Abstract
The shape of the cost curve is a major regulatory factor for the production of an enterprise and because the sum of all of the enterprises represents the production of the market economy, the shape of the cost curve is hence an important construction component of the socio-economic system, together with the resulting laws. The purpose of this concluding chapter is to demonstrate its importance.
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Notes
- 1.
Marshall, A. ibid.: 369–371: “stationärer Staat” (Translator’s note: “stationary state” see Marshall, A.: 223). See also Clark, J.B. (1922): 132: “Imaginary Static Society”.
- 2.
See Chap. 1, § 1, III.
- 3.
See Chap. 2, § 4, at the end of II.
- 4.
Instead of all these, see: Pareto, V. Manual of Political Economy, Chap. III, especially No. 106–133.
- 5.
See Chap. 1, § 1, II.
- 6.
See Chap. 1, § 2, IV.
- 7.
See Marshall, A. ibid., Book V, Chap. 11, § 6.
- 8.
Instead of all of these, see also: Walras, L. (1926) 175 et seq.: “Des capitaux et des revenues” (Capital and Income).
- 9.
See Appendix A, VII. Similarly: Moore, H.L. (1929): 145. By contrast, see Aftalion, A. (1911): 346–369, “Les trois notions de la productivité et les revenus” (Three Notions of Productivity and Revenues). Revue d’Économie Politique, vol. XXV. Mayer, H. (1925). Article “Zurechnung” (Allocation) in: Handwörterbuch der Staatswissenschaften, especially I, 2, c.
- 10.
See Barone, E. ibid. § 158: “Potentielle Konkurrenz” (Potential Competition).
- 11.
Clark, J.B. (1922): 203–206, distinguishes five types of dynamic influences: (1) increases in the population, (2) increases in capital, (3) changes in the production method, (4) changes in the enterprise’s organisation and (5) changes in tastes. We do not take (5) into account for our investigation. We can combine (3) and (4) using the term, the “change in the technological level”. We separate (1) into “change in the population”, which we firstly only consider to be a change in the demand side, and “change in available work”.
- 12.
Elasticity < 1.
- 13.
Elasticity < 1.
- 14.
It results from the second minimum condition for average costs.
- 15.
The reason for this fact is that a complementarity relationship (Translator’s note: see Peacock, A.: 65) between the factors of production is stronger than if it were a substitution relationship (Translator’s note: ibid.). Investigating this more widely would be too much work here. In addition, see Chapter 1, footnote 25.
- 16.
Exceptional profits (or exceptional losses) occur whenever the enterprise arrives at its optimum position in cost progression (or cost degression). Here, the entrepreneur’s real income is greater (or smaller) than his “normal income in the long run” (Marshall). Exceptional profits are a residue. In this case, the principle of marginal productivity does not produce a full allocation. The absorption of exceptional profits does not for instance imply a decrease in the entrepreneur’s income; it just brings it into line with the normal level in the long run (in certain circumstances due to rationalisation, this income actually increases by an amount that exceeds the amount of exceptional profits).
- 17.
We will now add two remarks on the issue of generalisations about the earlier results in this section:
-
(a)
We have primarily carried out our critical analysis as if there were only two factors of production, that is, capital and work. The results can be generalised without difficulty if we include land and entrepreneurial services as factors of production in our investigation. The assumption that is also more complicated but closest to reality, that is, the inhomogenous composition of the individual factors of production, leads to observations that are fundamentally the same. However, we cannot trace this idea back. That would require a specific investigation.
-
(b)
Mathematically speaking, all functions that occur in our theoretical concept are “location functions”. Therefore, we can only use isolation methodology if it is a question of comparing a starting and finishing level and then studying the effects of individual changes in turn. We shall content ourselves with that here. An examination of the “methods” would last too long. We can arrive at the final outcome of a simultaneous increase in population and work, for example, by firstly studying a decrease in work and then in population size. The intermediary stages of our analysis would however deviate from reality. A closer examination must really be the subject of a special study.
-
(a)
- 18.
The term “technological progress” should be understood very broadly in the following pages. By “technological progress” we mean the improvement in production methods. This technological progress then includes scientific-technological discoveries and inventions, as well as improvements in structure, location and supplementary apparatus, etc.
- 19.
If, for reasons of simplification and along with Cassel, G. we assume a supply of factors of production that is independent of price.
- 20.
An interesting discussion about this problem has taken place in research articles. Cournot, A. was the first to tackle it and he made implicit assumptions that each of the two suppliers takes the respective supply of the other as a given variable, but he does not deal with the other possibility. The criticism by Bertrand, J., Edgeworth, F.Y., Marshall, A. and Pareto, V. is relevant here. This led to a fairly general rejection of Cournot’s line of argument but without the question of the assumptions being checked in enough detail. Wicksell, K. and Schumpeter, J. are similarly not entirely correct about this matter of the Cournot solution. Similarly, Schneider, E. is not correct either. Amoroso, L. indeed sees the difference between the assumptions but ignores the potential and meaning of the competitive battle described above. Kurt Sting again deals with the entire problem very satisfactorily. He works clearly through the assumptions. However, he might be overestimating the practical importance of “polypolitical” pricing and the Cournot duopoly but underestimating the reality of “hyperpolitics”. In the literature, see the article cited by Kurt Sting in Chapter 2, footnote 42, which provides a good overview of the literature. Again, see Schneider, E. (1932). (Beiträge zur ökonomischen Theorie (Contributions to Economic Theory): 4.)
- 21.
In the Pareto polypoly, each enterprise attempts to launch a particular quantity and to force it on the others as an unchangeable variable. The total of these quantities is the Pareto polypoly’s aggregate supply which naturally involves heavy losses for all rivals and is therefore only able to be sustained for a short time.
- 22.
The conclusions in this section supplement proposition (XVII). In conjunction with this proposition, they form the basis of an analysis of some theoretical ideas:
-
(a)
Hence e.g. the diagrams in Alfred Marshall Principles of Economics, Figs. 24, 26, 28, 29, 30, 32, 33 and 35 appear to serve no purpose because they are based partly on assumptions about the competitive economy (in particular, they assume that the intersection point of the supply and demand curve produces the equilibrium point (Translator’s note: “equilibrium point” see Heertje, A.: 48) but also partly on assumptions that are incompatible with the competitive economy (in particular, decreasing supply curves). However, the diagrams can only be rescued if we interpret the demand curve as being a marginal revenue curve rather than a price curve and interpret the supply curve to be a marginal cost curve and this phenomenon incidentally applies to the monopoly.
-
(b)
Cassel, G. (1932): 86–88 (Translator's note: The exact quotation from the English translation “The Theory of Social Economy” by Cassel, G. (tr. McCabe, J. 1923: 102) has been used)) selects the following proposition as his second supplementary proposition of pricing. “When a larger output means cheaper production—when, that is to say, the average cost of the article, based upon the total production, is lowered by an increased production—the price of the article must, for the sake of equilibrium, correspond to the average cost of production”. This statement equates to the principle of the satisfaction of needs and wants but is irreconcilable with the profit-making principle in free competition. Indeed, the price and average cost equation applies to the competitive enterprise, as shown above. These enterprises are however subject to the law of diminishing returns. The law of increasing returns is only possible in the profit-making economy with a monopoly. As we have shown, the price and average cost equation probably applies formally, not only because we must also see the price for entrepreneurial services as a component of cost in equilibrium, no matter whether this is a competitive price or a monopoly price.
-
(a)
References
Cassel, G. (1932). Theoretsiche Sozialökonomie (published in English as: The Theory of Social Economy): 86–88.
Clark, J.B. (1922). Essentials of Economic Theory: 132, The MacMillan Company, New York, p. XI+561.
Moore, H.L. (1929). Synthetic Economics. 145.
Schneider, E. (1932). Reine Theorie monopolistischer Wirtschaftsformen, (published in English as: The Pure Theory of Monopoly) Tübingen.
Walras, L. (1926). Éléments d’économie politique pure (published in English as: Elements of Pure Economics): 175 et seq.
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von Stackelberg, H. (2014). The Movement of Costs and the Structure of the Market Economy. In: Foundations of a Pure Cost Theory. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-34537-1_4
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