Response to Skott's claim that in imperfect competition there is no supply curve

[Paul Davidson <PB108928%UTKVM1.BITNET@xxxxxxxxxxxxxxxxx>]

I am terribly disturbed to find that Peter Skott thinks that my
insistence on using a clear, crisp, and precise lexicon raises
"completely spurious issues". But unless we agree on the meaning
of terms such as supply and demand, the discussion degenerates into
semantic obfuscation.  This is clearly illustrated by Skott's
admission that he "sloppily used...`the firm is off its short term
SUPPLY curve' to mean that the expectations [regarding market
DEMAND?] underlying the firm's supply decision [the firms
production and hiring decision?] had failed to be met". (I presume
that Skott meant that it was market DEMAND expectations and not
production COSTS expectations that "had failed to be met".)
     Skott does not see why in this case it is useful to use define
supply in terms of Marshall's minimum price necessary to induce
entrepreneurs to produce any given quantity and hire any given
number of workers. I want to explain employment in a market economy
where entrepreneurs are the primary employers of workers,i.e., why
do entrepreneurs hire N1 workers instead of N2 (or any other N-
quantity)? If we assume entrepreneurs have to be motivated by
something, i.e., they are not robots merely programmed to hire no
matter what the circumstances, then we must know what is the
minimum of something that motivates the entrepreneur to engage in
hiring and producting different quantities, or what economists call
the supply conditions.
     Skott claims that in imperfect competition -- unlike pure
competition where the mc curve is the supply curve of the firm (and
Marshall's lexicon holds?) -- "there is no supply curve".  This
statement which is found in many textbooks is simply wrong -- for
it does not understand Marshall's logical lexicon.
     Assuming profit maximization in pure competition, the marginal
cost curve PLUS the (expected) market DEMAND elasticity conditions
(i.e., an (expected) perfectly elastic demand curve facing the
firm) for all alternative circumstances must be combined to convert
the mc curve into the SUPPLY curve. For profit maximizing
entrepreneurs facing alternative perfectly elastic demand curves,
the marginal cost curve (from its intersection with the minimum of
the avc curve) represents the minimum price necessary to motivate
entrepreneurs.The imperfect competition firm's supply curve
requires the same specification of marginal costs PLUS alternative
(expected) market demand curves. If we assume, as the purely
competitive case does, that the elasticity of alternative demand
curves are always the same -- (see Skott's earlier posting where
he makes that specific assumption to explain a supply curve that
has a constant mark-up over labor costs) -- then for imperfectly
competitive firm its supply curve can be uniquely specified given
the marginal cost conditions PLUS expected alternative market
demand elasticity conditions. There is a perfect symmetry between
the pure competitive firm's and the imperfectly competitive firm's
supply curve construction.
     This is not just nitty-gritty nitpicking semantics. It is
essential if we are going to uniquely define the point of effective
demand as explaining why entrepreneurs hire N1 instead of N2 based
on what they expect their production costs and their expected
market demand conditions (assuming they produce to market). (If
they produce to order (seem my previous posting for difference
between producing to order and to market), then the demand
conditions are embodied in the orders in the firm's order books
taken at the minimum price they will public accept in order to
produce and deliver the product. In either case their is a
production (hiring) short-run supply offering curve which combines
entrepreneurial expectations of costs and alternative market
elasticity demand conditions. It is simply a misspecification for
Skott to say there is no supply curve for imperfect competition.
     "Off their supply curves" is merely sloppy short-hand for
saying the analysis does not know any organizing principle to
explain how much any firm will hire for alternative (expected)
market demand conditions given the marginal cost conditions.  But
if we do not know this on the micro-economic level how can the
analyst claim to know how much firms in the aggregate will hire for
alternative aggregate market demand conditions? To respond to this
latter question the analyst must have some "organizing concept for
explaining what motivates entrepreneurs" to hire a specific number
of workers for any alternative market demand and cost conditions
that we can specify at both the micro- and macro- level.
     If Skott would have read Weintraub and/or Davidson and
Smolensky he would have been clear about how we get from
Marshallian micro conditions to Keynes's macroanalysis for (as
Keynes claimed on p. 245 of the GT) "any degree of
competition".
     (Please Peter do not duck this semantic clarity question by
saying this merely a doctrinal dispute. If you are going to claim
supply conditions in an imperfectly competitive world can not
generate a supply curve, but only a supply point -- as most
microtextbooks claim -- then please recognize that you are assuming
that the demand curve facing each imperfectly competitive firm is
fixed; so that you are stuck with one of two muddles: either
(1)in an imperfectly competitive world aggregate effective demand
is fixed as well and can not be changed, or (2) aggregate
effecftive demand can be changed by government policy but the
demand curve facing each individual imperfectly competitive firm
cannot be changed! The third muddle which is the worst of the three
was the one I thought you adopted when you said firms are "off
their supply curves" apparently free to float around the price vs.
quantity quadrant. (See Patinkin)
     Until you willing to admit that as macroeconomists we cannot
shift aggregate demand curves (for employment creating policy)
relative to aggregate supply curves unless we are also shifting,
on average, all microdemand curves RELATIVE to firms' microSUPPLY
curves, then you are in a "logical muddle".
     Then we can go on. Once you want to discuss what happens when
the initial expected market demand (for "produce to market" firms)
fails to be met -- and you still want to talk in terms of demand
and supply concepts -- then you will be forced, if you use a
logically consistent analysis with a crisp Marshallian lexicon, to
discuss SPOT market prices relative to firms' FORWARD (or short-
run) flow-supply price curve to explain how entrepreneurs are
motivated to change their flow-supply production and hiring
decisions. In a crisp clear exposition, demand expectations are
part of each firm's supply curve just as much as marginal costs
(assuming profit maximizing). Do you see the differences yet?
If not read Weintraub or Davidson and Smolensky and my POST
KEYNESIAN MARCOTHEORY BOOK when it is
published in June 1994.