The New York Times ECONOMICS AND FINANCE 'Monopoly Prices': An Echo of 1938 By EDWARD H. COLLINS Two Administration economic the recession of 1937-38 and as advisers, testifying last week be- the philosophic foundation for the fore the Joint Committee on the Temporary National Economic Committee. Economic Report, struck a note The chief weaknesses of Means which must have sounded strangely study were the failure of its au- familiar to those whose memories thor to relate his price findings to go back to the days of the Tem- the history of price behaviorism porary National Economic Com- over the years on the one hand mittee and the events preceding and over the entire business cycle the latter's creation on June 16, on the other. 1938. To Means, "rigid prices" were These economists were asked more or less assumed to be a their opinions about the recent recent development, a product of break in the prices of farm com- modern industrial concentration modities. They didn't, it seems, and "administered prices." Com- view this too seriously. What menting on this assumption, Rufus really disturbed them, they told Tucker, writing in "The American the committee, was the fact that Economic Review" for March, there had been no evidence of a 1938, quoted price series going decline in a number of industrial back as far as 1837 to show that prices. Farm prices, they observed, "the most striking change of the "are sensitive to demand and sup- last ninety years has not been the ply relationships. The prices of development of rigid prices but the many industrial goods, on the other development of extremely flexible hand, are kept high, partly through prices." And he added: monopoly and partly through ad- "To assume that men like Smith, ministered price practices." Ricardo and Mill were not aware In some respects this was at of these facts (that the prices of least superficially an odd spectacle fabricated materials behaved dif- -this spectacle of two economists ferently from those of raw ma- who have rarely overlooked an op- terials) is preposterous. Clas- portunity to proclaim the virtues sical theory rests on the assump- of "economic stability" now speak- tion that with declining demand, ing as if there were something unless at the same time costs of peculiarly virtuous about a com- production decline correspondingly, modity that could plunge, as corn output would be reduced. The has done in the last twelve months, recent discovery by certain econo- from $2.80 a bushel to around mists and politicians of a phe- $1.15, and something correspond- nomenon that was common and ingly sinister in the fact that the generally known in the eighteenth prices of farm machinery and steel century is, in my opinion, no rails had not performed in similar more important and no less ridicu- fashion. It was particularly odd lous than the discovery by in view of the fact that these Moliere's bourgeois gentilhomme gentlemen are advisers to an that he had been speaking prose Administration which is whole- all his life.' heartedly committed to a policy Next to Means' acceptance of of supporting (or "administering") the recent behavior of prices as farm prices. a strictly modern phenomenon, and But if this testimony may have largely indigenous to the Ameri- appeared contradictory on its face, can industrial system, the chief it was essentially neither new nor weakness of his theory was its original, For these Administration failure to consider price behavior experts were merely reviving a over the whole business cycle. This thesis that was currently fashion- would have revealed, generally able in the late 'Thirties, the thesis speaking, that prices, which are of "rigid," "stick" or "monopoly" the most volatile on the downside prices. Stated in its simplest are also the most volatile on the terms this theory is that depres- upside (as witness farm prices be- sions are a consequence of "a tween 1939 and 1948), and that general dropping of prices at the those which are the slowest to re- flexible end of the price scale and cede are also likely to be the slow- dropping of production at the est to advance. rigid end, with intermediate ef- The simple truth of the matter fects in between." is, of course, that some prices are The above quotation is from a more volatile than others and al- study, "Industrial Prices and Their ways will be; that the maladjust- Relative Inflexibility" by Gardiner ments between the more volatile C. Means, which introduced this and the more stable prices is one theory and was produced around of the major evils incident to in- 1934 when its author was economic flation and deflation; that what adviser to the then Secretary of people need is, not more volatile, Agriculture, Henry A. Wallace. It but more stable, prices, and that was rewritten in January, 1935, the best known way of achieving and published as a Senate docu- this is by preventing inflation. of ment. But its chief claim to prom- which deflation is, if not inevitably finence is that it was later to be at least all too frequently, the ul. ked as rationalization of timate sequel.