by Machlup
[Publication Metadata and Introduction to Marginalism]: This segment contains the publication metadata for Fritz Machlup's 1946 article and introduces the debate surrounding marginal analysis. Machlup defines marginalism as the logical process of finding a maximum and addresses critics who argue that it is an inapplicable or unrealistic postulate for explaining business conduct. [I. Marginal Analysis of the Single Firm: Output and Revenue]: Machlup clarifies the theoretical foundations of the marginalist analysis of the single firm, emphasizing that it is a theory of adjustment to change rather than a complete historical explanation of a firm's existence. He argues that cost and revenue magnitudes are subjective estimates held by the businessman, not objective calculations by outsiders. He also addresses the range of price variations and the time-range of anticipations, explaining how 'short-run' and 'long-run' costs are determined by the expected duration of demand conditions. [Non-Pecuniary Considerations and Input Analysis]: This section explores the role of non-pecuniary motivations, such as social prestige or managerial interests, and how they qualify the assumption of money-profit maximization. Machlup then transitions to the analysis of input, defining 'marginal net revenue productivity' as a multi-step subjective estimate involving physical product, market prices, and incidental expenses. He argues that marginal productivity reflects all technological, market, and supply conditions, and that the 'difficulty of calculating' these variables is a misunderstanding of how routine decisions (like driving a car) function in reality. [II. Empirical Research on the Single Firm: Average Cost and Pricing]: Machlup critiques empirical studies that claim businessmen use 'average cost' or 'full cost' pricing instead of marginal analysis. He argues that businessmen often use average cost as a linguistic rationalization for 'fair' pricing or as a rule of thumb that actually reflects an underlying marginal calculus regarding demand elasticity and potential competition. He specifically reinterprets the findings of Hall and Hitch, suggesting their data on 'fear of competitors' actually supports the marginalist view of demand responsiveness rather than disproving it. [Critique of Lester's Research on Wages and Employment]: Machlup provides a detailed critique of Richard Lester's empirical research on the relationship between wage rates and employment. He identifies several methodological flaws, including the use of mailed questionnaires, the failure to isolate variables, and a misunderstanding of the relationship between decreasing unit variable costs and marginal productivity. Machlup argues that Lester's findings on 'labor-saving machinery' and price adjustments actually align with marginalist predictions, despite Lester's claims to the contrary. [Conclusions on Marginal Analysis and Empirical Research]: In the concluding section, Machlup asserts that marginal theory remains robust and has not been disproved by the cited empirical tests. He advocates for more sophisticated empirical research that moves beyond simple questionnaires to include personal interviews and a deeper understanding of the theories being tested. He emphasizes that sharp criticism of flawed research is necessary to prevent the confusion of students and to improve the quality of future economic investigations.
This segment contains the publication metadata for Fritz Machlup's 1946 article and introduces the debate surrounding marginal analysis. Machlup defines marginalism as the logical process of finding a maximum and addresses critics who argue that it is an inapplicable or unrealistic postulate for explaining business conduct.
Read full textMachlup clarifies the theoretical foundations of the marginalist analysis of the single firm, emphasizing that it is a theory of adjustment to change rather than a complete historical explanation of a firm's existence. He argues that cost and revenue magnitudes are subjective estimates held by the businessman, not objective calculations by outsiders. He also addresses the range of price variations and the time-range of anticipations, explaining how 'short-run' and 'long-run' costs are determined by the expected duration of demand conditions.
Read full textThis section explores the role of non-pecuniary motivations, such as social prestige or managerial interests, and how they qualify the assumption of money-profit maximization. Machlup then transitions to the analysis of input, defining 'marginal net revenue productivity' as a multi-step subjective estimate involving physical product, market prices, and incidental expenses. He argues that marginal productivity reflects all technological, market, and supply conditions, and that the 'difficulty of calculating' these variables is a misunderstanding of how routine decisions (like driving a car) function in reality.
Read full textMachlup critiques empirical studies that claim businessmen use 'average cost' or 'full cost' pricing instead of marginal analysis. He argues that businessmen often use average cost as a linguistic rationalization for 'fair' pricing or as a rule of thumb that actually reflects an underlying marginal calculus regarding demand elasticity and potential competition. He specifically reinterprets the findings of Hall and Hitch, suggesting their data on 'fear of competitors' actually supports the marginalist view of demand responsiveness rather than disproving it.
Read full textMachlup provides a detailed critique of Richard Lester's empirical research on the relationship between wage rates and employment. He identifies several methodological flaws, including the use of mailed questionnaires, the failure to isolate variables, and a misunderstanding of the relationship between decreasing unit variable costs and marginal productivity. Machlup argues that Lester's findings on 'labor-saving machinery' and price adjustments actually align with marginalist predictions, despite Lester's claims to the contrary.
Read full textIn the concluding section, Machlup asserts that marginal theory remains robust and has not been disproved by the cited empirical tests. He advocates for more sophisticated empirical research that moves beyond simple questionnaires to include personal interviews and a deeper understanding of the theories being tested. He emphasizes that sharp criticism of flawed research is necessary to prevent the confusion of students and to improve the quality of future economic investigations.
Read full text