Full text: Price Takers' Plenty in a Model of Pure Capitalism.

5.11 
the excess demand. 
The falling MVP function illustrates partly the physical limits to the 
firm's productive and employing capacity, and partly the limits beyond which 
the price reductions necessary to sell the extra output would eliminate the 
marginal profit. As to the former, let me recall the celebrated and well-known 
demonstration by Edward Chamberlin that competition among price makers' -- whom 
he called monopolists— creates excess capacity. He considered that a blemish, 
one of the harmful effects of monopoly; but in a changing and growing world 
it should really be considered an advantage, a source of limited flexibility* 
As to the latter, the economic limit to profitable price reductions, note 
that the scope for price reductions that render the hiring of additional 
workers profitable is the greater, the greater the price maker's monopsony 
power in the labor market; and note further that the MVP function, indeed 
this entire argument, is strictly microeconomic in nature, based on the 
assumption that all other things remain 'unchanged. 
Let me now transpose the argument to the macroeconomic plane. When the 
majority of employers in the majority of industries are price makers and all 
or most of them can find unemployed workers willing to accept employment at 
going wages, then the limits to the employers* combined excess demand for 
labor are considerably extended. For, if most of them employ additiczial 
workers, the additional income generated by their employment adds to 
effective demand and so diminishes the need for price reductions or 
additional sales effort, thereby extending the employers 1 ability to offer 
additional employment at a profit. In other words, when employers are the 
price makers in the labor market, they can profitably initiate a cumulative 
process that increases employment in much the same way in which the Keynesian 
multiplier increases employment.
	        

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