Some Thoughts on the Changing Role of Price

Abstract

This article provides some indications that plays a larger part in the coordination of economic activity in the United States than it formerly did. The phenomenon of vertical integration in agriculture, which has been widely associated with a importance of may actually have contributed to its larger importance. It is suggested that casting vertical integration in the framework provided by market structure theory may be misleading. The relationship between market structure theory and agricultural policy is briefly reexamined in this light, and it is argued that the economist should be concerned with restoring to its role of inducing change. IN THIS paper I attach two distinct meanings to the phrase changing role of price, and suggest that by overemphasis and misconception of the first and more common interpretation, we often neglect the second and more important interpretation. Ordinarily, the first meaning of changing role of price refers to the or rising importance of as a coordinator of economic activity. More specifically, what is commonly implied is the declining role of price, since numerous sectors of economic activity can be cited today in which the market system is not the main coordinator. The second meaning of the phrase is that it is the function of to induce change-changing is transitive in this meaning and intransitive in the more common meaning. It is not that I consider the two meanings inconsistent-for they are quite consistent-but my concern is rather that out of preoccupation with market structure analysis, and perhaps a too willing concession of the of importance of we may rationalize interventions into economic activity that proscribe from its change-inducing role. In large measure the separable, and not altogether consistent functions of guiding income distribution and guiding resource allocation account for the ambivalence of agricultural economic policy toward price. To a certain extent this ambivalence reflects the difference between a short-run analysis and a long-run view. It may be that these elements are intermingled to a point where the distinction between income distribution and resource allocation function is blurred because of short- vs. long-run considerations. However, I suspect the importance of has not declined, except through government intervention, but has in fact * Adaptation of a paper read at the WFEA meetings, Laramie, Wyoming, July 24, 1963.