The reasons for price rigidity

Paper presented at a Round Table Conference of the American Economic Association at Atlantic City, December 29,1937. An analysis of price-indexes covering depressions since 1837 shows that there was as much distinction between rigid and "administrated" prices then as now, and that prices on the whole fluctuated less frequently. The distinction between price-movements of agricultural and industrial products was recognized by Adam Smith and his followers. It is partly caused by differences in the nature of the demand for them, not so much differences in elasticity in the usual sense, as changes in demand resulting from changes in the public's purchasing power. Whether such changes in demand affect output or prices the most depends on circumstances affecting supply, of which the most important are: (1) the inability of farmers to control their output because of climatic conditions, and (2) the relative unimportance of hired labor in agriculture. The increasing size of industrial units has not increased the rigidity of industrial prices, which are now less rigid than they were a undred years ago.