ABSTRACT
Since the 1960s, the ‘Cambridge’ approach has been increasingly identified with the anti-marginalist stance, be it of a Sraffian or a Kaleckian lineage. We produce evidence, however, that at least until the 1950s, consensus among the leading Cambridge economists hardly existed on this matter. Keynes and Kahn never rejected Marshall’s language when dealing with price and output determination by the single firm. They, and Joan Robinson, were highly critical of the concept of degree of monopoly, employed by Kalecki who, on his part, while rejecting the Marginal Revenue = Marginal Cost approach, was unsympathetic to full-cost pricing, at least in the form suggested by Hall and Hitch (1939). Unlike Sraffa’s case, the critique that Keynes, Kahn and Joan Robinson raised against the neoclassical paradigm and the supposed optimality of the system went together with the apparently unquestioned acceptance by them – at least at a disaggregate level – of marginal analysis, supply and demand theory, and the related concept of equilibrium.1 On the other hand, these economists never endorsed that theory in the case of investment decisions and money market operations, because of the role they attributed to uncertainty and the importance they all gave to the unpredictable consequences, at the aggregate level, of individuals’ intertemporal choices. In what follows, we examine the positions taken by Marshall, Kahn, and Keynes on marginal cost pricing and profit maximization, and the criticisms put forth by Kalecki and the Cambridge Keynesians against the Hall and Hitch version of full-cost pricing. Although Marshall and Kahn were more concerned with the equilibrium of the individual firm or industry, while Keynes and Kalecki were addressing these issues in the context of the system as a whole, we compare their approaches to entrepreneurial behaviour – as summarized in the assumption of profit maximization2 – to clarify the reasons underlying the acceptance or rejection of that assumption. In order to avoid confusion, some clarifications are needed. In the title, and throughout the chapter, we make reference to a not clearly specified Cambridge tradition and the reader may wonder why these particular authors have been selected. We give two reasons: the first, less controversial, is that they are
leading economists within the Cambridge approach; the second is that they seem, at least on the surface, hesitant to endorse the marginal method in their analysis, Indeed, if we were to address the question of what is the Cambridge tradition, as far as the theory of business behaviour is concerned, our attention should be directed rather to those authors such as Macgregor, Lavington, Robertson, and Andrews or to those parts of Marshall’s works, such as Industry and Trade (1919), which deal extensively with these issues and stand out as the Cambridge approach to industrial economics (Raffaelli, 2004). However, as we hope to make clearer below, this is not the purpose of the present chapter, which explains also why we do not pursue our inquiry into those aspects of Marshall’s approach which point to directions other than the static marginal analysis of the entrepreneur’s behaviour. On the contrary, it is our purpose to address the question of whether, and to what extent, the profit maximization rule was adopted by authors who are taken as reference points in the search for an alternative to mainstream economics. It should also be made clear that our aim is not to set up an agenda for the task of reconstructing a Cambridge (or Post Keynesian) approach to business behaviour, but rather to delineate as precisely as possible the positions held by those authors, in what is mainly an exercise in the history of economic thought. In this respect, we do not even attempt to address the question of how entrepreneurs behave in the real world, although we hold the view that profit maximization and marginal calculus are neither a convincing nor a logically tight representation.
