Abba Lerner

Alba LernerAbraham (Abba) Ptachya Lerner (1903-1982) was a Russian-born British economist and professor. He entered the London School of Economics at the age of 26 where he learned from Friedrich Hayek, and where he would later become a professor himself. Later, he went to the United States where he taught at a number of universities such as Virginia, Kansas City, Amherst, the New School for Social Research, Roosevelt, John Hopkins, Michigan State and the University of California, Berkeley. Lerner is regarded as a brilliant expositor of the economic science, since he was able to explain complex concepts in a concise and understandable way.

Even though Lerner can be considered to have been a socialist, he was an unusual one as he disliked government power over people’s lives and was in favour of free markets and free price systems.

Lerner contributed to the field of international trade theory with some noteworthy publications concerning the effects of free trade for factor price equalisation, where he developed the concept known as the Lerner–Samuelson theorem. He also participated along with Oskar Lange and Ludwig von Mises in the calculation of the social dividend.

However, he is better known for his article “The Concept of Monopoly and the Measurement of Monopoly Power”, 1934. In this article, which focused on welfare economics, Lerner introduced the idea that monopolies are a matter of degree, stating that their power depends on the excess of price over marginal costs, discussing also Pareto optimality and loss of total welfare in monopolies. Furthermore, he relates all this into the Lerner index, which measures a firm’s level of market power by relating price to marginal cost.

For many of his followers, Lerner’s magnus opus was “The Economics of Control”,1944, where he analyses, arguments and justifies the use by governments of “functional finances”, which is the use of public finance in order to achieve a full employment and price stability situation. This would help give shape to many of John M. Keynes ideas (Keynesianism) that relied on fiscal policies to increase or decrease aggregate demand depending on the needs of the economy.