Showing papers in "Research Papers in Economics in 1972"

Some Cambridge Controversies in the Theory of Capital

Abstract: Capital theory traditionally spans two major compartments of economic theory: the theory of production of both individual products and the total product, and the theory of the distribution of the aggregate product between the different classes of capitalist society. It has always been controversial, partly because the subject matter is difficult and partly because rival ideologies and value systems impinge directly on the subject matter. In the present book the various topics associated with the exchanges between the 'neo-Keynesians' and the 'neo-neoclassicals' are discussed and evaluated. The topics include the measurement of capital, the revival of interest in Irving Fisher's rate of return on investment, the double-switching debate, Sraffa's prelude to a critique of neoclassical theory, and the 'new' theories of the rate of profits in capitalist society.

The Production of Health, an Exploratory Study

Abstract: The relationship of mortality of whites to both medical care and environmental variables is examined in a regression analysis across states in 1960. Medical care is alternatively measured by expenditures and by the output of a Cobb-Douglas production function combining the services of physicians, paramedical personnel, capital, and drugs. Simultaneous equation bias resulting from the influence of factor supply curves and demand for medical care is dealt with by estimating a more complete model. Both two-stage least squares and ordinary least squares estimates are presented. The elasticity of the age-adjusted death rate with respect to medical services is about -0.1. Environmental variables are far more important than medical care. High education is associated with relatively low death rates. High income, however, is associated with high mortality when medical care and education are controlled for. This may reflect unfavorable diets, lack of exercise, psychological tensions, etc. The positive association of mortality with income may explain the failure of death rates to decline rapidly in recent years. Adverse factors associated with the growth of income may be nullifying beneficial effects of increases in the quantity and quality of care. If so, the view that we have reached a biological limit to the death rate is not valid.

Effective Demand Failures

Abstract: Part I argues that the central issue in macroeconomic theory today again concerns, as it did in the 1930's, the self-regulatory capabilities of market systems. Our failure to make better progress towards a generally acknowledged resolution of long ongoing controversies seems in large measure due to the relatively underdeveloped state of our knowledge pertaining to this question. The theory of effective demand does not deal with all aspects of it, but it deals with hardly anything else. Part II sketches three exploratory ventures in effective demand theory. In turn, it discusses (A) The Theory of Markets and Money, (B) Theories of the Consumption Function, and (C) Quantity Theories of Money Income Determination. Effective demand failures impair the economy's ability to restore itself to a state in which economic activities are reasonably well coordinated. The three avenues of approach explored in Part II all point to the relation between the magnitude of the shock or shocks to which the system is exposed and the size of the "bufferstocks"-particularly of liquid assets, and most particularly of money-that transactors maintain as critical to whether effective demand failures of major consequence will emerge or not. The theory suggests that the system may be much less able to cope automati. cally with large than with moderate displacements from its equilibrium time-path. Policy prescriptions for large and for moderate displacements will differ, beingvery roughly speaking, indeed-"fiscalist" for the former, "monetarist" for the latter case.

On Measuring the Social Opportunity Cost of Public Funds

Abstract: The literature on project evaluation abounds with competing recommendations as to what rate of interest should be used to discount to a single point in time the estimated costs and benefits of public-sector projects. Official policy in the United States, as established in the Green Book1 and in Senate Resolutions, is to base public-sector investment decisions on interest rates prevailing or expected to prevail in the market for government bonds. An alternative, proposed by such authors as Hirshleifer, DeHaven and Milliman, Strotz, and Stockfisch, is to discount benefits and costs at the estimated marginal productivity of capital in the private sector of the economy. A third group, to which Marglin and Sen belong, asserts that market interest rates give an exaggerated picture of the rate of ‘social time preference’, and suggests that that rate be chosen which represents the consensus of the policy-makers (or of the society as a whole) concerning what the social time preference rate really is or should be. I shall defer discussion of social time preference rates, thus arbitrarily defined, to a later point, and shall instead assume that the ‘social rate of time preference’ refers to an appropriately weighted average of the different marginal rates of time preference applicable to the individuals who compose the society.

Monopolistic Competition in Retrospect

Abstract: Before the Great Depression, that chasm between darkness and light, economists had generally looked upon the economy as a mixture of industries that approximated conditions of perfect competition and industries that were ‘monopolies’. The competitive industries, it was believed, were satisfactorily analyzed by the theory of competition, and although the ‘monopolies’ were diverse in structure and power, they could be informatively analyzed by a discriminating use of the theory of monopoly. Individual economists varied considerably in the relative importance they attached to these two groups of industries, of course, but they varied surprisingly little in the type of analytical system they deemed appropriate to the analysis of economic events. This is not to say that the details of the analytical system were, or were thought to be, definitive: indeed certain portions of the system, such as duopoly, admittedly were (and are) in wretched shape.