Tibor Scitovsky

Market Power and Inflation

I would like to present to you an explanation of inflation in terms of the market power of the buyers and sellers whose behaviour determines prices and wages. That has been done before, of course. A good example is that most simpleminded explanation of all, which blames inflation on the overweening power of labour in the labour market. My argument is only a little less simpleminded than that; and while it mostly consists of well tried and well tested bits and pieces, I hope it will provide a new way of looking at some of our old problems and will focus attention on a shortcoming of the market economy: its inadequate handling of the problem of distribution. In our economy, the market performs the economic functions, most of them pretty well. It does so at a cost; but the costs of the market are kept manageable by our use of money, because money prices are the simplest form in which to express and handle market information, and also because its use splits barter into separate sales and purchases, which greatly simplifies the exercise of economic rationality. Unfortunately, however, the splitting of barter into separate buying and selling also has a serious drawback: it divides between factor and product markets the performance of a function-the distribution of income-which would be much better performed by undivided acts in a single market. In a barter economy, wage contracts would fully and unequivocally determine labours share in societys income. In a money economy, labour believes that wage contracts determine its share in income; but that belief may be true or false, depending on how product prices and their relation to labour costs are determined. Price formation in product markets validates the income distribution determined in labour markets, and confirms expectations created by wage contracts, only if the balance of power between the transacting parties is the same in the two markets. An example of such sameness is universal perfect competition. Another, more important because more practical, example is the case where producers have the upper hand in both the market in which they sell their products and the market in which they hire their workers. Whenever the balance of power in the labour market differs from that in the product market, price formation in the two markets has conflicting impacts on the distribution of income; and I aim to show that that conflict, and the resolution of that conflict, leads to a one-way drift in the general level of wages and prices, which is part of the world-wide inflation we experience today. An extreme case of such conflicting power relations is that where producers dominate product markets and organized labour dominates the labour market. There probably is such a conflict in some countries today: but I should like to focus here on a more common form of it which, though more moderate, is not much less inflationary: the conflict between producer dominance in product markets and parity of power between labour

My own criticism of the joyless economy

Abstract The Joyless Economy focused on the boredom of the idle rich and neglected the boredom of the idle and idled poor. However, their boredom is much more serious than what the book dealt with, because it is chronic and often incurable. It usually begins with the neglect of destitute children who never learn how to concentrate on learning in school, become unruly and often end up unemployable, and have no better way than violence to release their energies.

Notes on the producer society

SummaryThe author criticizes economists for their uncritical acceptance of consumers’ revealed preference and tries to explain the preferences manifest in the United States by tracing them to cultural influences, especially the Puritan Ethic, and to economic factors, such as producers’ domination and economies of scale. Differences between American and European behavior patterns are sought mainly in comparative time budgets and Hawtrey’s distinction between defensive and creative consumption is revived as a framework suitable for such analysis.

Can Changing Consumer Tastes Save Resources

In the past, economic progress has mostly taken the form of a rise in labour productivity based on the substitution of mechanical for muscular energy and of material for human resources. The automatic forces of the market reinforced and speeded up that trend by raising the prices and so discouraging the consumption of all those sources of satisfaction that depend solely or mainly on human interaction. An example of these is the performing arts, whose prices rose and use declined with the rise in wages, except where public policies and subsidies slowed or arrested the process.

The Theory of Balance-of-Payments Adjustment

T HERE are two striking things about the balance-of-payments problem. One is the stubbornness with which it defies solution in the international realm; the other is the ease and smoothness with which the problem is resolved between regions of the same country. We have just about lost faith in the existence of automatic market forces equating foreign payments and foreign receipts, so weak and imperfect seems their action; at the same time, most people are not even aware that the same balance-ofpayments problem might also exist between different parts of a country, so perfect and automatic is its resolution. The contrast is puzzling even in an age that has built, in the European Economic Community, a halfway house between international and interregional relations. The contrast between the virtual breakdown of the balance-of-payments adjustment mechanism between nations and its smooth perfection between regions used to be explained by the difference between the international immobility and the interregional mobility of labor. But this, at best, is only a partial explanation. For one thing, the difference between international and interregional labor mobility is not so very great. There is plenty of evidence that labor moves reluctantly and only as a last resort even within the same country; whereas interregional payments adjustment is so smooth that the stage of last resort seems never to be reached. For another thing, the movement of labor is not a strong equilibrating force. All that the equilibrating effect of peoples moving amounts to is that a fall in national income is less painful when it means a fall not in employment but in population; and that an expansion is more welcome when, thanks to the inflow of labor, it means a rise not so much in prices as in real income. Besides, when people move-and even when their movement is prompted by economic necessity-they take with them liquid assets, which tends to aggravate the payments imbalance, at least in the short run. The mobility of labor therefore is at best a long-run equilibrating factor, capable of dealing only with secular imbalance in the balance of payments. We have to look elsewhere to explain the smoothness of short-run adjustment in and short-run financing of interregional payments; and the main explanation, I suspect, is the movement of assets. Accordingly, I propose to discuss in some detail the contrast between the interregional mobility and the international immobility of assets as an explanation of the great difference between interregional and international payments adjustment. To analyze payments imbalance, it is convenient to deal separately, first with the current and then with the capital account of a communitys balance of payments. The very existence of a current-account imbalance creates equilibrating forces; and so does a change in the current-account balance, whether or not the initial situation is one of equilibrium. The equilibrating forces in the

Culture is a good thing: A welfare-economic judgment

Cul ture comprises some of the best, most valuable things life has to offer. People involved in a cultural activity or interested in its products instinctively feel it to be so; but instinctive beliefs are not always easy to substantiate by logical reasoning. In the ease of cultural activities, however, a very simple argument establishes them as superior sources of satisfaction, from the individuals as well as from societys point of view.

Are Men Rational or Economists Wrong

Publisher Summary Economics, having originated in the age of reason, has adopted the rationality of man as one of its basic postulates. The assumption of human rationality is a powerful simplification of the economists model of reality; this is neither the first nor the last time that economists sacrifice realism for simplicity. Moreover, economists can proudly point to seeming confirmations of their rationality hypothesis. Many implications of several of the economists theories of individual behavior are based on this hypothesis; and every time empirical data fail to contradict it, the economists belief in human rationality is understandably strengthened, whatever psychoanalysts may say to the contrary. Having sounded a warning against a too easy assumption of mans rationality, one may well ask if economists have ever come across proof of mans irrationality. Not surprisingly, perhaps, economists are human. They sometimes do and sometimes do not find what they are looking for; however, very seldom do they find what they are not looking for. Their faith in mans rationality is almost absolute: Perhaps the only generally accepted exception to it is a minor one, known as the money illusion.

Inequalities: Open and Hidden, Measured and Immeasurable

The paper discusses which inequalities can, and which cannot, be measured by the economists data. Among the inequalities of wealth, income and consumption, the second is shown to be the most relevant, although it must be corrected for the redistributive effects of taxation and transfer payments and then summed with both the distribution of public goods and services and the distribution of freely rendered non market private services. Beyond the distribution of these measured and measurable components of satisfaction, account is also taken of nonmeasurable sources of welfare, such as work and leisure. Their distribution is shown to be positively correlated with the unequal distribution of money income, and guesses are made concerning their relative importance.

Why the US Saving Rate is Low — A Conflict between the National Accountant’s and the Individual Saver’s Perceptions

America’s economic troubles are blamed on many causes, among them on the improvidence of the general public. Americans are accused of being spendthrifts and of having become more so in these difficult stagflationary years when, so the argument runs, saving is desperately needed to make possible investment and the rise in productivity, which hinges on investment. The accusation is based on statistical evidence, which indeed shows that personal saving as a proportion of disposable personal income in the United States has fallen to its lowest level in 30 years during the late 1970s and has been for a long time quite a bit lower than it is in most Western European countries. During the 1960–78 period, for example, the US saving rate averaged 6.9 per cent, which is just about the same as Sweden’s 6.8 per cent average for the corresponding period and Great Britain’s 6.9 per cent; but significantly lower than Western Germany’s 11.9 per cent, France’s 13.2 per cent, and the Netherland’s 14.7 per cent average.

The Political Economy of Josef Steindl

What follows is a paper presented in May 1992 in Vienna at a conference honoring the eightieth birthday of Josef Steindl. Tibor Scitovsky is an emeritus professor of economics at Stanford where he was a colleague and close friend of the late Paul Baran, co-author with Paul Sweezy of Monopoly Capital, published by MR Press in 1966. The paper is published with the authors permission.This article can also be found at the Monthly Review website, where most recent articles are published in full.Click here to purchase a PDF version of this article at the Monthly Review website.