Showing papers in "The Review of Economics and Statistics in 1961"

Capital-labor substitution and economic efficiency

Abstract: Обсуждаются следующие темы: чистая теория производства, функциональное распределение дохода, технический прогресс, источники международных конкурентных преимуществ. Анализируются эластичность замещения между трудом и капиталом в обрабатывающей промышленности; производственные функции различного типа.

Uncertainty, Learning, and the Economics of Parallel Research and Development Efforts

Abstract: IN recent years, there has been a very marked rise in the interest economists have shown in the process of invention, and in industrial Research and Development the institutionalization of inventive activities by business enterprises. The developing interest in invention has stemmed from several roots. One important one is the growing body of research findings on productivity,' which turned the attention of economists interested in economic growth toward the process of technological change. These studies showed that only a small fraction of the total increase in output per worker which had occurred in the American economy since the late igth century could be explained by increased capital per worker. The lion's share had to be attributed to something else, to increased productivity or efficiency. The term "increased productivity" covers a wide number of different elements and the operation by which increased productivity is defined and measured obscures a variety of economic phenomena. Better allocation of existing factor supplies (the process of dynamic adjustment) and capital formation in humans (education, health, etc.) are two of the most important. But it seems obvious that technological change also has been an important ingredient. A second source of the interest in invention is the changing way that economists are coming to look at the competitive process. Increasingly the focus is on competition through new products, rather than on direct price competition. And concurrently, normative considerations are shifting toward conditions of long run growth rather than fixing on short term Pareto optimality. In a sense these developments represent a renaissance of Schumpeter. A third source of the heightened interest in inventive activity has been the cold war, and the growing awareness that our national security may depend on the output of our military research and development effort organized inventive effort for the purpose of creating more effective weapons. Closely related to the interest in military R and D 2 is the growing concern with the technological race to which the Soviets have challenged us. The interest in inventive activity which stems from interest in defense and the space program has tended to be more micro-oriented than the interest stemming from concern with problems of economic growth. The studies generated have tended to be normative analyses of conditions of efficiency (how resources should be allocated), rather than analyses of factors determining the actual allocation of inventive effort. This paper is focused on one aspect of R and D efficiency: the problem of achieving a given objective at minimum cost. Thus the paper is directly concerned with the third area of interest discussed above. However, some of the implications of the model seem to have relevance to more macro issues of policy, and to a positive analysis of the allocation of inventive effort. In Section I, the basic efficiency problem is discussed and the concept of a parallel path strategy is introduced. Section II presents a model. Lest the reader expect too much, let me state at the outset that the model is much too crude to provide reliable quantitative answers. Rather, the purpose of the model is to provide a framework for analysis and to explore some implications of two aspects of the R and D nrocess. the uncertaintv which exists * This paper is one product of a continuing RAND study of Research and Development management. The idea of a parallel development strategy has a long history at RAND. Burton Klein, William Meckling, Emmanuel Mesthene, Leland Johnson, Thomas Marschak, Armen Alchian, William Capron, and others all have contributed to its evolution. ' See, for example: J. Schmookler, "The Changing Efficiency of the American Economy, I869--I934," this REVIEW, XXXIV (Aug. I952); M. Abramowitz, "Resource and Output Trends in the United States since I870," American Economic Review, XLVI (May I956); Robert Solow, "Technical Change and the Associate Production Function," this REVIEW, XXXIX (Aug. I957); B. F. Massell, "Capital Formation and Technological Change in United States' Manufacturing," this REVIEW, XLII (May I960). 2 Research and Development will henceforth be abbreviated as R and D.

The Deposit Relationship and Commercial Bank Investment Behavior

Abstract: D ESPITE the growth in importance of other financial institutions the behavior of the commercial banking system remains a principal consideration in most discussions of national monetary affairs. Explanations of the way in which the Federal Reserve System exerts its influence on the cost and availability of credit in the economy continue to rely heavily on hypotheses about the loan and investment policy of the commercial banking system. For example, the postwar doctrine of credit rationing appears to rest primarily on the observed behavior of commercial bankers in dealing with their loan customers. Less exclusively but still significantly, the effectiveness of debt management and Federal Reserve open market operations in influencing the terms of credit to private borrowers has been linked to the responsiveness of commercial bankers to changes in market prices and yields of government securities. The concept of the commercial bank which undergirds the argument for the sensitivity of commercial bankers to yield differentials is basically similar to that of an individual investor concerned with the yield, risk, and liquidity of alternative financial instruments. By an appropriate development of risk considerations' and by (rather general) allusion to oligopolistic imperfections of competition within the banking industry,2 this model has been extended to cover the rationing of bank credit by nonprice means. Nevertheless, the state of our understanding of commercial bank behavior is not entirely satisfactory. If commercial bankers are sensitive to yield changes on government securities why have they moved so freely out of these securities whenever the demand for bank loans was strong? 3 If oligopolistic conditions within the banking industry occasion nonprice rationing of bank credit what is their specific nature and how do they exert their influence? The purpose of this article is to contribute to our understanding of commercial bank behavior by examining some implications for bankers of the demand deposit relationship of their loan customers. Anyone who troubles to inquire of commercial bankers will discover that the deposit relationship of a loan customer is a primary consideration in determining the cost and availability of bank credit to that customer. Despite this fact, the literature of monetary economics has little or nothing to say about the deposit relationship as one of the determinants of the investment behavior of commercial banks. Rather, as I have mentioned, we have preferred to carry forward the discussion in terms of the broader analytical categories of yield, risk, and liquidity applicable to any investor. But a discussion of commercial banks which is couched in these more general terms abstracts from some of the essential features of commercial banks as specialized financial institutions. In particular it neglects the role of deposits as the principal source of an individual bank's power to lend and invest. In what follows we shall examine the significance of the deposit relationship for the individual bank and then explore its influence on such broader issues as the cost and availability of bank cred* This article is drawn from a more comprehensive study of commercial bank loan and investment policy supported by The Merrill Foundation for the Advancement of Financial Knowledge, Inc. The author wishes to acknowledge the helpful criticism of Professors James Duesenberry, John Lintner, Lawrence Thompson, and Dr. Parker Willis. 1 For examples see Ira 0. Scott, "The Availability Doctrine: Theoretical Underpinnings," The Review of Economic Studies, xxv (October I957); and my own "Credit Risk and Credit Rationing," Quarterly Journal of Economics, LXXIV (May I960). 2 For examples see John H. Kareken, "Lenders' Preferences, Credit Rationing, and the Effectiveness of Monetary Policy," this REVIEW, xxxix (August I957); Monetary Policy and Management of the Public Debt, Joint Committee on the Economic Report, 82d Congress, 2d Session, Statement of Paul Samuelson; and Warren L. Smith, "On the Effectiveness of Monetary Policy," American Economic Review, XLVI (September I956), esp. 593-96. 'This movement is chronicled and discussed in John H. Kareken, "Post-Accord Monetary Developments in the United States," Banca Nazionale del Lavoro (Rome), Quarterly Review, September I956, 588-607; and Warren L. Smith, op. cit., esp. 597.

Pitfalls in Contracyclical Policies: Some Tools and Results

Abstract: IT is not generally recognized by economists that where governmental contracyclical policies are concerned common sense is a particularly dangerous tool. Policiesautomatic or notwhich appear to be properly designed may very well turn out to aggravate fluctuations.' Miscalculations on delicate questions of timing or magnitudes can be crucial, and these matters may well be out of the range of competence of the good judgment and experience of most of the practical men who determine or advise on our monetary and fiscal policies. This article describes tools which can be used to deal with at least some simple variants of these problems. Such tools can be particularly useful in indicating the nature of the pitfalls in the area. In particular, I will describe two rather plausible types of contracyclical fiscal policy and show that they can lead to some rather surprising results. i. The model and some contracyclical policies. The discussion assumes that we are living in the world of the Samuelson accelerator-multiplier model.2 It will be recalled that the time path of national income, Y,, in that model is described by the second-order linear difference equation: Y, = consumption + acceleration investment + autonomous investment + net government outlay = kYt_1+c(Yt_Yt2) +A +Gt where k is the marginal propensity to consume and c is the "relation" of the acceleration principle. In other words, we have:

The Burden of Debt

Abstract: M /[ESSRS. Bowen, Davis, and Kopf have shown 1 that the real burden of a project using up resources in the present can be shifted to future generations by internal borrowing, providing one defines "generation"' in a particular way. It is just as easy to prove that all politicians are economists or that all economists are dunces, provided one defines "economist" in a particular way. But even if I call the tail of a sheep a leg that will not turn sheep into quintapeds. The issue is of course terminological rather than substantive. It is nevertheless one of the utmost importance because the conclusion reached by Bowen et al., although not incorrect on their own definitions, is bound to be misinterpreted as meaning what it seems to be saying in English and as indeed implying that most politicians understand economics better than the economists most, if not all, of whom are dunces. Bowen, Davis, and Kopf are absolutely right when they agree that there is "absolutely nothing" wrong with the standard argument of modern economists that the real burden of a debt can not be shifted to future generations if it is defined as "the total amount of private consumption goods given up by the community at the moment of time the borrowed funds are spent." But President Eisenhower "appears convinced that the costs of debt-financed public projects can be passed on to future generations." Like the Rabbi in the story, Bowen et al. want to say that he too is right, but in their enthusiasm they even say that the purpose of their note "is to suggest that in this instance it is the President who is -in at least one highly important sense right,"' 2 thus clearly implying that the economists are wrong. To make the President appear right, Bowen et al. redefine "present generation" to mean the people who lend the money to finance the project, and they redefine "future generation" to mean the people who pay the taxes that are used to repay the principal and the interest on the loans. The perversity of the redefinitions is obscured by supposing that the lenders ("this generation"), are all 2I years old at the time of the execution of the project when they lend the money and by supposing that they are repaid 44 years later, on their 6sth birthday, with funds obtained at that time from 2Iyear-old taxpayers ("the next generation"). The burden is thereby shifted from "this generation"' to "the next generation." What has been proved, if we obstinately insist in expressing the conclusion in English, is that it is possible to shift the burden from the Lenders to the Taxpayers or, we might say, fromn the Lowells to the Thomases. The Lowells are better off and the Thomases are worse off than if the Lowells had been taxed to raise the money for the project in the first place. The "red herring" nature of having the Lowells lend the money now (so that we can call them the present generation) and having the Thomases pay the taxes in the future (so that they can be called the future generation) jumps to the eye if we note that the shifting of the real burden of the project from the Lowells to the Thomases (or indeed of any other burden) could take place just as well at the time of the project (or at any other time) by simply taxing the Thomases instead of the Lowells. No economist, so far as I am aware, has ever denied the possibility of borrowing or of lending or of taxing some people instead of others, or of any combinations of such oper-

The appraisal of road construction projects : a practical example

Abstract: SOME time ago, an attempt was made to develop a practical method for the appraisal of projects of road construction.1 The proposed method is one of comparative statics and compares the national product before and after the construction of a road. The essential elements of the method are the following. The whole economy is divided into a number of geographically separated centers. The movement of products from one center to another gives rise to transportation costs and, consequently, the price of the product of center i in center k depends on the costs of transportation from i to k. Supply and demand equations are assumed for each center and each product. The supply of each product i depends on the price of product i and the prices in i of all other products as cost elements. Two alternative assumptions are made with regard to the reactions of demand to price changes:

Discrimination and the Occupational Progress of Negroes

Abstract: W RITING in I942 in the preface to his it monumental study, An American Dilemma, Gunnar Myrdal stated ". . . not since Reconstruction has there been more reason to anticipate fundamental changes in American race relations, changes which will involve a development toward the American ideal."' How far has American society gone since the time of Myrdal's statement toward achieving a basic element of that "American ideal" of which he wrote, the provision of equal job opportunities irrespective of race? Two recent major studies concerned with the economic impact of racial discrimination in the United States have given sharply conflicting answers. Professor Ginzberg found that:

Regional Wage Differences in Manufacturing in the Postwar Period

Abstract: I NTER-REGIONAL wage differences have traditionally constituted an important aspect of the analysis of the wage structure of the United States. But, despite continuing interest in the subject, there has been no comprehensive examination of the course of such differences since World War II.' The present paper attempts to fill this gap, at least partly. Specifically, the paper examines the changes in the pattern of regional wage differences in manufacturing between I947 and I954, and considers the major factors responsible for these changes. The wage statistics used are average hourly earnings of I93 so-called "four digit" industries. These statistics were derived from the data on gross earnings of production workers and on manhours worked, published in the U.S. Census of Manufactures for I947 and I954. From these data I computed for each industry regional average hourly earnings in the four broad regions of the countryNortheast, North Central, South, and West.2 The Pearsonian coefficient of variation was used to measure the degree of difference of earnings among the four regions. Comparison of the I947 and I954 coefficients for each industry thus indicated the change in the interregional dispersion of average earnings. In terms of employment of manufacturing production workers the coverage of the study is quite large. The I93 industries for which it was possible to make a meaningful comparison of regional wage differentials in both years employed in I954 6,984,000 workers. This figure represents 56.5 per cent of all manufacturing workers in that year.3

Unionism and Labor's Share in Manufacturing Industries

Abstract: T HE proposition has been advanced by Dobb that ". . . where wage-earners are strongly organized in trade unions, one might expect labour to succeed in obtaining a larger share of the product than elsewhere." ' While there are several alternative forms in which this hypothesis may be stated, only one such will be examined in this paper. Accordingly, the purpose of this study is to test the hypothesis that labor's relative share of the income produced by manufacturing industries in the United States is, in some significant sense, positively correlated with the degree of union organization or, alternatively, with changes in the degree of union organization. The principal finding is that no significant correlation can be established and, therefore, it is concluded that the hypothesis must be rejected. While the results of this study, as it turns out, do not differ substantially from those of other research more or less closely related to it,2 the methods and procedures used are believed to be different and to possess at least some general validity. It is contended, therefore, that more credibility can be attached to the results contained in this paper than to those of related studies. In particular, the research design employed here incorporates two principal innovations. First, the data are those of individual industries rather than of sectors of the economy or the nation as a whole. Since it is neither the nation nor arbitrary sectors of it that have been unionized, but rather concrete, identifiable, individual industries, the use of data flowing from the latter would seem to be appropriate if one is seeking to isolate the impact of unionism on distributive shares. Second, the method is essentially one of employing a simple trend analysis to determine the intra-industry behavior of labor's share over the long-run. This is in opposition to the currently popular, but potentially misleading, "terminial-years" approach. There is no reason to expect a priori that any set of results obtained from a mere comparison of two more or less widely separated end years will not be vitiated by analysis of the data from another set of end years. Only in the case where the deviations from the trend are consistently small does a "terminal-years" approach appear to serve the purpose as well as a trend analysis. But since the trend must first be ascertained in order to determine the extent of such deviations, there would not seem to be any advantage in working only with terminal years. Because almost any result, depending only on the choice of years to serve as "bench-marks," can be obtained by using this method, it would appear that no general validity can be associated with any particular finding.3 A trend

Exploring Alternative Formulations of Automobile Demand

Abstract: would have received 56 per cent more under TAP. In the case of wheat this pattern is even more pronounced, and it is also present in tobacco; the case of corn has not been investigated. A much larger part of the subsidies to agriculture, therefore, would reach those for whom they are presumably intended. At the same time, by divorcing payments from current production cost TAP avoids the danger of encouraging inefficiency and of perpetuating uneconomic patterns of output. The cost of TAP can only be roughly estimated at the moment; the United States Department of Agriculture should be able to present more accurate calculations on the basis of its extensive market studies. Pending such calculations it appears that the cost of applying TAP to the three principal supported crops (wheat, corn, and cotton) at the rate mentioned earlier would not exceed $I.5 billion in the first year, and would be proportionately less in subsequent years.3 The cost of the present scheme is not known with any exactness but seems to exceed $4 billion per year. Some of the outlays under the existing program (notably those for storage and for the soil bank) would have to continue for some time after the introduction of TAP. Finally, it should be stressed that TAP is a transitional device and is consequently limited to a definite time period. By its very nature an acreage payment cannot be permanent without creating a caste of rural pensioners, and even the most sentimental devotees of the family farm would hardly advocate this. The appeal of this proposal is not to those who want to preserve the present structure of agriculture regardless of the burden on consumers and taxpayers; it is to those who recognize that in a progressive economy agriculture must change along with all other sectors, but who also recognize the wisdom of tempering the wind to the shorn lamb.

Industrial Concentration and Price Flexiblility in Inflation: Price Response Rates in Fourteen Industries, 1947-1958

Abstract: T HIS study investigates rates of price response to changes in cost and demand over the period I947 to I958 in fourteen United States industries, half of which are classified as "concentrated," half as "unconcentrated." The industries studied are: tires and tubes, rubber footwear, glass containers, plumbing fixtures, internal combustion engines, agricultural machinery, motors and generators ("concentrated"); bituminous coal mining, cotton broadwovens, seamless hosiery, leather footwear, gray iron foundries, construction and mining machinery, valves and fittings ("unconcentrated"). The primary purpose of the investigation is to test the hypothesis that inflationary pressures are transmitted through concentrated industries at a different rate than through unconcentrated industries. A secondary purpose is to estimate the degree to which prices are insensitive to demand change under varied conditions of concentration in manufacturing industries. For each industry in the sample, monthly indexes of output price and direct costs were constructed from Bureau of Labor Statistics data, using weights derived primarily from information in the Leontief input-output table; B.L.S. data on the average number of hours worked per week in each industry were used to estimate demand changes in each industry. Multiple regression analysis was employed to study the relationship between price change and change in the other variables. Response to cost change was examined on a monthly basis, using a distributed lag technique to estimate the total response pattern from the month preceding a cost increase to the second month following. Response to demand change was estimated only on a quarterly basis, since preliminary findings indicated that little would be gained by more detailed analysis. Surprisingly little difference was found between the two groups of industries. In the concentrated group price response to demand change did not appear at all; in the unconcentrated group such response was quite limited, explaining only two per cent of the variation in price change. Response patterns to cost change in the two groups of industries were even more similar. Standard statistical tests indicated that all differences between the two groups in this aspect of behavior could easily have resulted from chance; the hypothesis that response patterns for the two groups were identical could not be rejected at a 50 per cent level of confidence. For both groups of industries the lag between cost change and price change was short generally not longer than one month. The magnitude of response was generally sufficient to maintain pre-existing percentage gross margins. Examination of the behavior of gross margins supported these conclusions, as margins remained relatively stable through periods of both recession and inflation, until I956-58 when they rose for a number of industries, especially in the concentrated group. These findings suggest that insensitivity of prices to demand change is not confined to highly oligopolistic industries, but is characteristic of most manufacturing industries. On the whole, inflationary pressures seemed to be transmitted through the two groups of industries in a similar manner: prices were insensitive to demand changes, but were rapidly and fully responsive to cost increases. The investigation did not attempt to ascertain the sources of inflationary pressure but was focused on the mechanics of price change. Thus the concept of price flexibility employed is similar to that of Gardiner Means in his I935 study, Industrial Prices and Their Relative In-

Weather and the Demand for Space Heat

Abstract: W HILE we can as yet do little to change the weather, we can nevertheless use weather variations to explain an occasional economic phenomenon. Considerable work has already been done on the connection between weather and the use of specific fuels in specific areas.' Recently, J. R. N. Stone and D. A. Rowe have related quarterly averages of temperature, rainfall, and sunshine to English consumption of fuel and light, entertainment, and beer.2 The present paper describes how year-to-year variations in winter temperatures seem to affect United States demand for all space-heating fuel combined. These temperature changes, it turns out, are of less importance than personal income in explaining the long-run trend in space-heat demand, though they are of considerable significance in explaining year-to-year variations. In general the demand equation obtained from I935-40, I946-Si data fits actual consumption well; the difference between actual and calculated consumption for I942-45 gives some notion of the relative unimportance of wartime fuel scarcity in the United States; and the predicted values for the years I952-59 differ from the actual values by an average of only i.6 per cent.

A Short-Term Planning Model for the Indian Economy

Abstract: HE purpose of this paper is to present a T short-term planning model for the Indian economy. It involves (a) the formulation and implementation of an input-output model for India, closed with respect to all household consumption except that originating from government employees, and (b) an endogenous determination of the distribution of consumption expenditure among several groups of households, each group having a specific consumption pattern. The paper is divided into three sections. An attempt is made in section I to classify the economy into several sectors. In section II, we calculate the intersectoral transfers of intermediate products as well as final goods and services. Section III presents the planning model and considers the possibilities of using it for planning purposes.

The "shortage" of engineers

Abstract: W HETHER or not "shortages" of highly educated and trained personnel, such as engineers and scientists, existed or were serious in recent years has been the subject of widespread discussion and indeed controversy.1 Typically, this discussion focuses on the question of whether there "ought" to be more engineers and scientists, in terms of our competition with the Russians, for example. It is not surprising then that controversy flourishes, since the answer to this question depends ultimately on one's value judgments, with respect to market and nonmarket variables. But more fundamentally, much of the disagreement over the issue stems from the variety of meanings attached to the term "shortage" and the lack of empirical tests. To clarify the matter, Blank and Stigler in their recent book2 define a "shortage" and provide an empirical test for the existence of a "shortage." This paper re-examines some of the empirical evidence they submit and supplements it with additional evidence, a part of which extends the analysis to a more recent date. Briefly, here is a summary of the BlankStigler approach and findings.3 They begin with this definition of a shortage: "a shortage exists when the number of workers available (the supply) increases less rapidly than the number demanded at the salaries paid in the recent past. Then salaries will rise, and activities which once were performed by (say) engineers must now be performed by a class of workers who are less well trained and less expensive."4 (Italics in original.) Since I929, and more particularly since I939, they find that the earnings position of engineers has deteriorated "substantially" relative to all earners and to other professional earners. Although they note a slight upturn in the relative earnings position of engineers since the beginning of the Korean WVar, this reversal is characterized as "a minor cross-current in a tide." Thus, the evidence leads them to conclude that there has been no "shortage" but rather an "increasingly ample supply" of engineers. Furthermore, they predict that the downward trend in relative earnings position will continue.5

Changes in Scale of Production in United States Manufacturing Industry, 1904-1947

Abstract: T HERE is general agreement that the nineteenth century was unparalleled in the growth of large-scale production. However, the fate of scale of production in the twentieth century seems to be lost in a limbo of uncertainty. One investigator comments that "the movement towards large-scale production is largely a nineteenth century phenomenon and had run its course by i890." 1 Another commentator holds that "optimum size is growing with great rapidity." 2 Yet again we read that the "long-term, general and pervasive increase in plant size throughout most industries has come to an end." I It is the purpose of this paper to present some empirical evidence on changes in scale of production in United States manufacturing industry. By scale of production we refer to size of plant rather than size of firm. The very notion of scale of production implies a relationship between volume of output and unit costs. Where economies of scale bear upon questions of monopoly, the problem is one of control of output. Hence, scale of production is measured in this paper by physical output per establishment. Indexes of physical output are available for United States manufacturing industry, permitting the construction of indexes of scale of production as measured by an index of output per establishment.4 To measure scale by number of employees would tend to underestimate industrial expansion linked with labor-saving innovations.5 Similarly, trends in the ratio of value-added or capital per establishment may diverge significantly from the movement of scale. In addition, data from which indexes of value-added can be constructed are not available for a sufficient period of time to be useful while records of capital value are flagrantly unreliable in that they are subject to the judgment of the person making the estimate and to the vagaries of longand short-term fluctuations in prices. The interpretation of long-term movements in indexes of output per establishment as changes in optimal plant size need not be vitiated by the assumption of an optimum range of output rather than an optimum point.

A Comparison of Industrial Concentration in the United States and Britain

Abstract: There are several major reasons why general levels and patterns of concentration in United States and United Kingdom manufacturing industry might be expected to differ; among them are size, economic history, growth patterns, international trade, and anti-monopoly policy. Assuming similar technology of production in both countries, smaller domestic markets (in terms of geography and level of demand) would make for higher concentration ratios in the United Kingdom, since fewer "optimal-size" firms would suffice for each industry.1 Of course, past technological trends may have offset this, by evolving lower "optimal" firm sizes, such as the British system of shorter runs as against American mass production. Britain's greater "maturity," and the widespread rationalization waves in the last two generations, would point toward higher British ratios. As for growth patterns, Britain's higher proportion of basic manufacturing trades (metals and heavy engineering), where economies of scale may be greatest, might also indicate a higher general level of concentration. Britain's greater involvement in international trade probably is important for individual industries, though its effect on concentration ratios might go either way. And Americans might suppose that United States anti-trust policy has kept the ratios relatively lower there than in the United Kingdom (though anti-trust vigor may merely reflect a largely ideological, and token, effort against an especially grave concentration problem). Other reasons one way and the other could easily be added. With all the difficulties of measurement and comparison that plague this topic, and with all the counterpoised influences in the two countries, it is surprising that one recent comparison, by P. Sargant Florence in I953 dealing with the year I935, reaches the straightforward conclusion that on the whole American manufacturers are roughly equally "concentrated in control" as are the British.2 In contrast, Rosenbluth in I952 reached different conclusions for the same year, I935, on the basis of a "cumulative frequency of employment in manufacturing industries by degree of concentration."3 In each iO per cent bracket, cumulative United Kingdom employment as a per cent of the total exceeded that in the United States; in short, more employment was in more highly concentrated industries. "It is clear therefore that the general level of concentration is higher in the British industries."4 As for patterns of concentration in sectors and industries, Florence found a "remarkable" association between specific industry ratios, whereas Rosenbluth's figures for matched industries tended to show important differences. Whatever the truth about comparative concentration in the United States and the United Kingdom (and whatever such a comparison may mean), the discrepancy and obsolescence of these conclusions suggest a need for more research, especially concerning more recent years. Now that two new sets of ratios for a fairly recent year (195 i) are available, a new Transatlantic comparison is bound to be made. This paper, it is hoped, provides it. Methods. The methods used in this paper are intuitively simple.5 In the British data from Evely and Little, industries are classified according to the degree of concentration of their employment in the largest three firms, and this gives a frequency dispersion with ten ten-per-cent categories.6 For the United States a similar tabulation for the same year (195I) has been drawn from that rich volume of data com-

Debt Management's Contribution to Monetary Policy

Abstract: i the proportion of T which is invested in the borrowing country j the proportion of T spent outside the borrowing country p = the proportion of T spent in the lending country (j>p). In the lending country the increase in income will amount to: p.T times the multiplier (allowing for foreign repercussions); (I) while the decline in the balance of payments surplus 3 will be: [T minus p * T plus MPM p T times the multiplier] minus [a secondary increase in export to the borrowing country whose income has gone up]. (2) In the borrowing country, income will rise by: i. T times the foreign trade multiplier (3) while the external deficit will decline by: [T j.T] [MPM.i.T times the foreign trade multiplier]. (4) It is evident from (2) and (4) that the transfer must exceed the foreign exchange requirements of the development program if it is to have a favorable effect on the external position of both nations. This is particularly true for the borrowing country. Provisions may also be made for spacing repayments over periods of inflation. This would reduce the external surplus in the paying country and the external deficit in the receiving country, while damping the inflation in both economies. A policy of countercyclical lending is subject to the same limitation as the use of public work programs in combatting recessions. By the time a foreign investment project gets under way the recession may be over, but work on the project cannot be stopped for the duration of the ensuing boom. (However, the two lags in the transmission of economic fluctuations from developed to underdeveloped countries would reduce some of this inflexibility.) This is another reason why the responsibility for such a policy must rest with a public body. Some useful investment projects can no doubt be found which are flexible in nature and adaptable to cyclical needs. The amount of the transfer should in any case exceed the immediate costs of these projects. Furthermore, the subject under discussion would not constitute the entire lending program, but only a small part of it. International transfers should be geared to development requirements and not to cyclical fluctuations. Nor can cycle policy be used to justify foreign lending. But inasmuch as lending programs are conducted to foster economic development, there is no reason why they should not be used in part to combat economic fluctuations and external imbalances. ing 1947-1958: Y = -0.225 + o.oo63 X 4o.II6; r= o.682. 'These adjustments are limited to the income effects and should be supplemented by changes in the terms of trade.

The Relationship of Saving to the Rate of Interest, Real Income, and Expected Future Prices

Abstract: IT is widely believed that for some individuals saving may be negatively related to the rate of interest. The argument is usually put in terms of a person's desire to have a particular sum (or an annuity of a particular size) available at some future date. In such a circumstance a rise in the rate of interest will make easier (in terms of present abstention from consumption) the attainment of that particular future sum (or annuity). Therefore, the argument continues, the rise in the interest rate will reduce saving.' We do not wish to question the proposition that such "perverse" reaction to changes in the interest rate may adequately describe the behavior of some individuals; however, we do propose to criticize the extension of the proposition about individuals to the body of consumers in aggregate. This paper takes issue with those who contend that the aggregate saving-interest rate function for households may be "perverse." 2 Our purpose is threefold. First, we wish to demonstrate that the use of the saving-for-a-fixedfuture-sum argument as support for the hypothetical negative relation between aggregate personal saving and the interest rate has unacceptable implications. In particular, it will be shown that it implies that aggregate personal saving is non-positively associated with aggregate real income.3 Second, we shall argue that a more general way to discuss a negative relation between saving and the rate of interest is in terms of the price elasticity of demand for future goods. Saving for a fixed future sum is a special case of this more general phenomenon. But third, we shall demonstrate that if the aggregate saving-interest rate relation is perverse, then the implied reaction of consumers to changes in expected future money prices would also be perverse.4 We shall treat these matters in turn after introducing the geometric tools.