Gardiner C.Mean's Institutional and Post-Keynesian Economics

An Interpretation and Assessment

Warren J. Samuels, Steven G. Medema

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781315490830
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Gardiner Means has a secure place in the history of 20th century economic thought, as the co-author with A.A.Berle of "The Modern Corporation and Private Property". But according to Samuels and Medema, Means should be remembered for major contributions in both micro- and macroeconomics. The authors discuss Means's ideas of administered pricing and profit maximization within the giant corporation, the possible links between industrial structure and macroeconomic performance, a theory of the firm as it relates to the market, and the micro foundations of macroeconomics. Central to Means's macroeconomics is his theory that administered pricing generates inflation and stagflation. Means, in the authors' view, was a seminal thinker and a post-Keynesian economist, as well as an institutionalist. This book also gives an precis of Means's unusual career in government and the academy.

1

Introduction

1. Introduction and Objectives

Gardiner Coit Means died 15 February 1988 at the age of ninety-one. A man of continuous activity in the public arena and not a professional academic, Means was one of the leading and most conspicuous economists of Franklin Roosevelt’s New Deal. Scholars will long remember him as the co-author, with Adolf A. Berle, Jr., of one of the truly epochal books of the twentieth century, The Modern Corporation and Private Property (1932). In terms of the impact which this volume has had on people’s understanding of the modern economy, it is in the same class with John Maynard Keynes’s General Theory of Employment, Interest and Money (1936)—and indeed the relationship of Means’s theories to those of Keynes is one facet in the historic interest of Means.

The purpose of this book is to interpret and assess the contributions of Gardiner Means to the development of economic thought. It is intended to be neither a comprehensive intellectual biography nor a mere summary of his ideas. Means’s significance rests on his fundamental conceptions of the organization and control of the economic system qua system, especially as a system of power; and of the operation of the economy at the micro- and macroeconomic levels within that system. Means’s holism, his focus on the problem of organization and control, and his deep analysis of the corporation as the distinctive major institution of the modern economy, identify his work as institutionalist. His analyses of the structural microeconomic foundations of macroeconomic performance, including the dual economy of market and administered sectors, and of the nature and limits of the microeconomic and macroeconomic adjustment (or coordination) processes, mark his work as a Post Keynesian economist, indeed, as perhaps the first Post Keynesian economist. Accordingly, an interpretation and assessment of Means must relate his work to that of such distinguished economists as Keynes, Schumpeter, John Kenneth Galbraith, Alfred Eichner, and, perhaps most surprisingly, Ronald A. Coase.¹ Also, Means’s ideas concerning price flexibility are of considerable importance for the interpretation of Keynes (though we shall not enter into the discussion of “what Keynes really meant” except tangentially).

Means’s career also yields insight, as we shall see, into a number of areas. First, there is the enormous importance of the interpretive paradigm and other sociological factors for the status and significance of a body of ideas. In part this involves the differential and broad versus a narrow paradigmatic formulation of questions. Second, selective normative premises affect the precise form in which ideas are held (especially, in Means’s case in regard to the theory of the firm). Third, we shall see alternative subtle nuances of what being a conservative in economics can involve. Fourth, there is the role played by filtration mechanisms in economics in formulating, removing, marginalizing, or sanitizing radical ideas (most notably Means’s doctrine of administered prices). Fifth, we shall see how several factors influenced the reception and evaluation of Means’s work: economic and political ideology; methodological disciplinary emphasis on a priori theory rather than messy empiricism; substantive disciplinary emphasis on the Walrasian competitive model; the Keynesian revolution; the sociological (in-group, out-group) structure of the discipline; the privileged position given to the received paradigm; and the diversity of reception and evaluation resulting from diversity within economics, an economics whose basis for interpretation cannot properly be reduced solely to one school, whether that be Chicago or Post Keynesian economics. (It will surprise no one that conservative economists fought what they perceived to be Means’s attack on the capitalist market economy and that liberal economists found reinforcement for various reformist schemes.) Finally, we shall see that the core of Means’s ideas—the corporate system and administered pricing—have ramifications which reverberate throughout all the important dimensions of economics and which fundamentally conflict with more orthodox ideas in every respect.

In the process we shall interpretively comment on the status of various controversies involving his work. One of the interpretive complications arises from the fact that Means’s central ideas, which remained fundamentally intact throughout his adult life, were frequently more or less slightly reformulated in response to both criticism and changing circumstances and also his selective absorption of others’ ideas—for example, those of Keynes and Edward H. Chamberlin, with which he understood his own to compete. Not unlike many other writers, Means focused on and gave great weight to his own ideas, but, like too few others, he also declined to make them the exclusive explanation of relevant phenomena—although he was often perceived as advocating monistic ideas. We shall focus on what we consider the central operative thrust of his ideas, rather than on specific formulations—although in several cases we do pay attention to or at least acknowledge the varying formulations. The reader should be aware that the scope of the present volume prevents detailed consideration of the enormous literature that has developed on the many topics on which Means worked—even limited to those dealing with his work alone, most notably on the statistics of administered pricing and on the meaning and significance of the separation of ownership and control.

Chapter 1 examines the facets of significance attached to Means’s work, the problem of interpretation, a precis of his career, and his general perspective. Chapter 2 treats Means’s conception of the corporate system, including the modern corporation, private property, and the economy as a system of power. Chapter 3 examines Means’s approach to microeconomics, including his theories of administered pricing, the price adjustment process, and the firm in relation to the market. Chapter 4 examines the macroeconomic consequences of administered pricing, including the relation of his ideas to Say’s Law and Keynes’s and Post Keynesian macroeconomics. Chapter 5 offers a necessarily cursory assessment of the reception given Means’s ideas and the relation of his work to that of others. Chapter 6 further assesses the place and significance of Gardiner Means in the history of economic thought.

2. The Problem of Interpretation

It is now widely appreciated that economics is a story-telling discipline, a system of belief rather than of hard, unequivocal science. Some of these stories are orthodox, a function of the professional dominance of a certain school and/or of ideological congruity. Others are heterodox. Yet orthodoxy is itself diverse, and elements of stories which appear radical in heterodox stories are present in more orthodox stories in more or less sanitized versions. It is principally in the most ideological or extreme of the orthodox stories that these heterodox elements are either ignored or more or less ostentatiously rejected, in the latter respect honored, as it were, by the attention given them in order to present a story of conclusive rebuttal. This description fits the ideas of Gardiner Means, the reception and status of whose ideas have very much been influenced by the positions within either a diverse orthodoxy or heterodoxy of the several commentators.

But this means that interpretation and assessment is at least in part a function of perspective. Evaluation tends to give effect to and be tautological with the premises of the interpreter’s standpoint. The future status of Gardiner Means within the discipline and within the written histories of economic thought, will depend on which school, and which faction of the school, has hegemonic standing in the discipline. Already, in the present, the evaluation of his work, for example, with regard to administered pricing and its implications, depends (to use Joseph Schumpeter’s phrase) upon social locational factors. This volume is written within the combined institutionalist and Post Keynesian paradigms and interprets and assesses Means in such heterodox terms and does so affirmatively.

While the precise evaluation of Means’s ideas is a matter of selective perception, less equivocal are the subjects with respect to which Means’s significance must be understood—though the status of the subjects will vary from school to school and to some extent within schools. These facets of significance include: the fundamental conception of the organization and control of the economic system qua system, especially as a system of power; and the operation of the economy at the microeconomic and macroeconomic levels, including the determination of what profit maximization means in practice, the nature and limits of the price adjustment-coordination process, the operation of the firm in relation to the market, and the microeconomic foundations of the macroeconomy and their consequences for instability.

3. A Precis of Means’s Career

Means’s early career was highlighted by a B.A. “war” degree in chemistry from Harvard in 1918 (coming with one semester’s studies remaining); service as an army pilot during World War I; work on Near East Relief in Turkey, 1919–1920; operating his own textile manufacturing firm, 1922–1929; graduate work at Harvard, leading to the M.A. in 1927 and Ph.D. in 1933, with his doctoral dissertation not surprisingly dealing with the corporate revolution; and research work at Columbia law school, 1927–1933, where he co-authored The Holding Company: Its Public Significance and its Regulation (1932) with James C. Bonbright, as well as The Modern Corporation and Private Property—both published in the same year—arguably the most eminently productive six-year research associateship in the history of the discipline.

Means was next employed in a succession of positions in the federal government, including: economic advisor for finance to the secretary of agriculture, Henry Wallace (1933–1935); member of the Consumer Advisory Board of the National Recovery Administration (1933–1935);² director, Industrial Section, National Resources Committee (1935–1939); economic advisor, National Resources Planning Board (1939–1940); and fiscal analyst, Bureau of the Budget (1940–1941). He subsequently was associated with the Committee for Economic Development (CED) (1943–1958) and the Fund for the Republic (1957–1959). During the period 1951–1963 he was involved in his own lawn grass (zoysia) development company. He subsequently was an independent consultant and author.

The other volumes which Means either wrote or edited dealt principally with structural aspects of the American economy and their implications: Patterns of Resource Use (1938), The Structure of the American Economy (1939), Pricing Power and the Public Interest (1962b), The Corporate Revolution in America (1962a).³ He was a major contributor to The Roots of Inflation, edited by John Blair et al. (1975). He published with Caroline F. Ware The Modern Economy in Action (1936). Special notice must be taken of his historic pamphlet Industrial Prices and Their Relative Inflexibility (1935) in which the difference between agricultural and industrial prices and between groups of industrial prices with regard to relative flexibility was examined. Means also published a number of articles in professional journals and in the proceedings volumes of congressional hearings, the latter generally dealing with administered pricing and its microeconomic and macroeconomic consequences.

Means was honored with the Veblen-Commons Award by the Association for Evolutionary Economics in 1974.⁴

4. Means’s General Perspective

Turning to Means’s general perspective and hence to the question of theory in relation to reality, we note first that Robert Heilbroner (1988, pp. 22–23) has identified a remarkable feature of modern market economies, namely, the “decisive change … in the manner in which social controls over behavior are perceived.… The economy appears as an autonomous process, wholly independent of the society within which it operates.”

One example of this process of perception is the standard view that markets produce Pareto-optimal results. Actually there is no unique Pareto-optimal result, only results specific to the entitlement or power structures which give rise to them. But professional practice and cultural ideological preconceptions lead us to perceive or to stress only the market process and its optimizing result, whereas in fact the market only gives effect to the power structure which forms, operates through, and channels the market.

Another example is the pervasive constrained maximization mode of analysis in economics in which individual agents are said to make choices within their opportunity sets so as to maximize utility, profit, or other advantage. This practice obscures the processes by which both the structure of opportunity sets and the substance of individual objective functions are formed, by making maximization the starting point of the analysis. In all these respects economic reality may be said to be either different from or much more complex than what is recognized by economic theory and economic ideology. Trade between giants and between giants and pygmies is treated as no different from that between pygmies. Both power and other social relationships are, through reification, obscured by the imagery of pure, autonomous, and automatic market forces.

This was essentially the view held by Gardiner Means.⁵ From the very beginning of his thinking about economic matters, some of it based on his experience in Turkey, Means perceived that economic theory manifested a rather myopic vision of the market economy. Details of this perception will be explored below, but the general insight was that twentieth-century economists take for granted a certain institutionalization of the capitalist market economy that is radically different from that in place in both earlier periods and different areas. In the modern economy prices are set by sellers in their formation of contracts which, typically, the buyer either accepts or rejects but to which the buyer can add nothing substantive through bargaining (called contracts of adhesion or standardized contracts). The corporate stockholder in the modern economy is the passive recipient of dividends without the legal rights and opportunities earlier accorded ownership. In one respect these features are taken to constitute the essence of capitalist markets both past and present, whereas they represent major changes in the system. In another respect we perceive these features as if they comported with images of pure market price formation and the stockholder-as-ultimate-power-holder—which means that we perceive neither the adhesion (rather than bargaining) nature of contracts nor the passive nature of stockholding.

Means repeatedly lamented over economists’ lack of attention to changes in important institutional details which represented major changes in the structure of the economy. He objected to the huge gap between theory—especially its emphasis upon Smithian atomistic competition as being descriptively accurate—and reality; and to the mechanistic determinism of neoclassical theory which focused on the hypothetical, the logical, and the presumptively optimal in contrast to empirical institutional complexity.⁶ He saw economics dominated by mechanistic deductive elegance and by a seeming belief in an independent metaphysical order both transcending and rendering almost completely nugatory the actual phenomena and processes through which people live as economic actors. He objected above all to the exclusion and obfuscation by economic theory of the actuality of power, of the market process structured and moved by power play among economic actors with unequal resources. He had, as Bernard Nossiter (1962, p. 27) has remarked, “a taste for examining the economy as it is rather than as it ought to behave according to orthodox precepts,” and was not an economist who “wrestled to fit facts to orthodox theory.” As Means expressed the matter, through his undergraduate study of chemistry he “received a heavy indoctrination in the scientific method, which makes theory grow out of the results of observation and constantly tests that theory through new observations” (Means 1975, p. 149). Accordingly, Means believed that his conception of what constitutes “scientific analysis” differed from the neoclassical conception, or at least its practice.

Apropos of the question of reality versus theory, it is interesting (especially in light of what we have to say in chapter 3 about the relationships between Means’s and Coase’s theories of the firm) that what Coase says about pricing theory based on welfare economic reasoning also applies to Means in regard to administered or full cost or markup pricing:⁷

Marginal cost pricing as a policy is largely without merit. How then can one explain the widespread support that it has enjoyed in the economics profession? I believe it is the result of economists using an approach which I have termed “blackboard economics.” The policy under consideration is one which is implemented on the blackboard. All the information needed is assumed to be available and the teach...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Preface
• 1. Introduction
• 2. The Modern Corporation: Property and Power
• 3. A New Microeconomics
• 4. The Macroeconomic Consequences of Administered Prices
• 5. The Reception of Means’s Work and the Relation of His Work to That of Others
• 6. Gardiner C. Means in the History of Economic Thought: A Preliminary Assessment
• Notes
• References
• Index
• About the Authors