Fritz Machlup, “Rejoinder to an Antimarginalist”

Fritz Machlup’s “Rejoinder to an Antimarginalist” is a brief polemical reply to Richard A. Lester’s survey-based criticism of marginal productivity theory in wage-employment analysis. Machlup treats Lester’s case not as a serious alternative theory but as a set of misunderstandings about what marginal analysis claims. He concedes a minor factual point about Lester’s questionnaire procedure, then dismisses its relevance to the contradictions he had identified.

I wonder what difference that makes.

The rejoinder’s central burden is to show that Lester repeatedly mistakes managerial descriptions of immediate causes for theoretical refutations. If executives say employment depends chiefly on sales, orders, or capacity, Machlup does not deny the observation. He argues instead that sales expectations are already part of marginal productivity reasoning, not an antimarginalist discovery.

Professor Lester makes it appear as if this were his “position” and as if it were inconsistent with marginal productivity theory. In fact, sales expectations are an integral part of marginal productivity, as I explained patiently in my article.

Machlup similarly rejects Lester’s inference from decreasing unit variable costs to the claim that wage-induced employment reductions are generally impractical. Marginal analysis, he insists, has never required rising unit costs over the relevant range. The fallacy lies in moving from a cost description to a conclusion about employment adjustment without tracing prices, demand, substitution, and expectations.

Professor Lester states that “consequently” output reductions in response to wage rate increases are “seldom practical.” This is a non-sequitur, and no amount of reiteration can make it a correct inference.

A recurring distinction is between direct managerial response and indirect economic effect. A firm may not consciously cut output because wages rise; it may raise prices, lose sales, and only then reduce employment. Lester’s questionnaires, on Machlup’s reading, capture the proximate vocabulary of executives rather than the causal structure economists try to analyze. This is why Machlup also resists the claim that marginalism is unusable in complex plants: incremental judgments may be more accessible than full average-cost accounting.

Incremental costs and revenues can be known without any knowledge of average costs and revenues; the reverse is not true.

The broader theoretical point is that marginal productivity theory is not a monocausal doctrine saying wages alone determine employment. It is a framework for relating wages to sales expectations, prices, technology, factor substitution, complementary inputs, and adjustment costs. Oligopoly pricing, short-run rigidity, fixed coefficients, or reluctance to dismiss workers may complicate the analysis, but they do not abolish it. Machlup’s complaint is that Lester attacks a simplified caricature and then offers, in its place, little more than sales volume as an explanatory principle.

In this sense the rejoinder is less an empirical rebuttal than a defense of analytical language. Machlup grants that businessmen speak in terms of orders, morale, sales effort, and administrative constraints, but he denies that such language invalidates marginal reasoning. For him, the very merit of marginal analysis is that it can organize these diverse considerations without reducing employment decisions to any single observed response.