GARDINER C. MEANS Institutionalist and Post Keynesian GARDINER C. MEANS Institutionalist and Post Keynesian Warren J. Samuels Michigan State University and Steven G. Medema University of Colorado at Denver O Routledge Taylor & Francis Group LONDON AND NEW YORK First published 1990 by M.E. Sharpe Published 2015 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon 0X14 4RN 711 Third Avenue, New York, NY 10017, USA Routledge is an imprint of the Taylor & Francis Group, an informa business Copyright © 1990 Taylor & Francis. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Notices No responsibility is assumed by the publisher for any injury and/or damage to persons or property as a matter of products liability, negligence or otherwise, or from any use of operation of any methods, products, instructions or ide as contained in the material herein. Practitioners and researchers must always rely on their own experience and knowledge in evaluating and using any information, methods, compounds, or experiments described herein. In using such information or methods they should be mindful of their own safety and the safety of others, including parties for whom they have a professional responsibility. Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloging in Publication Data Samuels, Warren J., 1933— Gardiner C. Means: institutionalist and post Keynesian / by Warren J. Samuels and Steven G. Medema. p. cm. ISBN 0-87332-615-6 : ISBN 0-87332-616-4 (pbk.) 1. Means, Gardiner Coit, 1896- . 2. Institutional economics 3. Keynesian economics. I. Medema, Steven G. II. Title. HB119.M43S36 1990 330.1—dc20 90-30976 CP ISBN 13: 9780873326155 (hbk) To Sylvia and Debra Contents Preface ix 1. Introduction 3 1. Introduction and Objectives 3 2. The Problem of Interpretation 6 3. A Precis of Means’s Career 7 4. Means’s General Perspective 8 2. The Modern Corporation: Property and Power 15 1. Introduction 15 2. The Corporation 17 3. Concentration and Size 19 4. Dispersion of Stock Ownership 20 5. Separation of Ownership and Control 22 a. The Meaning of Control 22 b. Profit Maximization 26 c. The Separation of Ownership and Control 31 6. The Corporate System: The Economy as a System of Power 39 7. The Changing Meaning of Private Property: Collectivized 43 8. The Economy as a System of Power 46 9. The Corporation as Private Government 50 3. A New Microeconomics 55 1. Administered Prices 55 2. The Price Adjustment Process 63 3. The Theory of the Firm in Relation to the Market 67 4. The Macroeconomic Consequences of Administered Prices 77 1. Introduction 77 2. Administered Pricing and Inflation 80 3. Means in Relation to Keynes 84 4. Accounting for the Cost of Idle or Excess Capacity 91 5. The Reception of Means’s Work and the Relation of His Work to That of Others 95 1. Introduction 95 2. Means’s Dissertation 96 3. Facts, Paradigms, Ideology, and Discourse 98 4. Already and Newly Established Fields 99 5. Aspects of Filtration 100 6. “ A Man of One Idea’ ’ 105 7. Recollections of Early Perceptions 106 8. The Status of Means’s Work 116 a. A General Mosaic 117 b. Random Surveys of Several Fields within Economics 122 i. Keynes and Keynesian Economics 122 ii. Intermediate Microeconomics 124 iii. Intermediate Macroeconomics 127 iv. The Corporation and Corporate Power 130 9. The Sociology of Academic Opportunity 136 10. Means as an Outsider 142 6. Gardiner C. Means in the History of Economic Thought: A Preliminary Assessment 145 Notes 161 References 175 Index 183 About the Authors 197 Preface The authors are profoundly indebted to Caroline F. Ware, Fred­ eric S. Lee, and John Munkirs for materials and insights not otherwise obtainable. Professor Lee has been especially generous in sharing materials which he has collected from various archival and other sources as well as his own manuscripts. He also was both very helpful in offering suggestions for revision of an early draft of this book and very sympathetic in regard to differences in interpretive nuance (indeed, the reader may find the several points of interpretive difference of some interest). Caroline Ware has been most helpful in providing various materials and in responding to questions about her late husband. She has also been most gracious in differing with us in the interpretation of Means as Post Keynesian and Institutionalist, noted in chapter 5. We are indebted to John Wisman of American University, and to Vivian Wiser and Thomas S. Shorebird of the Economic Research Ser­ vice and the Graduate School, respectively, of the United States Department of Agriculture, for information concerning Gardiner Means’s teaching activities at American University and the Grad­ uate School. We are also indebted to colleagues in the Department of Economics, Michigan State University, for instructive discus­ sions pertaining to Gardiner Means and his work. Not least we are indebted to John Pheby for the initial stimulation which led to this work. Some indication of the scope and direction of this study can be ix * PREFACE achieved by examining the table of contents. We treat Gardiner C. Means as economic theorist, empiricist, paradigm creator, and policy theorist, with principal attention to what we consider his thinking of deepest and permanent consequence. We do not attempt to accomplish several things also of importance, including (1) an intellectual biography of Means; (2) the evolution of Means’s policy analysis, particularly with regard to industrial structure, recession, inflation, and stagflation; and (3) the econometric and rhetorical evaluation of the enormous literature defending, using, and criticizing Means’s empirical work on concentration, admin­ istered pricing, inflation, and so on. GARDINER C. MEANS Institutionalist and Post Keynesian 1 Introduction 1. Introduction and Objectives Gardiner Coit Means died 15 February 1988 at the age of ninety-one. A man of continuous activity in the public arena and not a profes­ sional academic, Means was one of the leading and most conspicu­ ous economists of Franklin Roosevelt’s New Deal. Scholars will long remember him as the co-author, with Adolf A. Berle, Jr., of one of the truly epochal books of the twentieth century, The Modern Corporation and Private Property (1932). In terms of the impact which this volume has had on people’s understanding of the modem economy, it is in the same class with John Maynard Keynes’s General Theory of Employment, Interest and Money (1936)—and indeed the relationship of Means’s theories to those of Keynes is one facet in the historic interest of Means. The purpose of this book is to interpret and assess the contribu­ tions of Gardiner Means to the development of economic thought. It is intended to be neither a comprehensive intellectual biography nor a mere summary of his ideas. Means’s significance rests on his fundamental conceptions of the organization and control of the economic system qua system, especially as a system of power; and of the operation of the economy at the micro- and macroeconomic levels within that system. Means’s holism, his focus on the problem of organization and control, and his deep analysis of the corporation as the distinctive major institution of the modem economy, identify 3 4 GARDINER C. MEANS his work as institutionalist. His analyses of the structural microeco­ nomic foundations of macroeconomic performance, including the dual economy of market and administered sectors, and of the nature and limits of the microeconomic and macroeconomic adjustment (or coordination) processes, mark his work as a Post Keynesian economist, indeed, as perhaps the first Post Keynesian economist. Accordingly, an interpretation and assessment of Means must relate his work to that of such distinguished economists as Keynes, Schumpeter, John Kenneth Galbraith, Alfred Eichner, and, perhaps most surprisingly, Ronald A. Coase.1 Also, Means’s ideas concern­ ing price flexibility are of considerable importance for the interpre­ tation of Keynes (though we shall not enter into the discussion of “ what Keynes really meant” except tangentially). Means’s career also yields insight, as we shall see, into a number of areas. First, there is the enormous importance of the interpretive paradigm and other sociological factors for the status and signifi­ cance of a body of ideas. In part this involves the differential and broad versus a narrow paradigmatic formulation of questions. Second, selective normative premises affect the precise form in which ideas are held (especially, in Means’s case in regard to the theory of the firm). Third, we shall see alternative subtle nuances of what being a conservative in economics can involve. Fourth, there is the role played by filtration mechanisms in economics in formulating, removing, marginalizing, or sanitizing radical ideas (most notably Means’s doctrine of administered prices). Fifth, we shall see how several factors influenced the reception and evalua­ tion of Means’s work: economic and political ideology; method­ ological disciplinary emphasis on a priori theory rather than messy empiricism; substantive disciplinary emphasis on the Walrasian competitive model; the Keynesian revolution; the sociological