Academic journal article Journal of Economic Issues

Retesting Gardiner Means's Evidence on Administered Prices

Academic journal article Journal of Economic Issues

Retesting Gardiner Means's Evidence on Administered Prices

Article excerpt

Gardiner Means developed his doctrine of administered prices in the 1930s within the context of a specific conception of the American economy [Means 1935, 1939; Lee 1998]. He was concerned with drawing on empirical data of all sorts to identify and describe the causal mechanisms underlying pricing behavior in the corporate economy. The most important of the mechanisms, known as the administered price thesis, was the coordination and organization of economic activity through the interplay of administrative control and the market. The thesis stated that in markets where enterprises exercised administrative control over prices, prices would remain constant for a series of transactions and for a period of time; whereas in markets where administrative control was absent, prices were determined coincidentally with the market transaction and hence would vary with each transaction. As a result, the behavior of administered prices and market prices were, under cyclical business conditions, quite different. That is, m arket prices declined relative to administered prices when demand declined and rose relative to administered prices when demand increased; over the business cycle, there were no changes in the absolute prices of both groups or in the relative prices between the two groups. In addition, the behavior of production relative to administered and market prices was also quite different. When business activity declined, the outcome in administered-price markets was that prices declined relatively little compared to production declines, whereas in market-price markets, prices declined significantly relative to production declines; and the reverse was the case when business activity increased. Finally, the basis of administered control over prices was in part grounded in the degree of market concentration and not at all grounded in product characteristics. In short, with his administered price thesis, Means developed a non-Keynesian explanation of the Great Depression and, more generally, of the degree to which resourc es were used in the economy [Lee 1990, 1994, 1998].

The empirical claims made by Means were quickly subjected to statistical tests. Means's claims were rejected by Jules Backman [1939a, 1939b, 1940], Stephen DuBrul [1939], Don Humphrey [1937], Edward Mason [1938], and Rufus Tucker [1938a, 1938b, 1940]. In contrast, John Blair [1955, 1956] felt that Means's empirical claims were generally sound, especially concerning the relationship between prices and concentration. In general, institutionalists and Post Keynesians have either uncritically accepted Means's claims or simply ignored them. In this article, we readdress Means's results more formally using econometric testing to help evaluate his administered price thesis. We are well aware that both institutionalists and Post Keynesians are suspicious of the econometric method. We would argue that in an open historical system, wherein causal mechanisms reveal themselves partially as demi-regularities [Lawson 1997], econometrics can be used to help assess knowledge claims in connection with other, more qualitative " insights [see, for example, Downward 1998, 1999]. From this perspective, we take this opportunity to undertake a critical examination of the causal mechanisms determining price behavior in corporate capitalism and to examine Means's non-Keynesian explanation of resource use in the economy.

In particular, econometrics will be used re-test the empirical claims Means made to underpin and support his concepts of administered and market prices as well as their movement over the business cycle, and their relationship to production, product characteristics, and concentration. [1] Consequently, the actual empirical data Means used to ground the thesis and its relationships are the focal point of the tests. The first section will review the Bureau of Labor Statistics (BLS) price data Means used to establish the existence of administered and market prices based on the frequency of price change. …

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