No CrossRef data available.
Article contents
The Price Mechanism in the Market for Mortgage Loans*
Published online by Cambridge University Press: 07 November 2014
Extract
R. F. Kahn's recent review article on the literature of “full-cost pricing” brings out the fact that the controversy which began with the article by Hall and Hitch in 1939 remains unresolved. Because the actual pricing of manufactured products takes place within a very restricted range of plant capacity, and under dynamic conditions which limit the entrepreneur's horizon, some writers have argued that the pricing process is necessarily arbitrary and based on rule of thumb. Most theorists, on the other hand, maintain that, however restrictive the data from which business-men form their decisions, the pricing process may be interpreted by marginalist concepts of profit maximization.
The gap between these points of view has been substantially narrowed in recent years. Extended subdivision of the theory of imperfect competition into individual market situations has brought that theory close to the methodology of “industry studies,” at least of those studies which have included some attempt at generalization. There remain, however, several obstacles to closing the gap between the deductive and the inductive analysis of the price mechanism. In particular, the available data are usually so unrefined that appeals to empirical cost and revenue schedules are misleading, or inconclusive, or contradictory. Joint costs, indeterminate demand schedules, and the natural reluctance of producers to reveal their private information all hinder the theorist searching for empirical support. In the face of these formidable difficulties some economists (notably the exponents of full-cost pricing) have turned to the technique of the questionnaire. This procedure is open to a serious methodological criticism: information derived from questionnaires is more likely to reveal the entrepreneur's idealized conception of his own behaviour than to show what his behaviour actually is. The phrases “usually full cost,” “cost is the normal guide,” or “the initial guide” recur throughout the replies to the Hall-Hitch questionnaire. These qualified answers are unrevealing for the same reason that the Marshallian long run (when all the various forces have had time to work themselves out) is a poor guide to real-world price determination. Normative statements such as those obtained in the studies mentioned above cannot be regarded as empirical data.
- Type
- Research Article
- Information
- Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 19 , Issue 2 , May 1953 , pp. 151 - 160
- Copyright
- Copyright © Canadian Political Science Association 1953
Footnotes
*
S. Stykolt, University of Toronto, contributed a number of suggestions and corrections to this article, and drew the author's attention to the relevance of the kinked demand curve.
References
1 Kahn, R. F., “Oxford Studies in the Price Mechanism,” Economic Journal, 03, 1952.CrossRefGoogle Scholar
2 Hall, R. L. and Hitch, C. J., “Price Theory and Business Behaviour,” Oxford Economic Papers, no. 2, 05, 1939 Google Scholar, reprinted in Wilson, T. and Andrews, P. W. S., eds., Oxford Studies in the Price Mechanism (Oxford, 1951)Google Scholar; P. W. S. Andrews, “Industrial Analysis in Economics,” ibid., 139–72.
3 See for instance Lester, R. A., “Shortcomings of Marginal Analysis for Wage-Employment Problems,” American Economic Review, vol. 36, 1946, 69 ff.Google Scholar
4 This is demonstrated by Bain, J. S., “Price and Production Policies,” in Ellis, H. S., ed., A Survey of Contemporary Economics (Toronto, 1949).Google Scholar
5 In the rest of this paper, “shares” will be taken to mean both shares and deposits, it being understood that there is a yield differential.
6 Building Society Year Book, 1930, 255 Google Scholar; 1936, 5; 1941, 338; 1945, 17; 1948, 26.
7 Economist, 03 18, 1933, 591.Google Scholar
8 Brace, J., “A Statistical Analysis of Building Societies,” Journal of the Royal Statistical Society, Part 2, 1931, 185.Google Scholar
9 The share rate shown is the average computed rate on all shares outstanding. Since share rates had been virtually constant for the preceding decade, and since the rate of interest on outstanding loans was adjusted shortly after changes in current lending rates, this series reflects current movements accurately enough. The same applies to the series on mortgage interest rates. The yield on shares is tax free; in order to compare this rate with the taxable yield on other securities, this series has been adjusted to allow for changes in the income tax. Thus the series for rates of interest on shares in Tables I and II are the “taxable equivalents” of the rates actually paid.
10 The consequence of this was the liquidation of the National Association of Building Societies and the formation, in 1936, of a new trade association, membership in which required prior agreement to observe the association's prices.
11 The Times, July 1, 1932.