ABSTRACT
In the opening paragraphs of her 1933 Preface to The Economics of Imperfect Competition, Robinson acknowledged Kahn’s contribution: ‘[. . .] I have had the constant assistance of Mr. R.F. Kahn. The whole technical apparatus was built up with his aid, and many of the major problems [. . .] were solved as much by him as by me. He has also contributed a number of mathematical proofs which I should have been incapable of finding for myself ’ (Robinson, 1969, p. xiii). However, as in the case of the collaboration with Keynes, Kahn reacted strongly to the suggestion that he co-authored her book. He wrote to her: ‘You are attributing to me very much more than I am responsible for. What I did was to read what you had written. Most of my attempts to do constructive work (e.g. in regard to Discrimination and Exploitation) ended in failure and it was almost invariably you who found the clue [. . . .] My place in the scheme of things is apparently to correct errors in arithmetic’ (letter of 30 March 1933 in RFK Papers, 13/90/1/209-10). In fact, Kahn’s interest in imperfect competition predated Robinson’s since one of the declared purposes of his dissertation, The Economics of the Short Period (1929), was to pursue the line of research opened by Sraffa whose 1926 article proposed ‘to abandon the path of free competition and turn in the opposite direction, namely towards monopoly’ as a way out of the Marshallian inconsistencies (Sraffa, 1926, p. 542). The main contribution of Kahn’s dissertation was the determination of the equilibrium condition of the firm when the assumption of pure competition is abandoned. Kahn made use of the standard definition of Marshall’s ‘maximum monopoly net revenue’ (Marshall, 1920, p. 397)—the point at which the difference between the monopolist’s supply price and demand price times output is a maximum-to provide an ingenious method of measuring market imperfection (Marcuzzo, 1994, pp. 30-31). At the time the dissertation was written, between October 1928 and December 1929, marginal revenue remained an unnamed concept. In the book he tried to write from the dissertation, but left unfinished, the issue of imperfect competition is overshadowed. However, in his article ‘The Marginal Principle’, which was part of Chapter VII of that book, bearing the same title as the dissertation, the equilibrium conditions for a firm in imperfect competition are fully laid out (see Marcuzzo, 1996b). Unfortunately, the article was rejected by Frank Taussig when Kahn submitted it to the Quarterly Journal of Economics while he was visiting Harvard early in 1933.6 By that time The Economics of Imperfect Competition, which Joan Robinson began writing between late 1930 and early 1931, was at the proof stage and about to be published. It all started, according to Austin Robinson’s reconstruction, ‘as a joint game between Joan and Richard Kahn’ (Patinkin & Leith, 1977, p. 80), but the drafting of the book, which Joan Robinson nicknamed ‘my nightmare’, was a torment to its author. The exchanges with Kahn were pressing and demanding because Kahn checked every single passage, with the final work done on the proofs by mail as Kahn was in America. As in the case of Kahn’s dissertation, the starting point of The Economics of Imperfect Competition is Sraffa’s proposal ‘to re-write the theory of value,
starting from the conception of the firm as a monopolist’ (Robinson, 1969, p. 6); the aim of the book was to extend the marginal technique to all market forms. By this means she hoped to provide an answer to the challenge posed by Sraffa who questioned the consistency of the Marshall-Pigou apparatus. At the core of Sraffa’s critique of the Marshall-Pigou apparatus was the assumed symmetry of demand and supply in the determination of relative prices of individual commodities produced in competitive conditions. The symmetry, Sraffa (1925, p. 317) claimed, holds on the condition that the law of variations in costs has the same degree of generality as the law of variations in demand price, in relation to the quantity demanded. If costs were not made dependent on the quantity produced, there could be no symmetry and commodity prices would be dependent on the expenses incurred in production while demand would influence only the quantity produced, as the classical theory prevailing before the advent of the marginal revolution had it. For both ‘blades of the scissors’ to be effective in the determination of the price of an individual commodity, both demand and supply price must be made functions of quantity. It was Sraffa’s contention, therefore, that the assumed U-shaped form of the average cost curve facing the firm, which is the basis of the derivation of a rising supply curve for a commodity produced in competitive conditions, was not a reflection of cost conditions prevailing in reality, but rather was necessary for the Marshallian theory to validate a theory of value based on the ‘symmetrical forces’ of supply and demand. Sraffa questioned the validity of the partial equilibrium approach and the conditions assumed for deriving a U-shaped average cost curve. The first criticism pointed to the restrictive conditions necessary for the validity of the partial equilibrium approach: ‘[since partial analysis deals with] only two variables, it is necessary to assume that, when the level of production of a single commodity changes [. . .] both consumers’ demand and the conditions of production of all other commodities do not change’ (Sraffa, 1925, p. 322; tr. in Panico, 1991, p. 561). The second criticism was directed against the rationale of the U-shaped average cost curve, namely the two ‘laws’ of diminishing and increasing returns. In the Marshallian apparatus, the two laws exercise their effects by making average costs first decrease and then increase. Decreasing costs are attributed to indivisibilities in some factors, while increasing costs are imputed to the existence of a scarce factor. However, Sraffa argued, in order for a single firm to experience increasing costs it must be assumed that the scarce factor is fixed for the industry, that its allocation among the firms is given and that the number of firms is fixed. This last condition clearly violates the condition of free entry in perfect competition. The case of decreasing costs due to the indivisibility of some factors also violates the assumption of perfect competition, since they could turn any competitive firm into a monopoly. Here, only the introduction of the economies of large scale industry-external to the firm, but internal to the industry-allowed Marshall to maintain the possibility that decreasing costs and perfect competition would both prevail.
