis for the planning of investment, i.e., for the choice of the amount of capital k (measured in terms of money) to be invested and the method of production to be applied. With a given amount of capital k and a given method of production the entrepreneur is able to estimate the series of future returns (differences between revenues and effective costs) q1, q2 ..... .q. during the prospective life of the factory. We shall call the rate e at which the series of returns must be discounted in order to obtain the amount invested k-the efficiency of investment,1 whilst by prospective profit p we denote the product k.e. Now we can assume that with given amount invested "k the entrepreneur chooses such a method of production as would maximise the efficiency of investment or what amounts to the same (k being given) the prospective profit p = ke. Thus to every value of k there corresponds a definite value of maximum prospective profit pm:

Soviet Communism: A New Civilisation?.

Abstract: CONTENTS: I. A New Civilisation. II. The Abolition of Profit-making. III. The Planning of Production for Community Consumption. IV. Social Equality and Universalism. V. A Novel Representative System. VI. The Vocation of Leadership. VII. The Cult of Science. VIII. “Anti-Godism”. IX. The New Communist Conscience. X. A New Way of Living. XI. Disintegrating Capitalism. XII. Will Soviet Communism Endure? XIII. Will it Spread?

The Pig-Cycle in Great Britain: An Explanation

Abstract: MODERN economic theory is laying increasing emphasis on the importance of considering the nature of producers' anticipations. There is, however, comparatively little statistical analysis of the way in which producers do, in fact, forecast. In connection with one industry, that of pig production, some study of the problem has been made, but, unfortunately, as we showed in a previous paper,' the conclusion to which these investigations have led seems to be untenable. The view which had been commonly held by agricultural economists was that farmers assume that present prices and costs will continue unchanged in the future. This assumption we showed to be incorrect, a conclusion with which Miss Cohen and Mr. Barker2 were in agreement.3 They objected because we had " in effect, tried to overthrow the existing explanation without putting anything in its place ". In fact, however, such explanation as they attempted in their Reply involved certain important modifications of the theory previously held and was not based on any analysis of the way farmers had behaved but was purely hypothetical. It followed that the old theory had been abandoned while the one put forward in its place was not based on any investigation of observed facts. Such tests of this new hypothesis as we were able to make indicated that it did not seem to fit the facts and we concluded that " a theory of the pig-cycle is still lacking ". In this paper,

Uncertainty and Liquidity-Preference

Abstract: The prominent place which the concept of liquiditypreference has been occupying in recent literature on economics may be regarded as an indication of the urgent desire for an exhaustive investigation into the forces determining the demand for Money. The importance of the problem for both theoretical and practical purposes need not be stressed. In monetary theory no satisfactory progress can be hoped for without the help of marginal utilityanalysis, a type of investigation which is inapplicable as long as we remain ignorant of the character of the need which the possession of Money satisfies. For monetary policy, on the other hand, it is vital to have a satisfactory criterion for the division of the total quantity of Money into the " effective " (business-funds) and the " ineffective " (hoards) circulation, if we want to be able to form reliable estimates of the efficacy of monetary measures. In analysing the forces which determine the demand for cash-balances the economic theorist cannot hope to accomplish his task adequately, if he confines himself to the enumeration and classification of the various " reasons for holding Money ". In this field, as we shall see presently, " motives " are, indeed, a tricky subject. For in examining the causes of liquidity-preference we are actually side-stepping from the highroad of economic science, where preferences are identical with motives and must not be further analysed. Whereas, in general, economic theory strives to reduce all economic phenomena to consumers' (and savers') preferences, in the case of Money this procedure will not do. Why the connoisseurs of modern painting prefer pictures by Picasso to pictures by Utrillo is a question with which it has been generally agreed that the economist is not concerned. But why sometimes owners of wealth prefer holding their assets in form of cash-balances to other

The Working of the Pre-War Gold Standard

Abstract: IN discussions concerning the post-war gold standard and the possibility of restoring an efficient international monetary system, it is natural to take the operation of the gold standard in pre-war times as a kind of standard. It is therefore of more than historical interest to know exactly how the prewar gold standard did work. The most generally accepted view on this matter-the classical explanation, as it may be conveniently termedmay be summarised as follows. A condition of balance of payments disequilibrium led, if more than temporary, to an international gold movement: the gold movement induced changes in the volume of monetary circulation in the countries concerned, a contraction here and an expansion there: the changes in circulation brought about the changes in incomes and prices required to adjust the balance of trade. In establishing a connexion between the gold movement and the change in the volume of circulation, it is necessary to take account of the nature of the currency system involved. As credit means of payment, bank liabilities in the form of notes and deposits, have long been the most important forms of money in the more advanced countries, the effect of a gold movement there depended on the reaction of the banking system to a change in its reserves; and in so far as a given change in reserves called for a multiple change in the bank liabilities, the process normally involved a change in the terms on which the banks lent, or the discount rate. We shall not be concerned here to discuss the part played by price and income changes in maintaining international equilibrium. Our concern is with the process by which these price and income changes were brought about, As

An Analysis of Unemployment III

Abstract: THE Ministry of Labour publish each month a table headed " Periods of Registered Unemployment ". In this table applicants for benefit or assistance are classified according to the length of time for which they have been registered continuously as unemployed. Occasional short spells of employment lasting not more than three days each are held not to break continuity of registration. Except in so far as they may have got work for such brief spells, the persons shown in these tables have been unemployed for the whole of the periods stated, namely for less than three months, less than six months, and so on, up to I2 months or more. These statistics have been published now for each month since the beginning of 1932; they are given separately for men from i 8 to 64, for women from i 8 to 64, for boys and for girls. From two sample enquiries relating to i6th September, I929, and 2nd February, 1931, it is possible to derive, by estimate, corresponding figures for men and women at those earlier dates.' It is possible also to obtain figures for each of the administrative Divisions, though these are not normally published by the Ministry. In using these figures two points have to be borne in mind. First, they are based on counts at particular days;

Some Aspects of Discrimination by Public Utilities

Abstract: ONE of the most important features of that group of undertakings to which the term Public Utilities is applied is that it produces for the most part under conditions of decreasing average cost. Since under these conditions marginal cost is necessarily less than average cost, it follows that the average price received by such an undertaking must be greater than its marginal cost if it is to cover its total costs. It is this fact which explains the search which is continually being made by Public Utilities for new markets which yield a lower price than the average received by the undertaking as a whole, but higher than the marginal costs of the extra output sold.' One of the most important devices for separating out such markets is the system of charging known variously as the " All-in Rate," and the " Two Part Tariff." The use of this system has extended rapidly in the last few years, and even since the first draft of this paper was written the Gas Light and Coke Company has announced an important new tariff of a similar kind. In what follows an attempt will be made to examine the general economic consequences of the adoption of the system by Public Utility Undertakings. The normal method of charging is to make a fixed charge not varying with consumption, and to charge actual consumption at considerably less than the standard rate for ordinary consumers. Sometimes, however, consumption up to a predetermined amount is charged at one price, and any consumption in excess of this at a lower rate. But as we shall see both these methods yield substantially the same result. If the two part tariff were the only method of charging the undertaking would maximise its profits by

The Influx of Labour into London and the South East 1920-36

Abstract: The accidents of administrative practice can provide fruitful opportunities for statistical analysis. It happens that one of the items of information to be found on an unemployment book is the name of the Employment Exchange at which the book was originally issued. In July every year all unemployment books are collected by the Exchanges and are afterwards deposited in the Claims and Record Office of the Ministry of Labour at Kew. Naturally the new books sent out must reproduce necessary particulars from the old ones which they replace. Since I920 the benefit and contribution records for every insured person in the country have been filed at Kew under the Office which issued his book: hence the administrative significance of the " Office of origin ". This means that wherever a person may have migrated since he first became insured, his unemployment book will still bear the name of the Exchange which issued it to him in the first instance. This being so, it is possible at the annual exchange of the books to discover a great deal about the movement of insured workpeople from one part of the country to another. Through the courtesy of the Ministry of Labour a Return was furnished by the South East Division, including London, in 1932 on the basis of the exchange of books in July of that year. The results of that inquiry were published in a previous issue of this journal.2 Since I932 the country has experienced a recovery from the trough of the depression; and increasing interest is being shown in the changing location

The Changing Structure of the Family in Australia

Abstract: THE existence of declining fertility in all highly industrialised countries is now well known. Since fertility in Western and Northern Europe and the United States has reached a level which, if maintained, must eventually lead to a declining population, it is now advisable to analyse in greater detail the changes which have taken place in the reproductive behaviour of people in these countries. Before an effective programme can be devised to arrest or reverse falling fertility, we need to know how far the fall has been accompanied by a reduction in the number of large families and to what extent it entails an increase in the number of women having no children. The present paper is mainly an attempt to throw some light on these two questions, and, in so doing, to ascertain the proportions of families of various sizes appropriate to different fertility levels. Such considerations are fundamental to a housing programme designed to arrest population decline. Owing to the defective system of birth registration it is impossible to get direct information concerning Great Britain. The country selected for study is the Commonwealth of Australia, over the period 1909 to 1933. For any study of size of family from year to year the essential data are records of births by age of mother and order of birth of child. For the Commonwealth of Australia the data are first given for I909, so that a period of twenty-five years has been covered. Details of the data and methods employed will be found in later sections.