Showing papers in "The Review of Economics and Statistics in 1957"

Technical change and the aggregate production function

Abstract: В статье производится анализ агрегированной производственной функции, вводится аппарат, позволяющий различать движение вдоль такой функции от ее сдвигов. На основании сделанных в статье предположений делаются выводы о характере технического прогресса и технологических изменений. Существенное внимание уделяется вариантам применения концепции агрегированной производственной функции.

Speculation, Profitability, and Stability

Abstract: PROPONENTS of flexible exchange rates have maintained that a completely free exchange market is very likely to be stable. In particular they have argued that any profitable speculative activity in this and other markets must necessarily be stabilizing. By this they appear to mean that it must, ceteris paribus, reduce the frequency and amplitude of price fluctuations. In this note, I dispute this allegedly universal proposition with the aid of a counterexample. Certainly this counterexample is not meant to suggest that profitable (or even unprofitable) speculation will never exert a stabilizing influence. How often and to what extent speculation is stabilizing remains a matter for empirical inquiry. Perhaps a more important aim of this note is to indicate the sort of mathematical apparatus which is necessary for an analysis of the effects of speculation on stability. The techniques are precisely those which have been used in other stability analyses, and it is surprising that they do not seem to have been employed in this area. Because most of the mathematical analysis of speculation and stability has been conducted in static terms, it has failed to get to the heart of the stability question which, of course, refers to properties of the price movements.

Inventors Past and Present

Abstract: T NVENTION, defined as activity directed toward the discovery of new and useful knowledge about products and processes, is one of the most important phases of the growth of civilization. Yet it is one of the least understood. Who engages in an inventive activity, why, when, and how? Only in recent years has serious research been undertaken on these problems, and even now the amount of work being done to ferret out the answers is lamentably small. The low level of genuine knowledge in the field has permitted the propagation of views sufficiently at variance with the facts as to raise doubts concerning the soundness of existing policies, public and private, designed to foster invention. Most of us believe the independent inventor is dead and buried. Most of us believe, too, that invention today has become the exclusive stamping ground of the salaried Ph.D. working in the laboratories of large corporations, surrounded by mysterious instrument panels, electronic brains, and other Ph.D.s. The prevailing view was well expressed by Professor Galbraith when he wrote, "There is no more pleasant fiction than that technical change is the product of the matchless ingenuity of the small man forced by competition to employ his wits to better his neighbor. Unhappily, it is a fiction. Technical development has long since become the reserve of the scientist and engineer." ' Similarly, M.I.T.'s famous mathematician-inventor, Norbert Wiener, recently wrote, "Invention came to mean, not the gadget-insight of a shopworker, but the result of a careful, comprehensive search by a team of competent scientists." 2 This belief is substantially reflected in official attitudes at the highest levels. Thus, in a recent 99-page report of the National Academy of Sciences-National Research Council to the Mutual Security Agency on Applied Research in the United States, team research in organized laboratories alone receives attention.3 The activities of independent inventors, and even those of hired inventors whose main function is not invention but the guidance of existing processes, are ignored. The prevailing view has a factual basis in the great and well-advertised increase in industrial research laboratories since World War I, and more especially since World War II. Well-advertised is italicized, for it is probably mainly because business managements have been shouting their own progressiveness from the transmitting antenna-tops that these ideas are so popular. It makes a difference whether the widely held view is true or false. If false, continued public belief in it will help make it true. Potential independent inventors will be dissuaded from inventing and thereby help make true what had only been believed to be true all along. The fundamental argument of this article is that the prevailing view has magnified an important characteristic of modern invention into a universal one, and that in doing so a serious distortion of reality has occurred.

Market Structure and Stabilization Policy

Abstract: Although such generalizations must always be made with cautions, differences in market structure - differing degrees of monopoly and competitiveness - have not usually been thought of central importance in their bearing on general price movement It has been customary to assume broad homogeneity of product markets - the labour market is ordinarly treated as a special case - and the particular assumption have not be considered decisive for the analysis Certainly in the Keynesian tradition market structures have been assigned a secondary role as compared with the aggregative relations of demand to the level of employment and the current capacity of the economy

The Redistributional Effects of Inflation

Abstract: HOW important is it to avoid a moderate, creeping inflation? When nearly full employment has been reached, should continued pressure for higher employment be applied even at the cost of moderate inflationary results? If moderate inflationary pressures exist, what repressive measures are justified to offset these pressures? In spite of widespread agreement on the general objectives of monetary-fiscal policy, we have little organized information on the effects of moderate inflation on different groups in periods of substantially full employment. We need to know more in detail about these effects in order to make reasoned judgments as to how hard we should fight against such inflation and what particular types of repressive policies are best to use. Most major American groups appear to be against inflation. President Eisenhower and ex-President Truman, the C.I.O. and the A.F. of L., the National Association of Manufacturers and the Committee for Economic Development, all have stressed the importance of preserving the purchasing power of the American dollar. Avoidance of mass unemployment and depression seems definitely the first objective of governmental monetary-fiscal policy, but avoidance of inflation appears to come not far behind. Yet the reasons why these diverse groups oppose inflation, if we are to judge by the statements of their leaders, are many, and often muddled. Nor is there any clear consensus among economists as to who gains and who loses from inflation. The most common statements we have found by leading economists 1 fall into two groups: lead-lag propositions, notably that wages lag behind profits in inflation, while interest and rents lag still further, reflecting varying degrees of upward price flexibility; and debtor-creditor propositions, notably that debtors gain at the expense of creditors in inflation. The present investigation suggests that these lead-lag propositions about inflation are questionable, if not wrong, as applied to the type of inflation in the United States since I939. And while there has indeed been a mass debtorcreditor inflation-induced transfer of purchasing power in the United States since I939, the pattern of the transfer has been complex. Business firms, often thought to be major debtors in the American economy, have not been major gainers from inflation on debtor account. This exploratory paper is concerned primarily with the redistributional effects of the recent "moderate" American inflation on current incomes and on wealth. It does not consider directly the effect inflation may have on aggregate output and employment, although the findings may be helpful in analyzing this question. The following sections include: (I) a brief statement of our approach in investigating the problem; (II) some evidence concerning the effect of inflation on the distribution of income by economic function; (III) an analysis of the transfer of wealth by inflation; and (IV and V) brief consideration of inflation's effects on different classes of households and on nonfinancial corporations, respectively. For those already familiar with the behavior of shares of the national income over the years considered, the later sections of the paper will be of primary interest.

The Appraisal of Road Construction: two calculation schemes

Abstract: Also published in: Joseph Berechman et al. (Eds), Transport and Land Use, Elgar Reference Collection Modern Classics in Regional Science Vol.2, Edward Elgar, Cheltenham, 1996, pp. 524-532. Also: Reprint No.5, Netherlands Economic Institute, Rotterdam, 1957

How Extraneous are Extraneous Estimates

Abstract: IN order to overcome the harmful effects on regression and correlation estimates of using highly collinear time series observations, and in order to obtain "structurally" more accurate estimates of income elasticities of demand, economic statisticians have turned increasingly to the device of "extraneous estimators." This technique has been most commonly employed in demand studies but also could be used in other applications. In the case of demand functions the procedure has been to obtain the income coefficient from cross-section budget data for which the price variables are presumably constant. Thus an estimate of the partial regression of quantity on income, with price given, is obtained. This cross-section estimate of the income regression-coefficient is then multiplied by the time-series aggregate of income, and the product is in turn subtracted from the annual time series of quantity demanded, to form a new dependent variable. This new dependent variable, as a possibly unintended consequence, usually has a larger variance than the original dependent series, which often displays little variation beyond the simplest trend component. Having been thus "corrected," the dependent series is then regressed against the time series of the price variables to obtain an estimate of the price elasticity of demand.' It should be fairly clear that when the purpose is to make short-run forecasts, the described techniques often may be unnecessary and in many instances could actually prove harmful.2 Specifically, someone making forecasts need not be especially worried about multicollinearity. If some of the explanatory variables are multicollinear, the prediction interval obtained from such a set of observations will be quite large. By eliminating a number of the collinear variables it will usually be possible to substantially reduce the prediction interval for given values of included independent variables. Of course, while the elimination of collinear explanatory variables will tend to reduce the prediction interval, the actual prediction, by hypothesis, will change very little. Hence the pragmatic forecaster might be indifferent to the extent of collinearity, while the more sophisticated forecaster will not be indifferent; both will make similar forecasts and the actual errors of the forecast will be approximately the same. The combined use of cross-section and timeseries data is therefore intended to overcome multicollinearity (which entails the arbitrary "splitting up" of the influence of the explanatory variables) in order to obtain structurally mnore accurate estimates of the various coefficients. The question, however, can legitimately be asked: Exactly what structure does the statistician seek to estimate? Insofar as demand studies are concerned, it is quite possible, as will shortly be argued at length, that the kind of behavior measured from cross-section * For helpful comments and discussions on an earlier draft of this paper, we are indebted to John S. Chipman, Gregory Chow, James S. Duesenberry, John Lintner, Guy H. Orcutt, Robert Solow, and Charles Zwick. The authors were aided in preparing this paper by research grants from the School of Industrial Management, Massachusetts Institute of Technology, and Division of Research, Harvard Business School (under a Rockefeller Foundation grant for a Study of Profits and the Functioning of the Economy). 'While the techniques used differ in some important respects, the rationale is fully explained in each of the following sources: Richard Stone, The Measurement of Consumers' Expenditure and Behavior in the United Kingdom 1920-1938 (Cambridge, England, I954); and particularly J. Durbin, "A Note on Regression When There is Extraneous Information About One of the Coefficients," Journal of the American Statistical Association, xLvm (December I953), 799-808; Herman Wold and Lars Jureen, Demand Analysis (New York, I953). This method has also been used by J. Tobin, "A Statistical Demand Function for Food in the U.S.A.," Journal of the Royal Statistical Society, Series A, cxiII (Part II I950), II3-4I. A comprehensive review article, William C. Hood, "Empirical Studies of Demand," Canadian Journal of Economics and Political Science, xxi (August I955), 309-27, provides a worthwhile reference on the subject. The distinction between longand short-run estimates is to be found in the useful paper by Richard J. Foote, Price Elasticity of Demand for Nondurable Goods with Emphasis on Food, Agricultural Marketing Service Bulletin 96, USDA (Washington, D.C., I956). 'Although none of the people who have used the combined techniques has had short-run forecasting as his immediate goal, it seems useful to indicate how such prediction fits into the scheme of possible objectives.

Federal Reserve Board Committee Reports on Consumer Expectations and Savings Statistics

Abstract: IN the fall of I954 the Board of Governors of the Federal Reserve System at the request of the Subcommittee on Economic Statistics of the Joint Committee on the Economic Report appointed consultant committees to study certain aspects of economic statistics. The committee reports were submitted during the summer of I955 and were published shortly thereafter both by the Federal Reserve Board and the U. S. Government Printing Office Two of the reports contain extensive discussions of survey statistics which call for some comment.' I am sure that the substantial work carried out by the eminent committees appointed by the Federal Reserve Board will prove useful. Only the future can tell what specific effects the reports and the publicity given to them will have. I may mention a few probable beneficial effects of the reports on consumer statistics. The first aspect relates to consumer economics. Regarding the past neglect of consumers by economists, it may suffice to recall that not so long ago of the three sectors of the economy only two, business and government, were assumed to be autonomous in generating income and shaping economic trends. During the last ten years, however, the importance and autonomy of consumers have been much more widely recognized. The impact of rising incomes and the influence of purchases of consumer durables on business-cycle trends, the work of Arthur Burns and the National Bureau, the Surveys of Consumer Finances conducted cooperatively by the Federal Reserve Board and the Survey Research Center, as well as the progress of market research brought about this recognition. The Smithies report will add to it. Secondly, regarding the use of sample interview surveys for economic research, the unequivocal statement about the "indispensability" (page i) of survey statistics, and the cogent arguments marshalled in explanation of the statement, will no doubt accelerate the current trend. Turning to a third aspect, the "intermarriage" of socio-psychological studies with more narrowly conceived economic studies, we find that the reports do not consider explicitly the basic problems of cross-disciplinary or behavioral research. Nevertheless, the emphasis placed on the study of attitudes, expectations, and intentions in the one, and on savings habits and purposes in the other report will, I believe, facilitate the task of students of businessmen's and consumers' behavior. Finally, I expect positive results from the committees' insistence on more methodological research. As a mere guess, I may say that in my opinion government agencies and foundations, even if they hesitate to adopt some of the more extensive and expensive recommendations, will be responsive to methodological projects suggested by the committees. In commenting on the reports I shall be concerned exclusively with scientific conclusions. Regarding the extensive observations about operational techniques and organizational matters, I might say simply that I agree with most conclusions. I feel especially indebted to the members of the committees for recommending that more complete data be collected, more frequent periodic surveys conducted, the analysis of results extended, and further checks on the accuracy of results sought. I shall here consider fundamental problems of theory and research design, regarding which there exist some differences of opinion, rather * This paper was delivered at a joint meeting of the American Economic Association and the American Statistical Association in New York, 29 December, I955. The author is Program Director of the Survey Research Center, University of Michigan, which conducts the Surveys of Consumer Finances for the Federal Reserve Board. 1 The two reports to be discussed here are entitled "Consumer Survey Statistics" (Chairman, Arthur Smithies) and "Statistics on Saving" (Chairman, Raymond Goldsmith). The reports will be referred to by the names of the committee chairmen. The page references in this paper refer to the Federal Reserve Board publications.

Secondary benefits, external economies, and the justification of public investment

Abstract: ONE argument often used to justify public services is that the benefits of the activity cannot be limited to the direct recipients of the services those who would purchase the product if it were privately produced. These benefits, which are presumed to accrue to a large sector of the nation, are referred to as secondary or indirect benefits. There are many formulations of these secondary benefits. This paper will focus on the use of this concept and its measurement by the Bureau of Reclamation. In the case of the Bureau of Reclamation the development of this concept and its measurement is more than an argument for an extension of the public sector. The measurement is claimed to be part of the planning process, since it is supposed to enter into the determination of the scale of investment in water projects and the allocation of public funds among projects. There are several other formulations of the appropriate concept of secondary benefits in use in federal agencies, but these will receive only passing attention.' As background it should be mentioned that those who advocate the use of the secondary benefits concept in project justification are today on the defensive. The current position of several staff coordinating agencies in Washington is to minimize the importance of secondary benefits. In this paper we shall restrict our attention to one type of public investment dams and distribution systems for irrigation projects. The conclusions of this paper are that the procedures followed by the government agencies are confusing and incorrect, but that secondary benefits can be significant. The proper framework within which to discuss the secondary benefits is the theory of external economies.

The Impact of the Aluminum Industry on the Pacific Northwest: A Regional Input-Output Analysis

Abstract: CONSIDERATION of many of the problems concerning regional development has been conspicuously absent from modern economic writing; only recently have theoretical foundations for empirical analysis been formulated adequately. The purpose of this paper is to apply the new techniques of input-output analysis to a concrete problem of economic change. The entrance of the aluminum industry into the Pacific Northwest I during World War IT provides an excellent framework for such a study, as will be made clear in section III below. It is hoped that this analysis will be useful not only in determining the importance of aluminum in the Northwest economy but also in illustrating the methodology of the input-output technique and pointing out some qualifications.2 In section I brief attention will be given to the present locational pattern of the aluminum industry in the United States, with particular emphasis on the application of modified Weberian analysis.3 After a brief inspection of the Pacific Northwest in section II, the theory, application, and qualifications of regional input-output analysis will be presented in section III. Results and comparisons, as they apply to the Pacific Northwest, will be treated in section IV.

The Growth of Debt and Money in the United States, 1800-1950: A Suggested Interpretation

Abstract: THIS study is concerned with the optimal, or warranted, growth of the monetary system. It constructs a rudimentary model of financial developrlent and deduces optimal trends in the money supply from a demand equation for money balances that is sensitive to both real and financial phenomena of growth. This model, we suggest, is relevant in both retrospect and prospect to the American economy. Against the trends that emerge from the model we array data on this country's financial and monetary experience since i8oo. The fit may be good enough to justify further experimentation with the demand equation for money as one basis for defining secular standards of monetary policy and for revising the structure and interrelationships of our financial institutions, monetary and nonmonetary alike.

Interrelations of state income and industrial structure

Abstract: . . .Low real income per head is always associated with a low proportion of the working population engaged in tertiary production and a high percentage in primary production . . . A high average level of real income per head is always associated with a high proportion of the working population in tertiary industries. (Primary industries are defined as agriculture, forestry and fishing; secondary industries as manufacturing, mining and building; the tertiary industries include commerce, transport, services and other economic activities.) The reasons for this growth of the relative number of tertiary producers must largely be sought on the demand side. As incomes rise the demand for such services increases, and being non-transportable they must be supplied by workers within the country concerned . . . Generally speaking, the main dynamic of economic advance has been rising income per head in either secondary or tertiary industry, often in both, and the transfer of population away from primary industry.'

Competitive Price Leadership--A Critique of Price Leadership Models

Abstract: THE literature on industry pricing practices and policies discloses that a distinguishing feature of oligopolistic structures is the emergence of a "price leader" who characteristically initiates price adjustments upward and downward for the industry. In recognizing the prevalence and significance of this practice and its implications for theoretical analysis and public policy, economists have endeavored to identify the particular types of price leadership which prevail in industrial markets and to determine the extent to which each type might circumvent the forces of competition.' The theoretical treatment of the subject has been limited to a few special cases, and in most instances emphasis has been placed on conditions which "make price leadership of some sort inevitable and at the same time identify the price leader." 2 For various reasons the dynamic aspects of the market conditions under which prices set by the "leader" might or might not be followed by others have not been worked into the theory of price leadership. The seriousness of this omission is evident from the confusions arising when attempts are made to integrate traditional price leadership models with the theory of the market equilibrium process. Moreover, the models appear to be based largely on highly institutionalized structures wherein interfirm price relationships are essentially "settled," under which circumstances price leadership emerges as a type of collusion with the ringleader clearly identifiable. Consequently, current models reveal little about the process of price formation and the development of price leadership patterns in unsettled or immature structures. When applied to price behavior in these "in-between" markets, the weaknesses of the contemporary models begin to appear. Yet, these are the areas with which public policy is intimately concerned. Thus, if the economic implications of price leadership as an effective weapon against price competition in oligopolistic markets be accepted, the specific conditions attending the development and stability of price leadership patterns need to be re-examined. This article will be addressed primarily to this task. We will proceed (i) by identifying a new type of price leadership which takes cognizance of various dynamic factors in price formation, and (2) by appraising the economic significance of this and the traditional price leadership models in the light of empirical evidence of interfirm behavior in an oligopolistic industry (the hardsurface floor covering industry).

Lenders' Preferences, Credit Rationing, and the Effectiveness of Monetary Policy

Abstract: T is widely held that from the postwar discussion of monetary policy there emerged a "new" theory of quantitative credit control.' Over the past few years, much has been made of particular aspects of this theory, for example its emphasis on the "availability of credit" or the "rationing of credit." But this in itself has tended to obscure the fact that this theory is really a composite of a number of lines of argument, each of which is based on a distinct set of considerations. In light of this, it would seem that what is required is a critical examination of the over-all structure of the doctrine. That is the purpose of this essay. In the following pages this theory is briefly described, and then interpreted in terms of conventional supply-demand analysis. Such an interpretation makes possible a convenient synthesis of the many hypotheses involved in the theory, thereby facilitating the task of exploring its internal consistency.

Turnover and Growth of the Largest Industrial Firms, 1906-1950

Abstract: IN recent years, considerable interest has been shown in the growth pattern and turnover rates of the largest firms. Instead of viewing the giant firm with the suspicion born of classical and neo-classical market theory, exponents of the "new" competition have argued that giant firms are the engines of eco-* nomic progress.1 The role of market forces in determining the growth of firms has been supplanted by the management function.2 This current interest in the giant firm adds relevance to the examination of the hypotheses which are to be tested in this paper.3 The first hypothesis is concerned with the causes of growth of the largest firms, while the second examines the turnover rates of the giants.

British and American Changes in Interindustry Wage Structure Under Full Employment

Abstract: V IRTUALLY the full employment of available labor and resources was tacitly assumed by most of the nineteenth-century wage theorists. Actual full employment has been a rather rare condition in the western world during the last two centuries. However, the economies of both Great Britain and the United States moved decisively toward full employment in the period between the years just before World War II and the subsequent wartime and postwar years. In what ways and to what extent has this relatively new condition of prolonged full employment affected the structure of wages? There are many ways of answering such a question, depending on what aspect of wage structure is considered. For example, it is now reasonably clear that a transition to full employment works toward the narrowing of wage differentials between workers of different grades of skill.' What happens to the relative levels of wages paid by different industries, as an economy moves toward full employment? Comparatively little attention has been devoted to this question. One outstanding study of interindustry wage structure has been the recent analysis by Donald Cullen.2 This painstaking study was mostly concerned with long-period relationships between the average wages paid by different American industries. Cullen found that the rank-order of industries was very stable, even over long periods of time, as regards the average annual earnings of their respective employees. Over a mere ten-year period, there was, naturally, even less change in interindustry wage structure than occurred over longer periods. Thus for the decade I939-49, Cullen's coefficient of rank correlation for seventy American industries was .92.3 These findings suggest that even a sharp change from very considerable unemployment (I939) to virtual full employment (I949) will have little effect on the structure of wages as between industries -at least that such a change will not alter materially the rank-order of the average wages of the various industries. In Great Britain, the full employment conditions of wartime and postwar years provide a similar contrast with the slack employment of the prewar period. Did the relative wages paid by different industries also remain stable in the face of this drastic change in labor market conditions? We shall see presently that the answer depends on how one chooses the method of measurement. Our first test of interindustry wage structure was selected to provide the greatest possible comparability between the British and American wage data and the method and data used by Cullen. We were able to find British and American wage information, prewar and postwar, for 28 industries which were reasonably comparable with the American industries selected by Cullen.4 We used i938 as a repre'E.g., see Harry Ober, "Occupational Wage Differentials, I907-I947," U.S. Department of Labor, Monthly Labor Review, August I948; Louis R. Salkever, "Toward a Theory of Wage Structure," Industrial and Labor Relations Review, April I953; K. G. Knowles and D. J. Robertson, "Differences Between the Wages of Skilled and Unskilled Workers i8881950," Bulletin of the Oxford Institute of Statistics, xm (Apr1l I95I), I09-27 and "Earnings in Engineering, I926I948," ibid. (June I95I), I79-200. Our limited purpose is to investigate interindustry differences in average earnings. We are acutely aware of the variability of wages between firms within an industry, between workers of different levels of skill, and the week-to-week variability of the earnings of individual workers. Compare Robert R. L. Raimon, "The Indeterminateness of Wages of Unskilled Workers," Industrial and Labor Relations Review, vi (January 1953), I80-94; and K. G. J. C. Knowles and Ann Romanis, "Dockworkers' Earnings," Bulletin of the Oxford University Institute of Statistics, xiv (September and Octo-

Analysis of Life Insurance Premiums

Abstract: THE purpose of the investigation reported here is to examine factors associated with the amount of money which consumer units spend on life insurance premiums. Life insurance premiums represent an extremely large and stable component of personal saving and one which, unlike mortgage and other debt payments, has no offset in the purchase of a consumer investment item. Their long range future is thus important, and we hope to throw some light on this by seeing what factors are currently associated with high or low proportions of income paid as premiums. In addition to making available the results of this study, this report demonstrates one type of solution to the problems of statistical analysis of data from a sample survey. The survey which is the source of the data used in this study is the Survey of Consumer Finances. This survey has been conducted annually since I945 by the Survey Research Center of the University of Michigan in cooperation with the Board of Governors of the Federal Reserve System. It includes about 3,000 interviews each year with a cross-section of the heads of consumer spending units in the United States. Interviews last about one hour and cover a variety of information about the unit's income, assets, and expenditures as well as about the demographic characteristics of the family and the attitudes of the respondent. The sample design involves selection of individual addresses with known probability. The sample is complex since it involves selection of successively smaller geographical areas in stages, with clustering and stratification at each stage, and the procedures differ in communities of different sizes.' The questions asked about life insurance in the I954 Survey were as follows:

Elasticity of Demand for Canadian Exports

Abstract: THIS paper reports the results of a statistical study of the elasticity of foreign demand for Canadian exports. It sprang from the desire to obtain some criterion of the effect on export receipts of altering the exchange value of the Canadian dollar. Attention was centered on merchandise exports since, aside from Chang's attempts to measure the elasticity of the world demand for Canada's exports,' very little work seems to have been done on the export side. The Department of Trade and Commerce has made estimates of the Canadian import elasticities but it regularly treats exports as an exogenous factor in its models of the Canadian economy. This study was conducted intermittently during the last six years. During this time many different approaches to the subject were made.2 The results of what seem to be the most fruitful approach attempted so far are presented here, with only occasional references to previous attempts. This last approach is based primarily upon the statistical work of Schultz, Stone, and Horner, and the contributions to the pure theory of demand of Knight and Friedman. An attempt has been made to fashion the statistical approach so that the concepts we attempt to measure coincide as closely as practicable to the theoretically ideal ones. The first section of the paper deals with some fundamental general considerations which influenced the decision as to what statistical techniques to adopt. Sections II and III summarize the statistical findings and the last takes up some qualifications.

British Exports to the United States, 1948-1955

Abstract: THERE may seem little excuse for writing still more about the problems of exporting British goods to the United States.' But while many aspects of the problem have received thorough individual treatment, for instance the "invisible tariff" or the technicalities of marketing, less attention has been paid to the more general question of the relative importance of all the alleged difficulties as factors currently limiting sales of British goods in the American market. The problem is fraught with interesting but unanswerable questions, and impressions have often to take the place of statistics. As a starting point a volume and average value series was calculated for United Kingdom exports to the United States for the years I94855 2 The result is shown in Table i together for comparative purposes with volume indexes of total United Kingdom exports and total United States imports and with the United States consumer price index. The detailed average value index by commodity groups is shown in Table

Government Debt as a Generator of Economic Growth

Abstract: 1CONOMISTS are generally aware of the impact of fiscal policy on the income stream and have prescribed the appropriate fiscal measures for expanding or contracting the flow of income. They have also given attention to the expenditure-stabilizing effect of the net stock of privately-held salable assets, when levels of prices and income fluctuate. However, they have paid little attention to the role of fiscal policy as a generator or destroyer of such assets. A budgetary surplus or deficit always has an impact on the balance sheets of the private sector, in addition to its impact on the income-expenditure accounts. This discussion is devoted to the effect of fiscal policy on the asset items in private balance sheets and the implications of this for the generation of income. The first section attempts to show that the government debt is one of the variables determining household expenditure decisions. From this it is shown that fiscal deficits or surpluses have cumulative effects on national income which are not present for corresponding magnitudes of private expenditure. The second section considers how the public debt should behave in order to keep national income growing at the full-employment level. It shows not only that the public debt must continue to grow in order to maintain full employment, but that for many rates of real income growth it must grow at a faster rate than income itself, given the model here considered.

Demographic Variation: Its Impact on Consumer Behavior

Abstract: Papers by Fisher I and Lydall 2 are illustrative of recent efforts by economists to determine how demographic variation affects consumer behavior. It is obvious that such population characteristics as age, family size, and educational levels do change over time. If these demographic changes do affect consumer behavior, much quantitative economic research will have to be modified. Whether it will be necessary to incorporate demographic variables in a model of consumer behavior will depend on the purpose for which the model has been constructed. Estimation of unbiased behavioral parameters for economic variables will require that demographic variables be included in the model if their movements have been correlated with price and income changes employed in the estimation procedure. When the objective is one of forecasting, demographic variables will not have to be included in the model if their movements are correlated with price and income variables. Here one must distinguish between short-run and longerrun forecasts. In the short run, price and income movements will probably be independent of movements in demographic variables. Finally, it is clear that if the purpose is a better understanding of consumer behavior, demographic variables should be included in the model regardless of whether or not movements in these variables are correlated with changes in prlces and income. The research reported in this paper tested whether the hypothesis that price and income elasticities vary with demographic variation is consistent with an available set of data. Weekly observations on the meat, fish, and poultry purchases of I5I families were employed. These data were obtained from a sample of families in the city of Medford, Massachusetts, and were collected over the 32-week period October I2, I952-May 23, I953.3 Table i gives the distribution of the I 5I families by family characteristics.

Degeneracy in Linear Programming: A Simple Geometric Interpretation

Abstract: ONE of the more conceptually mysterious aspects of linear programming is the problem of degeneracy the breaking down of the simplex calculation method under certain circumstances. Although a set of rules for dealing with degeneracy is well known, in the absence of an understanding of the nature of the problem the rules must be followed by rote. This note presents a simple geometrical explanation of the problem, the solution, and explains why certain types of programming problems frequently lead to degeneracy. It is hoped that the presentation will be of use both to students and teachers of linear programming. Before presenting the geometry of degeneracy, it is necessary to review briefly the geometry of linear programming and the simplex method of computing optimum linear programs.

Liabilities of Business Failures as a Business Indicator

Abstract: LIABILITIES of business failures move id in cycles which frequently lead general business, and for this reason have been designated as a leading series by the National Bureau of Economic Research.' The natural explanation of such lead lies in the profit experience of business concerns, particularly of submarginal concerns, since the lack of profits is undoubtedly the most important factor in causing business failures. The purpose of this paper is to examine this idea. The suggestion is made that profit margins per dollar of sales may lead business cycles, and since such margins are critical to the survival of submarginal firms, they are instrumental in causing liabilities of business failures to lead the cycle also.

Taxes, Income Determination, and the Balanced Budget Theorem

Abstract: THE proposition that a tax-financed change in expediture will lead to an equal change in income has been subjected to critical examination in two recent articles.' Both emphasize that the proposition, which has been christened the "balanced budget theorem," applies only when certain conditions are fulfilled, and they dismiss it as a special case of little interest because of the restrictive character of these conditions. There is undoubtedly a danger that conclusions drawn from simplified models will be applied beyond the context in which they are valid and will be invested with the aura of universal truths. By defining and calling attention to the limitations on the validity of the balanced budget theorem, the articles cited serve as a useful corrective against this danger in this case. There is, however, some danger that in two respects they may be the source of confusion rather than clarification. In the first place, they concentrate attention on the limitations of the balanced budget theorem in such a way that the reader may easily lose sight of its essential core of truth. Second, they may create a somewhat inaccurate impression as to the exact location of those limits. The first danger is discussed in the succeeding paragraphs; the second in the later portions of the present paper. It may well be that the balanced budget theorem has little direct application to the world of reality because the necessary preconditions to its validity are rarely fulfilled in that world. Nevertheless, it does not follow that the theorem is completely uninteresting and that it provides no insight whatever into the real world. In order to recognize its role in the evolution of income theory, it is only necessary to recall that, until the balanced budget theorem was advanced, it was generally believed that, under exactly the same general conditions that are assumed in the development of the theorem, a change in expenditures balanced by a change in taxes had no effect on income whatever. That is, it was believed that the multiplier for a balanced budget was zero. Whatever its limitations, the balanced budget theorem represents an important refinement of this earlier view. That view followed from the assumption (or impression) that taxes could be treated simply as deductions from expenditure. In the balanced budget analysis, it was recognized that, while expenditures (on currently produced domestic goods and services) generate income directly, taxes do not directly reduce expenditure and income. Instead, they reduce the flow of funds available either for spending or nonspending. If this flow is subject to further leakages (after the taxes have been paid), such as through saving, the distinction becomes significant. The balanced budget theorem can best be regarded as a corollary of this treatment of taxes. In a still more refined analysis, it is true, the effect upon spending of different kinds of taxes would be distinguished (and the substitution effect as well as the income effects of taxes might be considered, as Baumol and Peston have suggested). Nevertheless, it remains true that the first step was to introduce taxes explicitly as a distinct entity in the analysis and to formulate some hypothesis, however simple, as to their effect on the flow of income. Turvey has pointed out that, in his model, the balanced budget multiplier is unity when household saving is the only leakage.2 Does this mean, as he seems to imply, that the balanced budget multiplier will not be unity if there are any other leakages, or, to put it more precisely, if there are any dependent variables other than household saving and consumption? Here we must distinguish between taxes themselves and other variables. The case in which taxes are a dependent variable, assumed to be a function of income, is considered ' Ralph Turvey, "Some Notes on Multiplier Theory," American Economic Review, xLm (June I953), 282-86; and W. J. Baumol and M. H. Peston, "More on the Multiplier Effects of a Balanced Budget," American Economic Review, XLV (March I955), I40. 2 Turvey, loc. cit., 285-86.

Distribution of Federal Expenditures Among the States

Abstract: T HERE are many dangers in viewing federal expenditure distribution among the states as more than a by-product of the pursuit of national objectives and in establishing at this stage of research a benchmark for testing the "actual" distribution against some "goal." First, there is no "correct" way of distributing or allocating total federal expenditures among the states. While federal tax allocations derive from an extensive body of economic theory, no comparable theoretical framework supports expenditure allocations. The field of state distributions of federal expenditures has not been as well ploughed by others as has that of state distributions of federal tax levies. The statistical processes are more complex on the expenditure side than on the tax side. Expenditures are more varied in type, and individual classes of expenditures are more numerous. Moreover, the statistical information needed for allocation is much less adequate for expenditure items than for tax types. The illustrative estimates presented here are patently based on sets of assumptions. Other assumptions could be applied and recomputations made accordingly. With the work carried to the present point of analysis some changes in framework and procedures appear desirable for purposes of greater clarity and wider usefulness, if federal expenditures are allocated for a year more recent than I952. Far more important than the statistical inadequacies are the limitations implicit in a detailing of federal expenditures directed to the achievement of national purposes and program objectives as a series of state-by-state figures. Ease of movement across state lines, the dependence of industries in one state on raw materials, machinery, and semifinished goods in others, the frequency of "absentee ownership" of property in the state -all contribute to an emphasis on national objectives and purposes. In historical perspective, sectional interests have influenced national policies on tariffs, railroad rate regulations, resources development, minimum wages, and many other national programs. While discussions of legislative proposals often stress the divergent economic interests of the different sections of the nation, special sectional as well as national interests are essentially parts of an over-all common concern with national prosperity and economic growth. The long-run economic interests of various sections of the nation patently coincide.