The Role of the OERG in the Analysis of Industrial Firms
Despite his isolated position, Macgregor became an ‘active and enthusiastic member’ of the OERG shortly after its creation (Andrews 1953: 346). The Group was created in 1936 and was initially led by Sir Hubert Henderson who was the sole Professor of Economics at Oxford.
The earliest members were all economists and teaching fellows at Oxford at the time. They are listed in Appendix 1 at the end of this chapter. Andrews, who came to Oxford in 1937 as a member of the research staff, became Secretary of the OERG.A couple of years after the establishment of the first Sub-Faculty in Economics at Oxford in 1932, All Souls College offered a Readership in Economic Statistics to promote systematic empirical work in social studies. Oxford economists—who were already developing the work of the Oxford Institute of Statistics (OIS)—took the opportunity to approach the Rockefeller Foundation. In 1937, the financial assistance given by the Foundation to Roy Harrod enabled the Group to grow, in two years, from a relatively small number of participants to more than nineteen members.
The meetings of the OERG were quite informal and their studies basically consisted of sets of inquiries or research projects which usually took about eighteen months and which were based upon questionnaires. These questionnaires were sent in advance and then formed the basis for after-dinner interviews with businessmen who were invited to come to Oxford to dine and spend an evening answering members’ questions. Intensive questioning and discussions often took place until the small hours of the morning. A record was kept of what was said at each meeting and sent back to the guest, allowing him to alter his comments. This procedure was considered to be a completely new methodology at the time and broke with traditional deductive methods.
While the topics studied within the Group were diverse and not only focused on firms and industries, its most notable research concerned the influence of interest rates on investment, and the pricing policies of firms.
It was found that investment decisions taken by businessmen were influenced very little by changes in the rates of interest. Regarding pricing policies, many of the businessmen participants claimed to set prices according to the “full-cost” principle, that is, calculating the average cost of production and then adding a margin. In October 1938, the Group published its results in the first issue of Oxford Economic Papers. Indeed, a key purpose of the journal was to make public the empirical research being carried out by the OERG and the OIS.In 1939, the OERG published papers on pricing, in particular the famous Hall-Hitch exposition of the full-cost principle. It was the first time that theorists had examined actual business practice. They used questionnaires for a sample of thirty-eight firms, with the results showing that a significant proportion of these companies did indeed set their prices according to full-cost. Typically, a company would make an ex-ante estimate of its output for the coming year, then determine average cost (direct costs, e.g. labour, materials, energy, per unit of product) and then add to it percentage margins for profit— the “mark-up”. The firms in question insisted that this pricing mechanism was a “rule of thumb” and could result in maximum profits by accident only. Hence, the results of the survey appeared to conflict with the received doctrine of the time. In other words, this exercise tested the conventional assumption of maximisation in terms of equalisation of marginal cost and marginal revenue. In fact, Hall and Hitch justified the full-cost principle by arguing that ‘producers cannot know their demand or marginal revenue curves' (Hall and Hitch 1939: 22). Thus, the evidence obtained from the businessmen showed that they did not and could not use marginal revenue and cost (i.e. any forms of marginalism) to set prices. Rather, it indicated ‘that they [were] thinking in altogether different terms' (ibid.: 18).
After the publication of the articles in Oxford Economic Papers,[14] the Group was full of intellectual vitality and raring to take their research forward, but when the war started in September 1939, members were dispersed, disrupting the OERG, which became inactive for the duration of hostilities.[15]
The conventional wisdom on the post-war OERG is that it had a limited effect on Oxford economics in terms of influence and direction of research.
According to some of its former members, the OERG tried to resurrect itself after the war, but the drive and interest that existed before 1939 had gone. Nevertheless, the Group did reform, and some new members played an active part in its reconstruction. Roy Harrod took the chair and was accompanied by some new and some old members, listed in Appendix 2. As can be seen in this Appendix, Frank Burchardt, Hubert Henderson and Edward Hugh-Jones still attended meetings, along with Philip Andrews, who became the new Secretary of the Group and was assisted by Elizabeth Brunner, one of the very few female members.During the post-war period, the members of the OERG were more concerned with researching the internal organisation of the firm. Work on pricing had been completed before the war and the post-war Group began to look at issues such as productivity and factors affecting capital expenditure (Andrews and Brunner 1950: 197). Between 1950 and the end of the OERG, four main themes were studied: pricing policy of exporters when the exchange rate altered; relationships between firms; business investment; and the sources of growth. Papers looking at the last of these were published in the March 1964 number of Oxford Economic Papers (Leyland 1964; Richardson 1964; Richardson and Leyland 1964).
At the beginning of the 1960s, the links that had been developed with businessmen were still growing, especially with the help of Harrod, Richardson, Leyland and Andrews, and the reputation of Oxford itself. Meanwhile, in November 1962, Roger Opie became Secretary of the Group in place of Norman Leyland. At the same time, however, the Group’s members started showing some loss of interest in its work and the decision to try to increase membership and invite new economists was taken. This did not work, however, and by the summer of 1964 the Group started to seriously question its relevance. A meeting in 1965 examined forecasts and business decisions, this turning out to be the last gathering of the OERG.
3