Recession & Regulation
To the Editor:
I read Professor Abba P. Lerner’s article, “Halting the Current Recession” (February) with considerable interest. As usual he takes a forthright and original position on an important issue.
Begging the precise “causes” of the current (mid-February 1958) lower level of economic activity, there is every reason to suggest that the “monopoly power” which permits administered price-making, be it on the product or labor side, is undesirable from a general or social point of view. Of course, the individual firm or labor union thinks it is following a wise economic policy for its own group.
Perhaps Professor Lerner is correct when he says: “The time has come to wind up the deploring, the quoting, the preaching, and the declaration of conversion, and instead, by regulating administered prices and wages, to provide the restraint needed to protect the free economy from sellers’ inflation” (my emphasis). As an economist who spent two years with the Office of Price Stabilization in Washington, I fully agree with Professor Lerner on the difficulties of price controls, and fear that the scheme he suggests might degenerate into this type of activity. But this is basically an administrative problem.
I suggest that Professor Lerner has properly diagnosed one vital aspect of the problem: “. . . existing so called anti-trust policies . . . have become in effect anti-competition policies and need to be reconsidered” (my emphasis). I would strongly recommend that effective anti-monopoly policies, with respect to both prices and wages, be instituted. Such policies should be carefully explained to the public in order to avoid adverse effects from either business or labor.
In a free private enterprise economy, I suggest that exhortations are generally ineffective. The experiences of World Wars I and II, and the Korean war, demonstrate this point as well as can be expected. I feel that Professor Lerner’s suggestion deserves very serious consideration, as do other remedies.
University of Notre Dame
To the Editor:
Professor Abba P. Lerner’s article makes a very valuable and important distinction between price control, which he defines as the attempt to set prices below the figure that would “clear the market,” or cause to be sold all the goods that could be produced in any particular line, and price regulation, which he defines as an attempt to find and fix a price which will bring about the sale of all the output that existing productive capacity in any particular line is capable of turning out. In general, such regulated prices would usually be lower than the “administered” prices now set by powerful employers’ groups in many lines. For the big manufacturing companies, as we can see merely by looking around at the present employment and output situation, have set prices a good deal higher than the price which will tempt consumers to buy substantially all the output that could be produced. . . .
I would like to make one criticism to the effect that Professor Lerner, perhaps because of the limitation of space, has not given sufficient consideration to the fact that such price regulation would have to be applied simultaneously in a good many different industries in order to be effective. The steel industry and its currently lagging output can be used as an example. Lowering steel prices in order to sell more basic steel products would not be very effective unless the prices of automobiles, farm machinery, building construction, tubes and pipes, machine tools, and other important fabricated steel products were also reduced to the point where full output in these lines could be sold, thus generating a bigger demand for steel, which might otherwise not result just from reducing steel prices.
Alfred Baker Lewis
New York City