In response to Michael's comment that competition implies that prices 
would go down to marginal costs, this is only true if there are fixed 
cost functions (as opposed to fixed costs) and fixed demand. In other 
words, it is a static conclusion. Competition is perfectly compatible 
with profit in reality, as opposed to the static model. I am sure that 
Michael realizes this.

 From the cursory reading I did today, I think that Michael is right 
about most economists in the early AEA, including J. B. Clark. This is 
not surprising since they were members of a profession seeking both 
popular and government recognition during a period when the intellectual 
public was inclined to blame big business and big finance for problems 
in their life. On the other hand, the complaints are ironic; since until 
1913 or so, world real GDP per capital was ending a century or so of 
unprecedented growth at an increasing rate, while world population was 
also growing at an increasing rate. Toward the end, the U.S. was a 
leader of this growth. This trend in world GDP continued after WWII. So 
the Americans intellectuals were getting richer while complaining 
louder. Big, expensive empty barrels make the most noise. And the 
professional economists seem to have readily accommodated by filling 
them with the fluff of economic half-truths.

Michael, I don't see why an entrepreneur would want to avoid industries 
with relatively high startup costs (i.e., costs that must be incurred 
long before the product is sold). The choice to enter such industries is 
more uncertain, but it presumably would be associated with higher 
rewards to compensate.

Perhaps more to the point, the concern expressed by the early 20th 
century American economists seems to have been with economies of scale 
(or natural monopoly), not fixed costs. The worry was that efficiency in 
cost would require a monopoly. There was also a great deal of concern 
about combinations or buyouts of and predation on previous competitors 
and the belief that such combinations inevitably cause the price to 
rise. The concept of "fixed costs" seems out of place here, at least as 
I recall from my microeconomics courses.


Incidentally, today's reading took me to J. B. and J.M. Clark's "The 
Control of Trusts," where I encountered a different use of the term 
"dead weight."

"If we can carry out all the changes and reforms proposed in the 
preceding pages...we shall not be burdened with the swollen and 
unnatural growth that comes from trying to absorb all possible 
competitors and that often results in burdening the merger with 
inefficient plants which the rest must carry as a dead weight." (first 
paragraph of Chapter Eight).

http://socserv.mcmaster.ca/econ/ugcm/3ll3/clarkjb/ControlTrusts.pdf


Pat Gunning