chapter  6
20 Pages

The Reality of Administered Prices

In a manner somewhat reminiscent of the Padua savant, Professor George J. Stigler has recently challenged the administered price heresy.2 He exposes the wicked witchcraft of Gardiner C. Means, in an effort to exorcise the spell of a devious doctrine over gullible Senators and naive economists. He warns that a heresy which had ostensibly been stamped out two decades ago is still among us, and that its progenitors are still spreading the erroneous belief "that there is an important phenomenon called administered prices, and that if such prices existed they would have something to do with inflation."3 Stigler's argument runs essentially as follows: (1) administered prices are difficult to define; (2) such prices, if they exist at all, are characterized by inflexibility; (3) but this inflexibility is inherent only in quoted (fictitious) prices, not transaction (actual) prices; (4) since actual prices must therefore be flexible, "administered" prices can really be "a gross statistical illusion•><~-the product of "bizarre statistical play"5; and (5) since "administered" prices are an illusion, they do not exist and could not possibly be responsible for inflation.