The Consumer Does Benefit from Feasible Price Stability: A Comment

In an article for this journal,' Professor Samuelson criticizes two papers, one showing that consumers could benefit from price instability and the other demonstrating that a competitive firm would prefer stochastically unstable prices to a stable price equal to the mean of the unstable prices.2 The gist of his criticism is that the kind of price instability assumed in these papers is infeasible, and hence the conclusion that price instability is to be preferred must be rejected.3 As the author of one of these papers, I have prepared this comment for two reasons. First, Samuelson provides his own interpretation of my paper, and that interpretation is at variance from what I had intended and written. Second, and more important, he has analyzed a general equilibrium model that is incapable of generating price instability except through the intervention of a deviant nonprofit manipulator. His analysis is an obviously correct one for a world consisting of a closed, stationary economy, but that is not the world for which my modest note was intended.