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Contributions to economic theory by J.M.

1.4 Contributions to economic theory by J. M. Clark

Main works: “Business acceleration and the law of demand; technical factor in economic cycles" ["Business Acceleration and the Law of Demand; A Technical Factor in Economic Cycles"] (1917); "The Economics of Overhead Costs" (1923)

Like T. Veblen and W. C. Mitchell, J. M. Clark interpreted human behavior as based on habits, and not on instantaneous calculations of benefits and costs, pleasures and pains. But he went further in analyzing this area than other old institutionalists, for the first time in history economic analysis clearly indicating the large role of information costs and decision costs. The point is that in order to accept optimal solution costs associated with collecting and processing information must be incurred. However, the benefits of this information are completely unknown in advance. In addition, direct decision-making also requires significant (psychological) costs (and the benefits of the efforts aimed at making a decision are also not known a priori). These costs create insurmountable obstacles to optimizing behavior and serve as the basis for people to form habits. Of course, such habits are not the result of some maximizing choice or optimization. Thus, J. M. Clark anticipated both the theory of bounded rationality of G. Simon and the theory of information retrieval of J. Stigler (even though the latter is less

realistic compared to J.M. Clark's approach).

Another scientific merit of J.M. Clark is developments in the field of microeconomics - the theory of costs and competition. He was the first to introduce the concept of overhead costs into economics. These are costs that cannot be attributed to any specific division of the enterprise, i.e. not directly related to production process. J. M. Clark believed that they were a consequence of large investments in fixed capital. Overhead costs are covered by prices, which, in his opinion, meant that pricing was not connected with the principle of equalizing marginal costs and revenues. J.M. Clark also criticized the concept of perfect competition and laid the foundations for the theory of “effective competition,” which is such a specific implementation of the elements of the market structure that is acceptable from the point of view of social welfare. The theory of "effective competition" is important because it provides realistic - as opposed to the concept of perfect competition - guidelines for conducting public policy to stimulate competition. At the same time, J.M. Clark tried to give the theory of competition a dynamic character; for him, the degree of “effectiveness of competition” was determined by how quickly and to what extent the processes of creation, destruction and reconstruction of profits of varying sizes occur in different industries. Unfortunately, he did not explain the reasons for these differences.

Finally, J.M. Clark left his mark in the field of macroeconomics. Like W. C. Mitchell, he studied business cycles. He interpreted them as a multifactorial process, highlighting many causes of cycles - from wars and natural disasters to investment dynamics. And here J.M. Clark was one of the first to discover the idea of an accelerator as a phenomenon that enhances cyclical fluctuations in economic activity (for the role of this idea in the macroeconomic theory of Keynesian-neoclassical synthesis, see section 6.5.5). Again, following W. C. Mitchell, J. M. Clark put forward the idea of the need government regulation cycles. He was the first in the history of economic analysis to put forward the idea of built-in (automatic) stabilizers. In his opinion, the tax system should be such a built-in stabilizer.

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John Maurice Clark(eng. John Maurice Clark; November 30, 1884, Northampton - June 27, 1963, Westport) - American economist, studied the accelerator effect.

Biography

John Clark was born November 30, 1884 in Northampton, Massachusetts. Son of J.B. Clark (1847-1938).

He received his bachelor's degree in 1905 from Amherst College and his doctorate from Columbia University in 1910. He taught in 1908-1910 at Colorado College, in 1910-1915 at Amherst College, in 1915-1926 at the University of Chicago. In 1926-1957, he was a professor at the Department of Economics at Columbia University in place of his father. In 1934-1954 he collaborated with a number of US government agencies.

Major contributions to science

Clark is an active supporter of government regulation of the economy and in the field of anti-crisis measures. One of the founders of the theory of oligopoly. He took part in the development of the theory of benefit diffusion, according to which the results of economic progress are distributed evenly among all classes of society.

Clark was the first to point out the important role of information costs and decision costs. For an optimal decision, costs associated with collecting and processing information are taken, where the benefits of this information are not predetermined.

Clark first introduced the concept of overhead costs, which cannot be attributed to a specific cost center of the enterprise; they are not directly related to the production process. Clark points out that they are a consequence of large investments in fixed assets. Overhead costs are covered by prices, which means there is no connection between pricing and the principle of equalizing marginal costs and revenue.

Clark criticized the concept of perfect competition due to its unrealistic nature and proposed the concept of effective competition, in which it is possible to achieve an acceptable level of social welfare, which can be a guideline for public policy to stimulate competition.

Clark, in his study of business cycles, identifies many causes of cycles and in his 1917 article “Business Acceleration and the Law of Demand; technical factor in economic cycles” rediscovers the accelerator effect as a phenomenon that enhances cyclical fluctuations in economic activity. Clark put forward the idea of the need for government regulation of cycles. He was the first in the history of economic analysis to put forward the idea of built-in (automatic) stabilizers, which should be the tax system.

Awards

1935 - President of the American Economic Association,
1952 - Francis Walker Medal.

Bibliography

Clark J.M. Standards of Reasonability in Local Freight Discriminations. - New York: Columbia University, 1910
Clark J.M.,Clark J.B. The Control of Trusts. - New York: Macmillan, 1914
Clark J.M. Business Acceleration and the Law of Demand; A Technical Factor in Economic Cycles // Journal of Political Economy, Vol. 25, March 1917, pp.217-235
Clark J.M. Studies in the Economics of Overhead Costs. - Chicago: University of Chicago Press, 1923
Clark J.M. Social control of business. - Chicago: University of Chicago Press, 1926
Clark J.M. The Costs of the World War to the American People. - New Haven, CT: Yale University Press, 1931
Clark J.M. Strategic Factors in Business Cycles. - New York: National Bureau of Economic Research, 1934
Clark J.M. The Economics of Planning Public Works. - Washington, DC: U.S. Government Printing Office, 1935
Clark J.M. Preface to Social Economics. - New York: Farrar & Rinehart, 1936
Clark J.M. An Alternative to Serfdom: Five Lectures Delivered on the William W. Cook Foundation at the University of Michigan, March 1947. -Oxford, England: Basil Blackwell, 1948
Clark J.M. Contribution to the Theory of Business Cycles//Wesley Clair Mitchell: The Economic Scientist/ed. A.F. Burns, - NBER, 1952 pp.193-206 - ISBN 0-87014-052-3
Clark J.M. The Ethical Basis of Economic Freedom. - Westport, CT: C.K. Kazanjian Economics Foundation, 1955
Clark J.M. Economic Institutions and Human Welfare. - New York: Alfred A. Knopf, 1957
Clark J.M. Competition as a Dynamic Process. - Washington, DC: Brookings Institution, 1961.

Features of the emergence and evolution of institutionalism - a direction in economic thought that places the main emphasis on the analysis of institutions. Distinctive features of American institutionalism. The theories of John Maurice Clark - an outstanding scientist and economist.

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Books

Relationships between the Ego and the Self in clinical practice, Clark M.. The path to individuality. Margaret Clark's book is dedicated to clinical aspects practice and concerns one of the most complex and interesting sections of theory analytical psychology- Ego relationships...
The Art of the Islamic Garden by Clark E Niola, Clark E. This book introduces you to the design, symbolism and flora traditional Islamic garden and also contains practical advice for those who would like to create such a garden. To the Creator...
Jeffrey Archer. False impression. Richard Paul Evans. Sunflower. Mary Higgins Clark. Two girls in blue. John Grogan. Marley and Me, Jeffrey Archer, Richard Paul Evans, Mary Higgins Clark, John Grogan. This book includes four novels by foreign authors...

1.4. Contributions to economic theory by J. M. Clark

Like T. Veblen and W. C. Mitchell, J. M. Clark interpreted human behavior as based on habits, and not on instantaneous calculations of benefits and costs, pleasures and pains. But he went further in his analysis of this area than other old institutionalists, for the first time in the history of economic analysis he explicitly pointed out the large role of information costs and decision-making costs. The fact is that in order to make an optimal decision, you have to incur costs associated with collecting and processing information. However, the benefits of this information are completely unknown in advance. In addition, direct decision-making also requires significant (psychological) costs (and the benefits of the efforts aimed at making a decision are also not known a priori). These costs create insurmountable obstacles to optimizing behavior and serve as the basis for people to form habits. Of course, such habits are not the result of some maximizing choice or optimization. Thus, J. M. Clark anticipated both the theory of bounded rationality of G. Simon and the theory of information retrieval of J. Stigler (even though the latter is less realistic compared to the approach of J. M. Clark).

Another scientific merit of J.M. Clark is developments in the field of microeconomics - the theory of costs and competition. He was the first to introduce the concept of overhead costs into economics. These are costs that cannot be attributed to any specific division of the enterprise, i.e. not directly related to the production process. J. M. Clark believed that they were a consequence of large investments in fixed capital. Overhead costs are covered by prices, which, in his opinion, meant that pricing was not connected with the principle of equalizing marginal costs and revenues. J.M. Clark also criticized the concept of perfect competition and laid the foundations for the theory of “effective competition,” which is such a specific implementation of the elements of the market structure that is acceptable from the point of view of social welfare. The theory of "effective competition" is important because it provides realistic - in contrast to the concept of perfect competition - guidelines for public policy to stimulate competition. At the same time, J.M. Clark tried to give the theory of competition a dynamic character; for him, the degree of “effectiveness of competition” was determined by how quickly and to what extent the processes of creation, destruction and reconstruction of profits of varying sizes occur in different industries. Unfortunately, he did not explain the reasons for these differences.

Finally, J.M. Clark left his mark in the field of macroeconomics. Like W. K. Mitchell, he studied business cycles. He interpreted them as a multifactorial process, highlighting many causes of cycles - from wars and natural disasters to investment dynamics. And here J.M. Clark was one of the first to discover the idea of an accelerator as a phenomenon that enhances cyclical fluctuations in economic activity (for the role of this idea in the macroeconomic theory of Keynesian-neoclassical synthesis, see section 6.5.5). Again, following W. K. Mitchell, J. M. Clark put forward the idea of the need for government regulation of cycles. He was the first in the history of economic analysis to put forward the idea of built-in (automatic) stabilizers. In his opinion, the tax system should be such a built-in stabilizer.

1.5. Transaction theory of J. Commons

Major work: Institutional Economics (1934)

Another famous representative old institutionalism, J. Commons, in his views, stood apart from other adherents of this direction of economic analysis. In his research he placed great emphasis on legal factors. His main scientific achievement is transaction theory.

This theory is based on the idea of resource scarcity, known from neoclassical theory. As a result of this rarity, business entities have a conflict regarding their use. This conflict is resolved through transactions that represent the basic institutions of society. Without such institutions, the conflict of interests would degenerate into general violence of people against each other, which would lead to enormous economic and social damage.

Transaction - which, according to J. Commons, is the main category of economic science - should not be confused with the (“simple”) exchange of resources, goods or services. According to the definition of J. Commons, “a transaction is not an exchange of goods, but the alienation and appropriation of property rights and freedoms created by society.” The distinction between exchange and transaction points to the distinction between physical movement goods and the transfer of property rights to these goods.

Transactions, in turn, are divided into market, managerial and rationing.

A market transaction is the only type of transaction that presupposes the same legal status of its participants (counterparties). This means that in order to carry out a market transaction, mutual voluntary consent of the counterparties to complete it is necessary. In other words, a market transaction is an exchange of property rights to goods that occurs on the basis of a voluntary agreement of both parties to this transaction. Examples of market transactions include any transactions in free markets - purchases of consumer goods, provision of credit, hiring, etc.

A management transaction, on the contrary, presupposes the legal advantage of one of the counterparties, who has the right to make decisions. This type of transaction is built on the basis of management-subordination relationships. Examples of such relationships are the relationship between a slave owner and a slave, a superior and a subordinate, a master and an apprentice, etc. Management transactions play a leading role in firms, government agencies and other organizations based on hierarchical relationships.

A rationing transaction is similar to a management transaction, since it also presupposes an asymmetry in the legal status of the counterparties. The specificity of a rationing transaction is that the party vested with exclusive decision-making powers is a certain collective body that performs the function of specifying property rights. This body is the state. Typical examples rationing transactions are taxes or court decisions that redistribute wealth from one party to another.

It is easy to see that depending on the ratio of market transactions, on the one hand, and management and rationing transactions, on the other hand, determines the ratio of market and hierarchical types of economic relations between people.

At different stages of development of society, in different economic systems relative role different types transactions varies. For example, in a slave-owning, privately owned society, the main role is played by management transactions, while at the stage of the emergence of capitalism, during the period of “merchant capitalism,” market transactions play a major role.

In addition to “merchant capitalism,” J. Commons also distinguished “industrial” and (contemporary) “financial capitalism.” The main features of “financial capitalism” are manifested not only in the strengthening of the role of banks and other financial institutions, but also in the emergence of developed collective social groups- trade unions, corporations and political parties. It is these groups that are the main parties involved in concluding transactions at the stage of “financial capitalism”.

The actual course of transactions depends on the “working rules”, which are various judicial rules. These norms evolve partly spontaneously, as a result of specific court decisions adopted after the parties to the transactions applied to the court, and are partly formed artificially, through relevant government regulations. The state, according to J. Commons, plays a big role both as a body that reconciles the interests of the parties to transactions, and as a force that forces the fulfillment of obligations assumed by the participants in transactions. Thus, the state contributes to a more harmonious resolution of conflicts between collective groups of economic entities.

...” made it possible to describe some new social aspects of economic life in the era of imperialism, which was excluded from the position of the methodology of marginalism. In the field of methodology, institutionalism, according to many researchers, has much in common with the historical school of Germany. For example, V. Leontiev writes that outstanding representatives of American economic thought, meaning T. Veblen and W. K. ...

The decisive role belongs to group psychology, not to individuals (classical political economy). This expresses unity with the historical school of Germany. Institutionalism is one of the leading directions of modern economic science, formed in the first decades of the 20th century, as an alternative to the neoclassical school. The focus of institutionalists is on the mutual influence of the totality...

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