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History of Political Economy 32.3 (2000) 698-699

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Book Review

Post Keynesian Price Theory

Post Keynesian Price Theory. By Frederic S. Lee. Cambridge: Cambridge University Press, 1998. viii; 281 pp. $59.95.

Over the last fifteen years, Frederic Lee has made a number of important contributions to post-Keynesian literature, as well as to the history of economic thought. Some of these papers have been used in the making of this new book. The late Alfred Eichner was one of his mentors. Yet Lee considers that Eichner, like all other prominent post-Keynesians, failed to establish a coherent and satisfactory price theory. “As a result, there exists no well grounded cohesive and consistent body of economic analysis that can be referred to as Post Keynesian price theory” (2).

This is indeed a very serious shortcoming, if one considers that the post-Keynesian theory first defines itself by its opposition to the neoclassical paradigm, and that the core of this paradigm is its price theory. This problem might be linked to the difficulty of defining precisely what is post-Keynesian theory. Referring alternatively to David Ricardo, Marx, Thorstein Veblen, Michal Kalecki, John Maynard Keynes, Piero Sraffa, and others, those who proclaim their adherence to this current of thought form a very heterogeneous group, crossed by harsh controversies. But of course such is the case with nearly all schools of thought, be they Marxian, neoclassical, Austrian, or some other.

Nevertheless, the asserted ambition of Lee is to build the foundations of a post-Keynesian price theory. But this he does, in a peculiar way, by offering us two books in one. The first book, which covers three of the four parts, is a historical survey of what we could call nonneoclassical price theories as they have been developed from the thirties up to this day. In the last part, we have the formalization of a post-Keynesian production and pricing model. It is thus only the last part that corresponds to the title of the book.

But it is the first three parts that are of most interest for historians of economic thought. The theories considered are classified in three groups: administered prices, normal cost prices, and markup prices. Administered prices is of course linked to the work of Gardiner Means, for whom the rise of large modern corporations necessitated not only a new price theory, but a new vision of the economy. As a specialist of Means, Lee offers us a highly detailed review of his contributions as well as a survey of other developments in the theory of administered prices by such authors as J. M. Blair, J. K. Galbraith, A. A. Berle, W. H. Hamilton, R. Tucker, E. G. Nourse, A. D. H. Kaplan, A. D. Chandler, and R. A. Gordon.

Normal cost price analysis originates with empirical work realized in the Oxford Economists’ Research Group created in 1936, whose aim was to study the evolution of economic activity in Great Britain since 1924. The Oxford group largely used interviews with businessmen; these interviews revealed that businessmen do not consider marginalist principles in fixing prices. On the basis of such evidence, R. L. Hall and C. J. Hitch published in 1939 a seminal article, “Price Theory and Business Behaviour,” introducing the concepts of full cost pricing. On the basis of this work, Philip Andrews developed a theory of competitive oligopoly, breaking more clearly with marginalist tradition. He it was who coined the expression “normal [End Page 698] cost pricing” to describe pricing procedures in competitive oligopoly. Lee follows up with further developments in this line of thought by P. Sylos-Labini, H. R. Edwards, W. J. Eiteman, J. B. Williams, J. Downie, R. Robinson, and G. B. Richardson.

Markup pricing brings us closer to a post-Keynesian worldview through Kalecki, who is the originator of the concept, with the closely linked idea of degree of monopoly. Kalecki is thus the principal actor of the third part of the book. An interesting account is given of a little-known controversy between Kalecki and Keynes in the context of the work of the...


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