Lord Keynes — Why Hayek’s Theory of Prices and Knowledge is Flawed

Frederic S. Lee explains in the passage below from insights by the British economist George Richardson....

Social Democracy For The 21St Century: A Post Keynesian Perspective
Why Hayek’s Theory of Prices and Knowledge is Flawed
Lord Keynes

Lord Keynes — Lavoie on Mark-up Pricing in Neoclassical Theory

The lesson is to beware of neoclassical re-interpretations of administered pricing.

One must not confuse the neoclassical concept of marginal costs with average costs of production per unit. The two are not the same thing.

And, above all, the administered pricing behaviour of many firms is inconsistent with the idea of profit-maximisation in neoclassical theory.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Lavoie on Mark-up Pricing in Neoclassical Theory
Lord Keynes

Lord Keynes — Lavoie on Administered Prices

The consequences of this are the following:

(1) one of the major (alleged) mechanisms driving an economy to Walrasian full employment equilibrium collapses and the whole notion that market economies have a strong tendency to general equilibrium must be abandoned, and

(2) the Austrian (or Misesian) notion that market economies have a strong tendency to economic coordination effected by firms’ adjusting their prices towards market clearing values is fundamentally flawed and wrong.

As we've argued many times here at MNE.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Lavoie on Administered Prices

Lord Keynes

Lord Keynes — Lee’s Post Keynesian Price Theory: Chapter 6

Short account of why marginalism is wrong. Business does not operate in terms of marginal price since it is inefficient, contrary to what neoclassical economics, which is defined by marginalism, holds, as well as to Hayek's market approach to information economics.

Social Democracy For The 21St Century: A Post Keynesian Perspective

Lee’s Post Keynesian Price Theory: Chapter 6

Lord Keynes