ȇǿ Partʺ: EconomicsWilliam Vickrey (ȀȈȃȇ, pp.ȁȀȇ–ȁȂȇ) raises a number of practical objec-
tions to multi-part pricing. But—to put it mildly—a number of practi-
cal objections could be leveled against Hotelling-Lerner pricing also. In
summary, I believe that Coase’s multi-part pricing scheme remains at least
as intellectually respectable as marginal-cost pricing.
Writers who were unhappy about the prospect of actually having to
solve millions of simultaneous equations formulated the so-called “com-
petitive” or “trial-and-error” solution to the problem of socialist resource
allocation. Ļere is a large measure of agreement in the ideas of Oskar
Lange and Fred W. Taylor (ȀȈȂȇ), A.C. Pigou (ȀȈȂȆ), R.L. Hall (ȀȈȂȆ),
H.D. Dickinson (ȀȈȂȈ), and Burnham P. Beckwith (ȀȈȃȈ).
According to the “competitive solution,” households have freedom of
choice in regard to jobs and consumer goods. Households receive and
spend actual cash. Ļe central authority instructs the manager of each
production unit to operate in accord with two basic rules. For any given
scale of output, he must combine the factors of production in such a way
as, at the established prices, to minimize average cost per unit of output.
Secondly, he must fix output so that marginal cost of the product equals
its established price.
Ļe question arises: How do the prices of consumer goods, intermedi-
ate goods, and productive resourcesget“established”? Answer: the central
authority does it. (Incidentally, the prices for all things except labor and
consumer goods need not be market prices; they can be mereaccounting
prices.) Ļe central authority decrees a price for each good. If the man-
agers of productive units follow the rules, they will—like entrepreneurs
under perfect competition—regard the prices as parameters. Of course,
the prices decreed by the central authority will not be correct at first. Ļere
will be shortages of some things and surpluses of others. Consequently,
the authority will raise the prices of things in excess demand, and lower
the prices of things in excess supply. By constant experimenting—by trial-
and-error—the central authority is supposed to make everything work out
all right.
Similarly, the central authority could make capital freely available to
the socialist enterprises at an established rate of interest. Interest would
be reckoned among the elements in cost. In many socialist blueprints,
the central authority would arbitrarily fix the total amount of liquid cap-
ital available. In any case, the authority could conceivably equate the
demand and supply of capital by manipulating the interest rate, just as it
would manipulate other prices. Incidentally, Enrico Barone had already