Showing papers in "Journal of Political Economy in 1948"

The Utility Analysis of Choices Involving Risk

Abstract: T vHE purpose of this paper is to suggest that an important class of reactions of individuals to risk can be rationalized by a rather simple extension of orthodox utility analysis. Individuals frequently must, or can, choose among alternatives that differ, among other things, in the degree of risk to which the individual will be subject. The clearest examples are provided by insurance and gambling. An individual who buys fire insurance on a house he owns is accepting the certain loss of a small sum (the insurance premium) in preference to the combination of a small chance of a much larger loss (the value of the house) and a large chance of no loss. That is, he is choosing certainty in preference to uncertainty. An individual who buys a lottery ticket is subjecting himself to a large chance of losing a small amount (the price of the lottery ticket) plus a small chance of winning a large amount (a prize) in preference to avoiding both risks. He is choosing uncertainty in preference to certainty.

On the Rationale of Group Decision-making

Abstract: When a decision is reached by voting or is arrived at by a group all of whose members are not in complete accord, there is no part of economic theory which applies. This paper is intended to help fill this gap; to provide a type of reasoning which will contribute to the development of the theory of tradeunions, the firm, and the cartel; and to provide the basis for a theory of the equilibrium distribution of taxation or of public expenditure. Still other uses of the theory might be not less important. For reasons of space we avoid discussion of many points that demand fuller treatment and only attempt to indicate the course of the argument.

An Experimental Imperfect Market

Abstract: ITi s a commonplace that, in its choice of method, economics is limited by the fact that resort cannot be had to the laboratory techniques of the natural sciences. On the one hand, the data of real life are necessarily the product of many influences other than those which it is desired to isolate a difficulty which the most refined statistical methods can overcome only in small part. On the other hand, the unwanted variables cannot be held constant or eliminated in an economic \"laboratory\" because the real world of human beings, firms, markets, and governments cannot be reproduced artificially and controlled. The social scientist who would like to study in isolation and under known conditions the effects of particular forces is, for the most part, obliged to conduct his \"experiment\" by the application of general reasoning to abstract \"models.\" He cannot observe the actual operation of a real model under controlled conditions. The purpose of this article is to make a very tiny breach in this position: to describe an actual experiment with a \"market\" under laboratory conditions and to set forth some of the conclusions indicated by it. The experiment has been carried out in a number of classes in economic theory, with the students offering themselves up as the guinea pigs. It was actually designed to illuminate a particular problem which I had analyzed earlier in abstract terms,' viz., that of the effect of deviations from a perfectly and purely competitive equilibrium under conditions (as in real life) in which the actual prices involving such deviations are not subject to \"recontract\" (thus perfecting the market), but remain final. It was designed also as a pedagogical experiment; and in my own experience has been found stimulating and instructive to students both (a) for their actual participation as buyers and sellers in a market mechanism and (b) for the many comparisons afforded, both of similarity and of contrast, between the laboratory market and its diverse counterparts in the real economic world. Pedagogy to one side, however, it has in its present form, yielded at least some \"scientific\" results. It is evidently capable of substantial variations and might possibly be extended and adapted to other problems.

Income Tax Progression, 1929-48

Abstract: T~HE expansion of federal taxation during the last two decades has featured increased reliance upon the personal income tax. From the rate low in I929 to the rate peak in World War II, income-tax liabilities were raised on seven occasions. Notwithstanding subsequent reductions, present liabilities remain well above pre-war levels. While most people feel that income-tax progression increased, the concept of \"increased\" or \"decreased\" progression is ambiguous. In fact, the results depend entirely on how the degree of progression is measured. The usual failure to attach precise meaning to the concepts of increase or decrease in progression may be due to the ease with which the existence of progression, proportionality, or regression is distinguished.' It is generally agreed that a rate structure is progressive where the average rate of tax (i.e., tax liability as a percentage of income) rises when moving up the income scale; proportional where the average rate remains constant; and regressive where the average rate falls with the rising income. In other words, the rate structure is progressive where the marginal rate (i.e., the increment in tax liability as a percentage of the increment in income) exceeds the

Adam Smith and the Economic Man

Abstract: We are told by men of science that all the ventures of mariners on the sea, all that countermarching of tribes and races that confounds old history with its dust and rumor, sprang from nothing more abstruse than the laws of supply and demand, and a certain natural instinct for cheap rations. To anyone thinking deeply, this will seem a dull and pitiful explanation.--Robert Louis Stevenson, Will o' the Mill.

Some Objections to Marginal-Cost Pricing

Abstract: E VER since Alfred Marshall suggested that the allocation of resources might be improved by subsidizing decreasing-cost industries,' the idea has been treated with some skepticism, not only by the public at large (few of whom, indeed, have been confronted with the idea) but even by economists presumably able to understand the principles involved. Even now that the notion has been given greater precision by the work of Pigou,2 Hotelling,3 Lange,4 Lerner,5 and others so that we can speak of a "rule" that, to produce an optimum allocation of resources, the prices of all goods and services actually being produced must be set uniformly equal to their respective marginal costs (even though, in the case of decreasingcost industries, this may involve a subsidy)-objections to the application of this principle continue to be raised on various grounds. It is the purpose of this article to examine in some detail just how much weight should be given to these objections.

Samuelson's Foundations: The Role of Mathematics in Economics

Abstract: T HE appearance of Paul Samuelson's Foundations of Economic A analysis2 -a brilliant and importantwork by an unusually gifted author in the general field of mathematical economics-is a suitable occasion for some further examination of the role of mathematics in economics. The question is one of great importance for the future of the science; it is, for instance, a very practical question for graduate schools which are training the future generation of economists. Is economics an essentially mathematical science? Must the student of economics become proficient in the use of the higher mathematical analysis before he can qualify to be called an \"economist\"? What is the basic minimum of mathematics which must be required of all students of economics? The conflict between the mathematical and the socalled \"literary\" economists still rages in our schools and can only be resolved, ap-

Some Locational Factors in the Iron and Steel Industry since the Early Nineteenth Century

Abstract: N OT only many laymen but economists, as well, retain the impression that the location of coal resources is, or at least has been during the last seventy-five years, the dominant factor in determining the locational pattern of iron and steel production. And frequently inferences are drawn that nations and regions lacking coal deposits are not in a position to develop an extensive iron and steel industry and that large regional movements of coal with respect to this industry are necessarily precluded. The purpose of this essay is to demonstrate and explain important historical changes in the location of iron and steel plants in leading producing nations and to establish specifically that the locational pull of coal resources per se has not been dominant for a number of decades. We commence with the early nineteenth century. At that time, for those processes in which coal had been substituted for charcoal as a fuel, coal deposits were, without question, locationally dominant. Ashton2 writes of Britain: "Drawn by a powerful magnet, the iron industry became localized on the coal fields of the Midlands, Yorkshire and Derbyshire, and South Wales." These districts in i820 accounted for 90 per

British Investments in Latin America, 1939

Abstract: THE year I939 marked the beginning of a very serious crisis for the British Isles, the British Empire, and British capitalists with investments overseas. Capitalists of the United Kingdom and Canada not only felt the heavy impact of the second World War but often encountered a surging economic nationalism, especially in some of the LatinAmerican countries. The decline in their Latin-American investments, relative since the first World War and absolute after I93I, was rapidly accelerated. The value and character of their properties in Latin America at the end of I939 are therefore topics of peculiar interest and significance in the long history of their investments in the region.' The South American Journal estimates British investments in Latin America at the end of I939 at ?I,I27,904,305: government bonds, ?324,I49,858; economic enterprises, ?803,754,447, with ?477,765,39I of the last sum in railways, ?I2,753,348 in shipping, ?8,977,630 in banks, and ?304,258,078 in miscellaneous investments. The Journal does not distribute this ?304,258,078 among the component subdivisions of the large miscellaneous group, but the major part of it was invested in public utilities; petroleum, mining, and nitrate companies; agricultural, pastoral, and real estate organizations; and manufacturing and trading firms. More

Average-Cost Pricing and the Theory of Uncertainty

Abstract: IN THIS note I wish to make a suggestion about average-cost pricing-including what is generally known as "full-cost pricing." Somewhat extreme brevity may be justified by two considerations. First, I have discussed certain implications of a very similar suggestion (although in application to a different problem) elsewhere in some detail.' Second, reasonably full discussion (which I may attempt later) would far exceed present space limitations. i. If firms do not know their own marginal-revenue functions and their marginalcost functions with certainty, then it ceases to be true that a firm which is pursuing intelligently the objective of highest possible profitability will equate its expected marginal revenue to its expected2 marginal cost. By "expected" we should presumably mean something like "most probable" or "best guess of," or possibly "mathematical expectation of," these marginal functions. Considering the vagueness of the probability considerations involved in entrepreneur expectations, we prefer to interpret "expected" magnitudes or functions as meaning "best guesses," that is to say, a vague form of the most probable. However, this does not affect the argument of this note, which can easily be translated into terms of other measures of expectations. The point to be stressed here is that it is not a requirement of rationality to equate the best guess of marginal revenue to the best guess of marginal cost. If this were done, then no allowance would be made for the possibility that the best guesses may turn out

Notes on the History of the Giffen Paradox: A Reply

Abstract: MR. A. R. PREST seeks both to allay our curiosity by revealing the whereabouts of Giffen's hint on the positively sloping demand curve for wheat and to arouse it by defending the empirical validity of the paradox. I shall comment briefly on both endeavors. The passage of Giffen's memorandum in which Mr. Prest finds the paradox does not contain it, as the reader should verify. And if he turns to the original-a two-page affair plus some statistical tables on agricultural outputs (but not prices)-he will find no reason for reading the paradox into the passage.' The entire discussion relates to the European-populated countries, not to England. Giffen apparently argues-he is far from clear-that the increased cheapness of meat has reduced the demand (curve) for cereals.2 There is no reference to working (or income) classes or to the cost of wheat being a large proportion of a poor man's budget.

Fashion and Monopolistic Competition

Abstract: _r-THHE literature of fashion is voluminous, but, although much has been I written on its economic aspects, I have seen no adequate treatment of fashion in terms of monopolistic competition.' In this connection, style and fashion are not synonymous, although most writers use these words interchangeably. With reference to clothing, style is any distinctive mode of tailoring, while fashion is the style prevailing at any given time. A style evolves slowly and reflects the people's way of life; fashion is a chameleon, ever changing, never in vogue long enough to reflect basic tastes and habits. Frequent fashion changes artificially shorten the period during which a style prevails; fashion is a parasite on style. A slow change in styles represents a true human want; for people weary of sameness; but fashion changes create a high rate of obsolescence for many kinds of goods, of which the classic example is women's clothing.

Notes on the History of the Giffen Paradox: Comment

Abstract: It may be suggested that as the fall in [the price of] cereals cannot be ascribed to an excessive growth of the production of the cereals themselves, it must be ascribed, seeing that there has been a great increase of the resources of the consuming peoples themselves, to a diminution of demand arising from various causes. What can be these causes? Why do people as they grow richer consume less wheat etc. instead of more? The answer to the last question is to be found, I think, in an examination of the figures as to livestock.... People consume less cereals per head because, with their increase of resources, they consume more meat, which pro tanto displaces the cereals.

The recession of 1937-38

Abstract: ERE are several reasons why the recession of I937-38 is of special I interest. First, it was the last major fluctuation in business activity before World War II. Second, most of the new control agencies which came with the New Deal were in operation by I937, SO that this recession was the first one that could provide evidence of their effects. Third, the statistical series and data, while not entirely satisfactory, are more extensive and better than for any prior period. Good summaries of the economic developments during the I937-38 recession were published before the war by Slichter,2 Hansen,3 Meade,4 and Lewis.5 More recently, however, additional data have become available, and some of the earlier data have been revised. It should be possible, therefore, to obtain a more complete appraisal of events immediately preceding and during the recession than was possible before the war.

Individual and Collective Wants

Abstract: ECONOMIC RESEARCH ARE the economic problems of the 1940'S essentially different from those of the I930's? This question seems to be justified with special regard to World War II, which distinctly separated the "peaceful" scientific development of the two decades. It is probable that the future historians of economic thought-when evaluating from a proper perspective the principal achievements of economic theory as a reflection of the development of economic life in the fourth decade of our century-will summarize these accomplishments in three groups. First, they will appraise the theories of imperfect and monopolistic competition as an elucidation of the strife between free competition and monopoly. Second, they will point out the manifold ramifications of the theory of business cycles, which will be considered as an echo of the Great Depression and correlated with the progress of econometric research. As the most important achievement, they will stress that third group of theories which sprang up in and about Keynesian economics and which is an image of the changing economic policies of the postdepression period. It will be elaborated how deeply rooted were these three groups of concepts in previous epochs of the development of economic thought, and it will be admitted that, apart from them, significant contributions to the traditional neoclassical approach were made. As compared with the other two groups, Keynesian economics had the advantage of being an appropriate theoretical foundation for various measures of economic intervention on which the governments of many countries had to depend during World War II. Consequently, Keynesian economics became the most momentous part of the heritage which the I940's received from the economic science of the

The Role of Dissaving in Economic Analysis

Abstract: y-TTH E need for breaking down into their components some of the main I aggregates used in current economic analysis has been recognized by many writers. Frequently, the behavior of the whole can best be explained by analyzing changes in its components and shifts in the relative importance of the various components. Unfortunately, much of the recent economic analysis has been built up on aggregates and fails to pay sufficient attention to the underlying changes in the component elements. Investigations into the relationship between personal savings and disposable income are no exception in this respect. Almost all recent studies and, in particular, the various econometric explorations deal with net personal saving and not with its two determinants, gross saving and dissaving.2 "Net personal saving" is both an economic reality and a statistical abstraction. The difference between disposable personal income and current-consumption expenditures represents the part of the national product which consumers make available for investment in exchange for various types of equity and debt claims. The numerical difference between the aggregate gross saving of

Samuelson's Foundations: Its Mathematics

Abstract: AS ONE interested in applications of mathematics though not conversant with economic theory, I have been asked to comment on the mathematical aspects of Paul A. Samuelson's Foundations of Economic Analysis.' The announced aim of this book (p. 3) is to demonstrate that a comparatively small number of mathematical propositions contain the formal (or logical) basis of much of economic theory. If the economic analyses contained in this book are a representative sample of economic analysis in general, the demonstration is successful, for these do indeed show great mathematical unity. Thanks to this unity, few mathematical topics are drawn upon, almost all being among those which find everyday application in such diverse fields as physics and statistics. The principal topics, in addition to those ordinarily taught in elementary calculus, are the implicit function theorem, Lagrange multipliers, systems of linear differential equations (and the like), and matrix algebra. The book is reasonably comprehensible to anyone somewhat familiar with most of these topics, especially since it contains (in special appendixes and elsewhere) a considerable amount of mathematical exposition well suited for review and supplementary study. With the exception of matrix algebra, the foregoing topics are likely to have been encountered by any student who has pursued mathematics for a year beyond the first year of calculus. Matrix algebra is recognized by mathematicians to be of immense value in almost every

National Patterns of Union Behavior

Abstract: I IS IT possible to deduce trade-union behavior from a small group of basic assumptions? From the point of view of analytical economics, the union is a monopolistic seller of labor engaged in maximizing some variable such as the total wage bill, that of the union members, or some variation of these elements. Dunlop has made perhaps the most ingenious presentation of what can be achieved by such analytical methods.2 However, in his introductory remarks he pointed out that

Public Expenditures for Veterans' Assistance

Abstract: THE purpose of this note is to call attention to a component of public expenditures which has been neglected by economists, despite its size and its importance from the standpoint of policy. There are several apparent reasons for this neglect, while other programs also designed to aid only a portion of the population have received due attention in economic literature. First, there is the parochial character of veterans' benefits-their restriction to a closed group distinguished by an attribute which ideally should diminish in significance through time. Then there is the undiscriminating but widely held view that the motivation of veterans' aid legislation is mainly \"political.\" Various other aspects of the benefits may have discouraged broad interest-the temporary nature of many of the aids; their comparatively small total cost until recent years; and their multiplicity, legal intricacy, and specialized nomenclature. Another factor is the tendency in national income measurement to lump most veterans' benefits, with little description or comment, in the somewhat hazy category of transfer payments.2 It is significant that veterans' benefits are not even mentioned as examples-though Social Security and agricultural payments are-in what is perhaps the most comprehensive recent discussion of transfer payments.3 An attempt will be made here to show the present and to anticipate the future dimensions of the \"veteran problem.\" At least two major conclusions are suggested by the materials considered:

Postwar Taxation in Japan

Abstract: INNOVATIONS in the fiscal field have been all too infrequent in the past. Despite perennial demands for "taxation programs," legislatures have exhibited untiring patience in perpetuating long-established tax practices. It is, therefore, remarkable that, in a nation as steeped in tradition and as subservient to the status quo as is Japan, a violent refashioning of its tax fabric could have been effected. The scope and rapidity of tax innovations undertaken in Japan, from September, I946, through March, I947, is perhaps unparalleled in fiscal history. During this seven-month period, the government adopted a capital levy, with rates ranging up to go per cent-a novel form of "tax" designed to relieve the state of a huge wartime-incurred debtand fundamental revisions in the general tax structure. These developments were but one of a series of economic, political, and cultural transformations undertaken in occupied Japan. Had it not been for the catalytic effect of the occupation, it is doubtful whether the impact of Japan's recently adopted taxes could have been equaled in less than a decade. A study of Japan's ambitious tax experiment offers a unique insight into how an occupied nation's fiscal machinery can be mobilized to accomplish nonfiscal, as well as fiscal, objectives. Taxes were explicitly designed to favor a social climate more conducive to the growth of democratic institutions. A capital levy was imposed chiefly to level off excess concentrations of economic power. Personal direct taxes were radically overhauled to achieve more progressive incidence and to check further tendencies toward maldistribution of wealth. Indirect taxes were increased upon luxury and sumptuary goods, while those on more essential cost-of-living goods were lowered. Japan's tax developments may be of more than academic interest in American tax circles. In various technical details the Japanese income and estate-tax laws may perhaps be considered in advance of current American statutes. The Japanese experience with such fiscal rarities as a capital-levy and debt-cancellation tax also merits attention by the fiscal economist.

Professor Heimann on Religion and Economics

Abstract: TH m~title of Professor Heimann's book, Freedom and Order, is a good designation for the "social problem" (especially its economic aspect) faced by that part of western European civilization that is still committed to the ideal of political and intellectual liberty.2 In this connection the present-day economic theorist concerned about truth and social economic problems-and committed to the faith in seeking and applying truth as method-finds himself "on the spot." In the first place, his position is not only discouragingly similar to that of the famous Trojan princess Cassandra; it is unpleasant in a further and deeper respect. It is his main task to tell the public truths which it would see with little or no telling if it did not arbitrarily refuse to do so; and he knows that the reason for its failure to see is not so much intellectual as it is a deep-seated emotional aversion. Economics has been well named "the dismal science," though the designation fits all sciences dealing with

Postwar Political Economy: The President's Reports

Abstract: \"Against Inflation--Against Deflation--For Flation.\"--The Senator Was Indiscreet

Liberalism in the Modern State: The Philosophy of Henry Simons

Abstract: H ENRY SIMONS ' published work consisted chiefly of reviews and articles, and most of it was compressed into the space of little more than a decade (1934-46). It was devoted to two topics: the essentials of a successful free economic system (which he deemed to be also the prerequisites of personal and political freedom) and contributions to the theory and practice of taxation. The volume here discussed brings together thirteen of his papers in the first of these fields; a paper on federal tax reform is promised for early publication. In the nature of the case the collection lacks the systematic character of a book. There are numerous repetitions, and the author's views on many topics must be pieced together from scattered references. But there are surprisingly few inconsistencies or recantations; the framework of thought was made clear in the earliest paper, and the growth was in power of exposition rather than in depth of thought.

How Sound Were Private Postwar Forecasts

Abstract: A A RESULT of the numerous and sizable errors in reconversion and postwar forecasting by government economists, it is widely believed-by professional economists as well as by the general public-that most of these errors were committed by government agencies and that most private reconversion forecasting was correct. Nothing could be further from the truth. By and large, private forecasting was even more wide of the mark than was public forecasting. In i945 the optimism of businessmen about postwar production and employment prospects was a lucky psychological illusion, based largely on economic and statistical errors. Before analyzing these errors, it is of some historical interest to trace the evolution of business thinking about postwar prospects. The basic fact about this development is that, prior to the emergence of the Committee for Economic Development as a potent influence on business opinion, the postwar expectations of businessmen were generally on the pessimistic side. Curiously, even where they were pretty certain that the market for their own particular product or service after the war would be excellent, they were very reluctant to universalize this favorable outlook into a belief in general prosperity and absence of unemployment. Indicative of this pessimistic attitude were the initial reactions to S. Morris Livingston's now famous study, Markets after the War, issued in I943 by the Department of Commerce. Although specifically presented as a goal rather than as a forecast, this report was widely misconstrued by businessmen as an actual prediction of postwar things to come. But, both as a prediction and as a hypothetical goal, it was frequently attacked as \"utopian,\" \"New Dealish,\" etc. The underlying reason for this reaction was the general assumption, then shared by most businessmen with liberals and radicals alike, that full employment could be achieved only by government intervention. Since the vast majority of businessmen were against such intervention, they attacked the goal which they believed required it.2 It was the remarkable and outstanding influence of the C.E.D. that changed this cautious approach of business to a bold and forthright optimism. The full-production and -employment goals projected by government economists of liberal and radical persuasion were now transformed into practical targets realizable largely by business action alone. Ambitious market-research projects were conducted for the purpose of revealing to businessmen that the private optimism they held about their own postwar market prospects was shared by almost all other businessmen and hence that the sum of all these expectations could make the full-production blueprints of the government planners a reality soon after the end of the war. This transformation of business sentiment swept to triumph in the brief period from just prior to V-E Day to V-J Day. By this time, other business organizationssuch as the National Association of Manu-

Price Inflexibility--War and Postwar

Abstract: BEFFORE the war there was considerable discussion among economists and statisticians concerning the importance of inflexible prices. To a great extent this discussion revolved around the studies made by Gardner Means.2 In those studies, the degree of inflexibility was usually measured in terms of the number of monthly price changes recorded within a given period or in terms of the degree of decline reported in prices. Although Means emphasized primarily the period I926-37, other students of this problem examined the record over a longer period.3 Many of the students of this problem attributed the inflexibility to concentration of control,4 or \"monopoly power,\"s or \"fewness of sellers.\"6 However, as the writer pointed out at that time, the factors contributing to inflexibility go beyond those associated with the phrases monopoly power, concentration of control, or related terms. The characteristics

The High Cost of Food--A Suggested Solution

Abstract: FOOD represents o large a proportion of the total budget of moderateand lowincome consumers that recent increases in food prices are a cause for general concern. Given the nature of our economy, especially the importance of wage negotiations in determining the level of costs and prices, high food prices may soon be reflected in increased wage rates and thence in higher prices. Since these adjustments would be followed by higher food prices, a true inflationary spiral might be started. Rising food prices are not only a domestic problem. High food prices greatly increase the difficulty, both financial and political, of sending food abroad in sufficient value to achieve our goals in international policy. It is, of course, not surprising that people whose real incomes have fallen or who find themselves spending a disproportionately large share of income upon food will resist actions that would increase further the price of food. High food prices increase the financial needs of other nations by making the dollar shortage greater. Lagging food output, due to winter killing, drought, and insufficient fertilizer, requires western European nations to maintain heavy food imports. Even with a relatively large industrial output, exports are still small. Assets useful in paying for imports are limited. Consequently, reliance must be placed upon the United States to advance dollars as gifts or loans. And each further rise in food prices increases the number of dollars required. There is, of course, a close interrelation ship among high food prices, the dollar shortage, and high-level food exports. The price elasticity of demand for food is very small. Moderate increases in shipments result in much larger proportionate increases in food prices. These, in turn, require making available more dollars or permitting the economic situation in western Europe to further deteriorate. The domestic inflationary situation is intensified by our current huge export surplus, which was approximately eleven billion dollars in I947. It is obvious that internal measures should be taken to offset the inflationary impact of so large an export surplus. However, such general measures may well be inadequate to meet the problem presented by the above-normal concentration of exports upon food. Consequently, there is considerable attention being given to methods of \"doing something about rising food prices.\" Proposals have been made in several quarters to reimpose price controls and rationing on food. The impact of this program would be threefold: (a) domestic consuwmption would be reduced and foreign shipments could be increased; (b) food producers anid handlers would receive smaller real incomes because food prices would fall, and food consumers would receive larger real incomes; and (c) poor consumers would probably increase their food consumption, on the average, while rich consumers would be forced to decrease theirs. There are numerous economic and political arguments against such direct controls. All three consequences can be achieved more effectively by the use of taxes and subsidies as outlined below. An important point of equity is involved in adopting measures to reduce the real income of farmers and to increase the real income of consumers. Currently farm prices are too high, judged by social, economic, or ethical criteria. However, less than a decade ago, farm prices were too low. Consumers are being pinched now; farmers were severely squeezed earlier. As a matter of equity, it seems that any proposal to reduce farm income now should

The German Reparations Problem

Abstract: RATCHFORD'S and Ross's recent account of the technical negotiations which were intended to implement the Potsdam Agreement, by determining the permitted level of German industry, is a most depressing document.' The facts which it reports will provide future historians and, one must fear, German nationalists with powerful material for criticism of Allied policies. At Potsdam, the Big Three had not merely agreed on the elimination of the German army and of the German munition industries including the manufacture of aircraft and seagoing ships. They had also decided that the industries which are equally necessary for war and peace should be \"rigidly controlled and restricted to Germany's approved peacetime needs.\"2 the latter being defined as those of an average European standard of living.3 Therefore it became necessary to determine how much of each of the critical industries Germany would need by this standard. In an atmosphere less permeated by power politics, this task would have been approached as a problem of statistical technique and objective economic science. But, with four powers of widely divergent interests and ideas about Germany's future trying to translate the Potsdam formula into specific quantitative provisions, political compromise took the place of objective calculation. Ratchford and Ross, from their own experience as members of the technical staff, illustrate by numerous examples the statement made about a year ago by David Ginsburg who, as United States alternate in the Economic Director-