Economists' Cost Rules and Equilibrium Theory

Abstract

This is an article about rules, devised and advocated by certain economists, for the control of business and other undertakings: rules, such as the one which says that marginal cost ought to be equal to price, which prescribe what are claimed to be correct relationships between an undertaking's cost and revenue. I have attacked the rules before, in a paper' which has received some notice.2 The following observations, on four crucial and interconnected issues, succeed a re-scrutiny of some of the fundamental theoretical literature3 which must have guided me in the preparation of that article and one which immediately preceded it.4 While I am still following the same line of attack, seeking to expose the non-objectivity and non-implementability of the rules, I am this time offering a little more than a hint that the rules ought to fall away with the ground on which they were built, that is to say, with the notion of perfect competition or competitive equilibrium. This notion requires, I believe, to be replaced by a different notion of equilibrium which was, I feel, implicitly recognised in the earlier of my two articles to which I have just referred.