Vedder's review of Perelman is the more effective because Vedder keeps his
cool instead of waxing threatened and apoplectic as a stereotypical
conservative might. Vedder is secure in his views - and can be confident
that most, although not all, of the HES audience is with him. Certainly his
publisher, the AEI Press, is with him. The result, however, is blemished by
overconfidence and condescension, leading to some carelessness. 

The question of how to make price equal marginal cost when fixed costs are
high relative to variable costs has not gone away. We have just been
reminded by Manuela Mosca of Jules Dupuit's early work on measuring social
benefits from public works. In the hands of Harold Hotelling and Wm. Vickrey
this evolved into noting how marginal-cost pricing with decreasing average
costs calls for tapping the rise of rents on lands served by facilities with
heavy fixed costs to help pay for those works. This may be done by a
monopoly discriminating among consumers, or a public agency taxing land
values, or a r.r. corporation given a large land grant (which I deplore, as
it worked in practise). None of those cases comports with perfect
competition. 

The "Reason Foundation", a doctrinaire bedfellow of the AEI, is pushing for
privatizing the highways, even citing California #91's parallel "Fast-Track"
as a model, ignoring its early bankruptcy and bailout with public funds.
Dupuit, Hotelling and Vickrey have pointed out why user-charges alone (even
with price discrimination and peakload pricing) fail to capture the full
benefits of highways to society.

As for Alfred Marshall he sent out lots of signals indicating he would have
gone along with Hotelling and Vickrey; and his successor A.C. Pigou did so
explicitly (if timidly and circumspectly) in his *Study in Public Finance*.
Surely Marshall should not be caricatured as a simple idolater of markets
and private property in the image of the AEI and its large family of
similarly-minded think tanks.

Vedder swings and misses with his point that the share of American workers
employed by Fortune 500 companies is going down. Another way of putting that
is that small businesses create most new jobs - in spite of the bias to
scale inherent in the policies of the kinds of politicians with whom
Vedder's ideas appear so simpatico. Note, too, that Vedder specifies
AMERICAN workers - not a word about downsizing and outsourcing. If giant
firms were to shed their lands and other assets as fast as they downsize
their work forces it would do a lot to make the market work the way it is
supposed to.

I have not read Perelman's book, but I wonder if Vedder has portrayed it in
its fullness, or cherry-picked portions easy to refute and ridicule? I hope
Perelman will respond.

Mason Gaffney