296. Joan Robinson to Harrod , 18 March [1933] [a]

[Replies to 295 , answered by 297 ]

3, Trumpington Street, Cambridge #

18 March [1933]

Dear Roy

I am not sure if I follow you in detail, but the main point I think I should agree with. My treatment of costs is very artificial. I have a lump sum profit (not a rate per cent), & take the supply of capital to be perfectly elastic to the firm; [1] thus I don't quite see where your average & marginal rate of profit come in. But if I interpret you rightly you are saying this:--There are several average cost curves 1) Mine includes the top profit (my definition of normal profits applies, as Gerald points out, [2] to the upper limit only, not to the whole range as you suggest) 2) yours includes the profit which has got to be covered for the long period output of the firm to be in equilibrium. 3) Then there is the lower limit which must be covered if the firm is to continue to exist. 2) & 3) coincide on certain assumptions & all three coincide when there are no costs of entry or costs of conversion, [3] & when capital is finely divisible & perfectly versatile.

Now my view on the matter is this:--when demand is moving up & down in such a way that actual receipts are between 1) and 3) the number of firms does not alter. Therefore the notion of normal profits has no function to fulfil. All we need is a marginal cost curve to determine the output of the given firms. You may draw any average cost curve you please, and if you find one that makes the firms of optimum size you will feel happy, but to my way of looking at things average cost is of no particular significance when the number of firms is fixed. The study of the supply curve of a fixed number of firms is very tricky; it brings in a whole lot of complicated stuff about the effect of a change in the individual demand curve on the output of the single firm, which I have done more or less, and some still more complicated stuff about the effect of a change of total demand on the individual demand curves, which I have always been frightened of, but I do not think one uses an average curve throughout the story. When demand rises to the level at which receipts exceed 1) my article comes into play, & when it sinks below 3) we leave it to Kahn. [4] There is a one-way equilibrium at 1) & at 3), and a quite different kind of equilibrium in between. I do not think there is a Platonic Ideal Average which one must find, & use for all purposes. The definitions must be made in each case which are appropriate to the problem in hand.

I do not know how you use the phrase "perfect competition". For me it means a state of affairs in which the individual e[lasticity] of d[emand] is infinite--and nothing more. Chamberlin calls this "pure competition". But I think you make it include free entry & mobility of factors etc. (Chamberlin's [b] "perfect competition"). [5] My kind of perfect competition does not remove any of the complications due to the levels of profit. You can have a fixed number of firms under perfect competition.

I hope this is all right--I may have misunderstood you.

The Prof is just translating me into algebra. [6] To my untutored eye it looks correct & very elegant, but I can't pretend to understand algebra; its just his refusal to believe anything unless its said in algebra which leads [c] him to do it. But his last remark (about the geographical aspect of the supply curve) is of great importance I think. [7]

Yours

Joan.

I am sending you a copy of my Economica article in case it amuses you. [8] But it is very much out of date now. I wrote it a year ago.

  1. 1. J. V. Robinson, "Imperfect Competition and Falling Supply Price" (1932), p. 545.

    2. G. F. Shove, "The Imperfection of the Market. A Further Note", Economic Journal XLIII, March 1933, pp. 119-20.

    3. Shove, "The Imperfection of the Market", p. 119.

    4. Reference is to the implications of a proposition by Kahn, cited by Joan Robinson in "Imperfect Competition and Falling Supply Price" (1932), p. 547, and discussed by Shove in "The Imperfection of the Market", pp. 114-19.

    5. E. Chamberlin, The Theory of Monopolistic Competition (1933), p. 5. Joan Robinson further discussed this distinction in "What is Perfect Competition?", Quarterly Journal of Economics XLIX, November 1934, p. 105.

    6. A. C. Pigou, "A Note on Imperfect Competition", Economic Journal, XLIII, March 1933, pp. 108-12; this "translates into algebra" J. Robinson's "Imperfect Competition and Falling Supply Price" (1932).

    7. Pigou pointed out that "ordinary elementary analysis [...] usually assumed that costs of transportation are negligible, so that the whole of the demand and the whole of the supply can be regarded as brought together at some single point in space", while in Robinson's article the total quantity of product bought at price p "is the sum of the quantities of demand that will be brought together at a number of different points when the price p rules in all of them" ("A Note on Imperfect Competition", p. 112).

    8. J. V. Robinson, "A Parable on Saving and Investment", Economica 13, February 1933, pp. 75-84.

    1. a. ALS, four pages on two leaves, in HP IV-1089-1107. Punctuation is often missing at the end of sentences, although these are clearly demarcated by additional space and capital letters marking the beginning of the new sentence. In such cases, full stops have been introduced without further warning. Reproduced by kind permission of the Provost and Scholars, King's College, Cambridge.

      b. Ms: «Chamberlins».

      c. Ms: «lead».


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