The Megacorp and Macrodynamics

Essays in Memory of Alfred Eichner

William Milberg

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315488912
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

These essays on Post-Keynesian economics were written expressly for a volume to honour the life and work of Alfred Eichner. The original countributions - that critically examine and extend ideas in Eichner's "The Macrodynamics of Advanced Market Economies" are organized in seven sections that correspond to areas of economics in which Eichner made a significant contribution. Part 1 deals with the megacorp, a theory of firm pricing and investment that was one of Eichner's most important contributions. Issues of productivity and technical change, that lie at the center of Eichner's macrodynamic model, are the focus of part 1 and parts 3 and 4 elaborate on Eichner's work on growth and money and yield insights into the theoretical disagreements among the Post-Keynesians themselves. Part 5 presents a number of examples of non-neo-classical model building. Part 6 opens with a critique of the "new economic history" that leads to other essays on thorny methodological issues confronting Post-Keynesians. Part 7 gives a European perspective on North American Post-Keynesian economics. The essays reveal the relationships between Eichner's work and Institutionalist and Marxian economics. At the same time, the book raises current theoretical conflicts among these groups as well as among Post-Keynesians themselves. This book compliments Alfred S.Eichner's "The Macrodynamics of Advanced Market Economies", also published in 1991, and is appropriate for scholars and upper-level undergraduates and graduate students.

1
Introduction: Social Thought and Social Change—Alfred Eichner's Vision of a New Economics

WILLIAM MILBERG

He was a man of anger and a man of love. He was angry with every form of chicanery, exploitation, privilege. He opposed all forms of orthodoxy in the world of academe or in the world of politics. But he was a man of love within his home and in the community of friends of which he was a part, in the self-chosen circle of post-Keynesian economists among whom he found communion, and, above all, in his classes, where he focused on opening the minds of the young and pointed them in the direction of the truth.

[Ginzberg, 1988]

This description of Alfred Eichner, by Eli Ginzberg, his mentor at Columbia University, captures the passion Eichner inspired in those who knew him well. Eichner's death, at age fifty in 1988, left a void in the economics profession and especially in post-Keynesian economics. But Eichner's legacy is perhaps enigmatic to those who knew him only on a formal, professional level. While he was quite direct, and thus appeared confrontational in his critique of the neoclassical edifice, he spent much of his career building bridges between groups outside the mainstream of the economics profession. While he sometimes appeared to be a maverick in his battles with the entrenched orthodoxy, he was constantly working to coordinate and unify, be it the formation of an American post-Keynesian group or the merging of neo-Ricardian and post-Keynesian thought into a single framework.¹ Eichner's principled and energetic pursuit of social justice led him to take risks, professionally and intellectually, that few other academics were willing to take. He considered the cost of not doing so too high. If new economic thinking could benefit society, then any action in that direction was justified, even if it caused ripples in the profession. Sometimes these gambles were unsuccessful, as when he sought to alter the funding criteria of the National Science Foundation to include some nonmarginalist approaches. Yet more often they succeeded. In 1971 Eichner was involved in organizing post-Keynesian economists into a coherent group and in the 1980s he was essential to the development of a post-Keynesian graduate program at Rutgers University. And his work on pricing and growth theory will likely have a lasting impact on post-Keynesian economics.

Professional Biography

Born in Washington, D.C., in 1937, Alfred Eichner attended public school in Washington and then Columbia College, where he studied history and sociology, and received his BA. in 1958. There were many indications early in his career that his activities were fueled by notions of social justice. As an undergraduate, he was influenced by the work of C. Wright Mills, who drew his attention to the issue of industrial concentration in the U.S. economy. This sparked his interest in economics because it put economic issues at the center of the questions of social power and social justice (Eichner, 1976, pp. x-xi).

As a journalist for his college newspaper, Eichner wrote an exposé on "the University's role in the local housing market," which caused some trouble for the university (Ginzberg, 1988).² After a short jaunt as a reporter for the Washington Star, Eichner returned to Columbia, where he spent the next decade, first earning a Ph.D. in 1966 and then gaining an appointment as assistant professor which he held until 1971.

Eichner received mainly neoclassical graduate training at Columbia, but courses on economic history, comparative economic systems, and institutionalist industrial organization exposed him to ideas outside the mainstream. Even as a first-year graduate student in 1960, Eichner recalled that he "found it impossible ... to reconcile what I was being taught about prices and wage setting with what I already knew of the real world" (Eichner, 1976, p. xi).³ In a course with Alexander Ehrlich on the Soviet economy, Eichner realized that

the way in which Soviet planners used the turnover tax to finance planned investment in that country was remarkably similar to what corporate executives told the Kefauver Committee was the way they used the profits which they added to costs in determining their own prices.

[Eichner, 1976, p. xi]

This insight would ultimately lead to the core idea of the megacorp and its pricing behavior.

Eichner was also involved at Columbia with the project on the Conservation of Human Resources directed by Eli Ginzberg. Eichner joined the staff in the mid-1960s as a research assistant and eventually became Coordinator of Research. While there, he coauthored two books (Ginzberg and Eichner, 1964; Eichner and Brecher, 1979).

Eichner left Columbia for the State University of New York at Purchase in 1971, where he served as Professor of Economics and department chair until 1980, when he became Professor of Economics at Rutgers University and where he remained until his death.

Theoretical Contributions

Eichner's major contributions to economic thought are based on his conception of the firm and its pricing behavior. The representative firm in modern capitalism is oligopolistic, characterized by the separation of management from ownership and with fixed coefficient, multiplant technology, and operating in an industry where price coordination is the norm. This modern firm, which Eichner termed the "megacorp," seeks to maximize its long-run growth. As a result, it must consider its need for investment funds in setting its price:

The idea is that the pricing decision, when some degree of market power exists, is ultimately linked to the investment decision; that, indeed, under the circumstances, prices are likely to be set so as to assure the internally generated funds necessary to finance a firm's desired rate of capital expansion.

[Eichner, 1976, p. x]

The megacorp provides an alternative to the Walrasian and Marshallian notions of the firm and competition,⁴ and has been referred to extensively in post-Keynesian and Marxian models.⁵ The concept of the megacorp also provided a bridge between the microeconomy and the macroeconomy. Conceptualizing the firm as an ongoing concern in which pricing behavior and growth objectives are linked immediately places traditional microeconomic issues in a macro context. The megacorp pricing model was first published as an article (Eichner, 1973), then developed in a book, The Megacorp and Oligopoly (Eichner, 1976).

Chapter 6 of The Megacorp and Oligopoly treats the macro implications of the pricing model, in which Eichner specifies a saving and an investment function and ties each to megacorp behavior in an explanation of growth driven by megacorp accumulation. Joan Robinson showed particular interest in this extension of the model (Eichner 1976, p. xii). Eichner, however, clearly was not fully satisfied with his effort and this project was his major task for the next ten years, until his death. The result was The Macrodynamics of Advanced Market Economies, which is by far his most ambitious work and may ultimately be his most influential.⁶ It was dedicated, appropriately, as follows:

To Joan Robinson who, by first putting together into a coherent whole the alternative post-Keynesian paradigm, showed us the path out of the Valley of Darkness that is the neoclassical theory.

Begun in the late 1970s, the Macrodynamics, ambitious in its coverage and its attempts to synthesize diverse theoretical approaches, was not quite complete when Eichner died. In October 1987 he mailed copies of the unfinished manuscript to a few hundred colleagues, requesting their comments. In his cover letter, Eichner explained:

I am hoping to present, within a single text, a comprehensive treatment of the post-Keynesian (and institutionalist, post-Marxist and behavioralist) alternative to conventional (neoclassical) theory.

Not only did Eichner attempt to bring together his earlier work on human resources, systems theory, megacorp pricing, and econometric modeling, but he placed these in the context of a comprehensive model of economic growth, able to account for cyclical movements around a (moving) long-run growth trend.⁷ Twelve of fifteen planned chapters were completed and the almost-1, 100-page book was published in 1991 (Eichner, 1991 ).⁸

By the early 1980s Eichner was far along in the econometric estimation of various "blocks" of the short-period post-Keynesian model, with the help particularly of Len Foreman and Miles Groves.⁹ In the mid-1980s, Eichner turned increasingly to post-Keynesian growth theory and linear production models of the Sraffian type. He found these two appropriately combined in the work of Luigi Pasinetti (1981). The result of these years of research is the comprehensive economic model of the Macrodynamics, which brings together markup pricing theory with macro models of growth and cycle. In particular, Eichner attempted to meld his notion of the firm and markup pricing to a disaggregated Harrod growth model in which heterogeneous capital goods are produced, not "endowed," and in which money, technical change, and preference formation are endogenous to the social system, not "manna from heaven."

Perhaps most unusual about the model is its inclusion of both traditional short-run post-Keynesian features and neo-Ricardian long-run tendencies. The tenuous alliance between post-Keynesians and neo-Ricardians has often been attributed strictly to their "common enemy"—the neoclassical body of thought—and in particular the neoclassical conception of distribution and factor substitution implied by the theory of marginal productivity. Eichner felt these two groups were linked not simply because of their shared criticism of neoclassical theory. He saw clear value in combining the Keynes approach, which stresses uncertainty, liquidity preference, effective demand, and cycles, with a neo-Ricardian long-period approach, which focuses on the structure of production and the cost-based foundation of industry prices. Eichner looked to the neo-Ricardians for their explanation of the price level, since his megacorp model determined only price changes. He drew from Harrod's growth model for a theory of the long-run growth trend from which actual growth patterns deviate. Pasinetti's disaggregated Harrod model provided Eichner a framework in which to include the megacorp and its short-run behavior in a framework explaining long-run growth trends and prices. In sum, Eichner attempted to analyze the role of the cost of production and technical change in the short run, and to introduce the firm as an ongoing concern, providing a rationale for long-run tendencies. This final grand intellectual project was left incomplete because of his death. While it has yet to be fully evaluated by the profession, The Macrodynamics is likely to have a lasting impact on post-Keynesian thought.

Eichner and the Post-Keynesians

Eichner's association with post-Keynesian economics dates to the period just after he received his doctorate, while he was an assistant professor at Columbia. In 1969 he began corresponding with Joan Robinson about his oligopoly model (Turner, 1989). For the next twenty years, Eichner, along with Sidney Weintraub and Paul Davidson (founders of the Journal of Post Keynesian Economics in 1978, and co-editors until Weintraub's death in 1985), was among the principal advocates of post-Keynesian economics in the United States.

In 1971, with Joan Robmson's encouragement, Eichner helped to organize a meeting of nonorthodox economists which led to the formation of a group of American economists who called themselves "post-Keynesian." In New Orleans in December 1971, seventeen economists met in order to develop strategies for increasing the voice and representation in the profession of non-neoclassical approaches to economics.¹⁰

Eichner met Paul Davidson for the first time at the New Orleans meeting. The two met again two years later in New York, in a meeting Davidson has described as "very influential in moving toward the Journal of Post Keynesian Economics" (Davidson, 1988). The pressure placed on the American Economics Association after the New Orleans meeting in 1971 was partly responsible for the 1975 publication of an article on post-Keynesian economics by Eichner and Jan Kregel (1975) in the Journal of Economic Literature. In the article, "An Essay on Post-Keynesian Theory: A New Paradigm in Economics," Eichner and Kregel argued that post-Keynesian economics had developed to the stage where it was a viable alternative to the flawed neoclassical paradigm. Dissatisfied with the impact of the JEL article, Eichner commissioned a series of essays for Challenge magazine on post-Keynesian economics and then collected them into a book entitled A Gui...