Showing papers in "Southern Economic Journal in 1956"

The Price System and Resource Allocation

Abstract: The price system and resource allocation , The price system and resource allocation , مرکز فناوری اطلاعات و اطلاع رسانی کشاورزی

Money, Interest, and Prices: An Integration of Monetary and Value Theory

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Commonality, the Price System, and Use of Water Supplies

Abstract: The almost constant stream of news reports in the press and radio regarding falling water tables, salt water intrusion, and increased water use is indicative of the growing attention being given to the subject of water supply in the United States. Water is rapidly losing its status as a "free good" and its "wise" use is becoming a problem of national concern. Unfortunately, the publicity has often emphasized the "scare" aspects of the situation and has given the impression that unless strong action is taken that the nation is in imminent danger of running out of water and thus facing a sharp curtailment of growth. It is the belief of this writer that there are indeed some important water problems but that the "scare" emphasis is misplaced and possibly ill-conceived in that it may cause the citizenry to take action not really warranted by the facts of the situation. In addition to the possibility of misplaced emphasis, this writer is concerned with the neglect of careful economic analysis in a number of the water studies that have been made. While considerable attention has been given to the geological, engineering, and administrative aspects of water provision, relatively little attention has been paid to the economic questions involved. There is considerable evidence that the failure to use basic economic analysis has resulted in pricing and administrative policies which are at variance with economic realities and which are in conflict with the efficient allocation of water resources. It is the thesis of this paper that greater reliance should be placed upon the price system to allocate water resources efficiently among competing uses and users. Aside from the outright failure to allow the price system to function in many instances where its use is now possible, the application of "correct" pricing policies to water resources, however, is plagued by that fact that water resources are often exploited or utilized in common so that important "spill-over" costs exist. The commonality of use prevents the onus of costs from falling upon the particular pumper and causes a divergence between private and social costs. As a result optimum allocation of water resources is hampered. I shall propose two basic methods of destroying or mitigating the worst aspects of commonality. It is my belief that, once the problem of common usage is dealt with, the price system can be used more extensively and more effectively as a regulator of the production and use of water.

Private Ownership and Common Usage: The Road Case Re-Examined

Abstract: One of the most famous illustrative examples in the literature of economic theory is that of the good, narrow road and the rough, but wide, road. This example was introduced by Professor Pigou in his Wealth and Welfare and in the first edition of The Economics of Welfare2 in an attempt to lend support to his general proposition that over-all economic efficiency could be increased by a transfer of resources away from increasing cost industries. The validity of this argument was questioned by Professor Frank Knight in his now-famous article, "Fallacies in the Interpretation of Social Cost,"3 in which he used the specific road example to show that in a regime of private ownership prices tend normally to be so adjusted as to insure the necessary conditions for optimum resource use. The road illustration was also employed by many of the other participants in the great debate involving resource allocation among industries of differing cost characteristics.4

A Cash-Balance Interpretation of Depression

Abstract: The usual account of inflation or depression stresses too much or too little demand for goods and services. It is enlightening to reverse this emphasis by focussing on the demand for and supply of money. The present paper views depression as an excess demand for money, in the sense that people want to hold more money than exists. It views an inflationary boom as an excess supply of money, in the sense that more money exists than people want to hold. This interpretation has advantages: 1. It provides a unifying framework into which various strands of theory-the saving-investment relation, the alleged Keynesian underemployment equilibrium, the Pigou effect, an interpretation of Say's Law, a clarification of the terms "inflation" and "deflation," and the relation between price levels and productionand-employment levels-fit neatly as special aspects. It avoids some pitfalls of partial-equilibrium analysis of individual markets by focussing on the one thing-money-exchanged on all markets. 2. The cash-balance approach achieves this unity by tying macroand microeconomics together, by handling depression and inflation with the familiar concepts of supply of and demand for a particular thing. In focussing on the cashbalance decisions of individual firms and households, it draws on a leading source of empirical generalizations in economics-economists' "inside" knowledge of human motives and decision-making. 3. Viewed as dealing with imbalance between the demand for and supply of money, business-cycle theory sheds some ambitions tending to lead it astray. Actually, there is no more reason to search for one universally valid explanation of such imbalance than there is to search for one universally valid explanation of an excess demand for or excess supply of any ordinary commodity-or than to search for a one-and-only cause of broken legs. 4. An account of the relation between the total money stock and people's efforts to build up, cut, or maintain their cash balances can be presented as a logical translation of the more familiar effective-demand and saving-and-investment theories. Thus nonmonetary theorists will have a hard time showing that the cash-balance approach is wrong, even though they may object to its dragging hidden assumptions about money out into the open.'