Showing papers in "The Review of Economics and Statistics in 1964"
••
2,393Â citations
••
TL;DR: In this paper, an alternative approach to the formulation of criteria for education is proposed and some illustrative empirical results presented and the application of this approach to education and manpower planning is discussed briefly.
Abstract: T HE current surge of enthusiasm for education rests to a considerable degree on presumptions of its economic benefits. The recent attempts to measure "human capital" and the rate of return on it are efforts to explore the basis for these presumptions and, in this way, to establish economic criteria for education. In this paper I will criticize the use of rate of return criteria for education and suggest an alternative approach.' The objective of the first section will be to evaluate the working of the "price system" in education and the usefulness of criteria for education which are based on it. In the second section an alternative approach to the formulation of criteria for education is proposed and some illustrative empirical results presented. In the third section the application of this approach to education and manpower planning will be discussed briefly.
115Â citations
••
TL;DR: Heneman et al. as discussed by the authors found that there has been a rising secular trend in the full employment labor force participation ratio over the last decade, which is consistent with the discouraged worker and additional worker hypotheses.
Abstract: A LONG standing issue in labor market analysis is the question of the relationship between cyclical variations in economic activity and labor force participation. There are three main hypotheses that have vied for attention. The "discouraged worker" hypothesis holds that when economic activity declines, workers become discouraged and leave the labor force. The "additional worker" hypothesis maintains that labor force participation increases at low levels of economic activity when "secondary" workers enter the labor force under the pressure of the loss of work by the "primary" worker.' The "offset" hypothesis maintains that any inflow of additional workers is offset by an outflow of discouraged workers so that, on balance, the over-all participation rate remains virtually constant, or that at least there is no clearly discernible cyclical relationship.2 In this paper, we present evidence that lends clear cut support to both the discouraged worker and the additional worker hypotheses. An initial decline in employment from a cyclical peak results in large-scale discouragement and withdrawal from the labor force. Subsequent declines in employment are met by a smaller decline in labor force participation. As the period of economic slack grows longer, pressure on additional workers to enter the labor force builds up and this tends partially to offset the discouragement effect. Statistical isolation of these effects has resulted in our ability to explain 88 per cent of the variation, after allowance for seasonal change, in labor force participation over the last decade. Our method takes into account the duration of unemployment and explains why a given change in employment produces different quantitative changes in participation at different times, and thereby, shows why univariate tests of the hypotheses have been inconclusive. The discouraged worker effect is, in general, the dominant effect. Thus, for the period 19531962, the rule of thumb that emerges is that the loss of 100 jobs is roughly associated with a reduction in the size of the measured labor force of 50 persons. Because the dominant effect is withdrawal from the labor force, the official unemployment statistics understate the magnitude of unemployment during periods of economic slack. In order to provide a more accurate guide for short-run full employment policies, we utilize our results to construct "potential" or "full employment" labor force series. By full employment labor force we mean that size labor force that would have been recorded had the economy been at full employment. These full employment labor force series are then utilized to recalculate the level of unemployment and the unemployment rate. These calculations provide us with measures of the "manpower gap," defined as measured unemployment plus net cyclical withdrawal from the labor force. For November 1962, the official seasonally adjusted unemployment rate was 5.8 per cent. The manpower gap unemployment rate, however, stood at between 9.45 and 10.30 per cent; the difference between the two gap rates being dependent upon the criterion of full employment that was used in the calculations. One of our findings is that there has been a rising secular trend in the full employment labor force participation ratio. Forecasts based on these findings suggest that the potential labor force in 1975 will be at least four million more than is currently projected by the Bureau * The authors are members of the Department of Economics at Oberlin College. Professors George Andrews, Samuel Goldberg, Robert Solow, James Tobin, Robert Tufts, and Dr. Richard Nelson provided valuable comments on various parts of the study, as did the participants of the Ford Foundation Workshops on Unemployment and Economic Growth. 'The phrase "additional worker" has also been used to describe the hypothesis that favorable economic conditions attract secondary workers into the labor force. In this paper the phrase "additional worker" is used to denote the presumption that adverse economic conditions induce secondary workers to enter the labor force. 2For a survey of the literature, see Herbert S. Parnes, "The Labor Force and Labor Markets," in Heneman et al. eds., Employment Relations Research (New York, 1960), 1-42.
63Â citations
••
TL;DR: In this article, the authors examined the relationship between bank performance and market structure and found that the level of business loan rates is higher in markets having relatively high concentration and that business loan rate is less flexible in markets with relatively high concentrations.
Abstract: N recent years, we have seen a renewed interest in the problem of competition among banks. An increasing number of bank mergers has brought forth new legislation, such as the Bank Holding Company Act (1956) and the Bank Merger Act (1960), which directs regulatory agencies to preserve competition in banking. At the same time, it has become apparent that there is little or no empirical evidence on the relationship between bank performance and market structure. This paper aims chiefly at determining whether or not market structure or concentration has any effect on commercial bank performance. It is considered to be the groundwork from which it is hoped will spring more sophisticated techniques for handling the conceptual difficulties here encountered. It seems reasonable to begin an analysis of bank competition with what is undoubtedly the most delimited borrower market, the market for small business loans. There are fewer borrower alternatives for small business loans than for almost all other bank services. Business loans are also, of course, the most important component of commercial banks' loan portfolios. An investigation of this market provides an estimate of the upper bound of departures from competitive conditions. If no evidence of market power can be found in markets for business loans, other bank services for which there are more substitutes are not likely to display monopolistic practices. This paper attempts to test two hypotheses: (1) that, ceteris paribus, the level of business loan rates is higher in markets having relatively high concentration; and (2) that, ceteris paribus, business loan rates are less flexible in markets having relatively high concentration. In testing these hypotheses, an attempt is made to distinguish the effect of market structure from other regional differences, such as those of loan demand, bank costs, type of banking, etc. This paper seeks to probe the following questions: (1) What is a competitive market structure? (2) What is the quantitative effect of a given change in concentration, such as might result from a bank merger? (3) What determines the spatial market for bank loans? (4) Does branch banking have an effect on market performance different from that of unit banking? (5) How should market structure be measured? (6) Do banks which possess market power behave differently than competitive banks over the business cycle?
58Â citations
••
TL;DR: For example, Okun et al. as discussed by the authors found that attitudes and buying plans data reflect various aspects of consumer sentiment, including a feeling of well-being and anticipation of price increase.
Abstract: FOR more than ten years, the University of Michigan Survey Research Center has gathered data on consumer attitudes and buying plans in its periodic sample surveys. According to the SRC, "Information on consumer sentiment and expectations is collected because they exert a great influence on demand for durable goods and housing and thereby on economic trends in general." 1 But tests of the relationship between attitudes, intentions, and consumer behavior have produced conflicting results and have caused doubts as to the usefulness of the attitude variables for purposes of forecasting.2 The attitudes and buying plans data reflect various aspects of consumer sentiment. It is not clear to what extent these are separate attitudinal dimensions, and which of these, if any, have a useful role in forecasting. Analyses of the predictive power of attitudes and buying plans in cross section reinterview data have tended to discredit the relevance of attitudes, but not of buying plans. Klein and Lansing, Tobin, and others 3 have found that after predicting on the "objective variables," the effects of the attitudinal variables individually (and combined into an index) are not statistically significant in the cross section. On the other hand, intentions to purchase do add significantly to the explanation of realized purchases. Aggregate time series give the opposite result. While the earliest time series studies of aggregate data by the Consultant Committee on Consumer Survey Statistics, Okun, and Mueller 4 were inconclusive, more recently the Mueller studies and other calculations by the Survey Research Center5 have consistently shown that in aggregate time series, attitudes make a significant contribution to explaining fluctuations in aggregate durables purchases, while buying intentions do not make a statistically significant net contribution to the forecast. Proponents of the attitudes data have argued that the ultimate test of their usefulness is their performance as an aid to prediction in aggregate time series. The case for or against the predictive value of consumer attitudes and intentions data is still open. This paper, part of a larger effort to reexamine the role of subjective data in predicting consumers' expenditures on durable goods, is focused on the behavior of the aggregate * The author wishes to thank Professor Lawrence R. Klein for his encouragement and advice throughout this project. A number of willing assistants, M. J. Desai, M. W. S. Davenport, and J. J. Kim, helped with the computations. The Survey Research Center kindly provided most of the data on which the study is based. The work benefited from an institutional grant from the National Science Foundation. 1 Survey Research Center, The Outlook for Consumer Demand (Ann Arbor, 1961), i. 2U.S. Congress, Joint Economic Committee, "Consumer Survey Statistics" in Reports of the Federal Reserve Consultant Committee on Economic Statistics (Washington, 1955); and Arthur M. Okun, "The Value of Anticipations Data in Forecasting National Product," in National Bureau of Economic Research, The Quality and Economic Significance of Anticipations Data (Princeton, 1960). 'L. R. Klein and J. B. Lansing, "Decisions to Purchase Consumer Durable Goods," Journal of Marketing xx (Oct., 1955), 109-132. In this study, attitudinal responses indicating a feeling of well-being and indicating anticipation of price increase did show a significant relationship to purchases; James Tobin, "On the Predictive Value of Consumer Intentions and Attitudes," Review of Economics and Statistics XLI (Feb., 1959), 1-11; Eva Mueller, "Effects of Consumer Attitudes on Purchases," American Economic Review (Dec., 1957), 946-965; and "Consumer Attitudes: Their Influence and Forecasting Value," in National Bureau of Economic Research, op. cit., 149-179. Also, F. Thomas Juster, Consumer Expectations, Plans, and Purchases: A Progress Report, Occasional Paper No. 70, National Bureau of Economic Research (New York, 1958); and with regard to automobile expenditures, Peter E. dejanosi, "Factors Influencing the Demand for New Automobiles," Journal of Marketing (April, 1959), 412-418. 'U.S. Congress, Joint Economic Committee, op. cit.; Okun, op. cit.; and Mueller, op. cit. 'The most recent calculations are summarized in Survey Research Center, Fifteen Years of Experience with Measurement of Consumer Expectations (mimeo.) paper presented at the Meetings of the American Statistical Association (Sept., 1962, Minneapolis).
57Â citations
••
51Â citations
••
TL;DR: For example, Hart and Prais as mentioned in this paper analyzed changes in concentration over time, and their relations to some other industry conditions, including growth and oligopoly, using the Census Bureau's set of concentration ratios for 1958.
Abstract: FOR all its many shortcomings, the homely concentration ratio is a direct and fairly clear indicator of industry structure, and it is available on a comprehensive basis for manufacturing industries.' Although cross section comparisons of concentration are hazardous, these ratios are relatively reliable and useful as indicators of changes in industry structure over time-2 Recently, the Census Bureau's set of concentration ratios for 1958 has become available.3 Taken together with the 1947 and 1954 ratios, the 1958 compilation provides a nearly complete set of comparable ratios for 4-digit industries covering a span of 11 peacetime years, with an intermediate year to help distinguish trends from erratic movements. The present study uses these new ratios to analyze changes in concentration over time, and their relations to some other industry conditions, including growth and oligopoly. The first section considers broad trends, and begins with the traditional and natural question: has concentration generally increased or decreased over the 1947-1958 period? Changes in concentration in the basic metals and engineering industries will also be reviewed. The second section offers tests of several hypotheses which have been put forward relating industry concentration (as cause or effect) with industry growth or contraction. Some evidence on the role of entry is also presented. The findings also bear on discussions of the size distribution of firms. In the third section, trends of concentration in industries which had "oligopolistic" structures in 1947 will be surveyed. This will give some indication of how vulnerable the dominant firms have been, and will thereby throw some light on two theories of oligopolistic behavior which have been advanced by J. S. Bain and G. J. Stigler. * I am indebted to Leonard Schifrin, Charles H. Berry, George Stigler, William J. Fellner, and Paul MacAvoy for a number of helpful comments on an earlier draft of this paper. Leonard Schifrin also suggested the inclusion of coverage ratios in the regressions of the second section. The multiple regression program was borrowed from James Friedman. 1Among the obvious weaknesses are the following: Industry definitions according to the Standard Industrial Classification (SIC) system do not accurately delineate true markets, nor do they allow for potential entrance by firms across industry lines. Based as they are on national figures, they do not allow for higher concentration in regional submarkets. In some cases they neglect the role of imports in domestic markets, and of export markets for domestic producers. The ratios do not describe the entire firm distribution, but only one slice of it; and they give no information about the relative positions among the top group of firms. The ratios also fail to reflect turnover among firms over time. Finally, there is the obvious but important point that concentration is purely a structural indicator, and says nothing explicitly about behavior or performance. For a thorough treatment of these and other problems of concentration ratios, see National Bureau of Economic Research, Business Concentration and Price Policy (Princeton, 1955). 2 Recent examples of studies involving concentration ratios for individual industries include G. Rosenbluth, Concentration in Canadian Manufacturing Industries, National Bureau of Economic Research (Princeton, 1958); A. L. Phillips, "Concentration, Scale and Technological Change in Selected Manufacturing Industries, 1899-1939," Journal of Industrial Economics (1956), 179-193; R. T. Selden, "Accelerated Amortization and Industrial Concentration," Review of Economics and Statistics, xxxvii (Aug., 1955), 282-291; W. G. Shepherd, "A Comparison of Industrial Concentration in the United States and Britain, Review of Economics and Statistics, XLIII (Feb., 1961), 70-75; and V. R. Fuchs, "Integration, Concentration and Profits in Manufacturing Industries," Quarterly Journal of Economics, LXXV (May, 1961), 278-292. A different approach to concentration (based on size inequality of firms) has been taken by P. E. Hart and S. J. Prais. See especially S. J. Prais, "The Analysis of Business Concentration: A Statistical Approach," Journal of the Royal Statistical Society, Series A (1956), 150-191, and P. E. Hart, "Concentration in Selected Industries," Scottish Journal of Political Economy, (1958), 185-201. This approach is discussed in the second section of the present paper. 3 Concentration Ratios in Manufacturing Industry: 1958, 87th Congress, 2nd Session, No. 78696, Government Printing Office (Washington, D. C., 1962), Part I. The volume containing ratios for 1954 and 1947 is Concentration in American Industry, 85th Congress, 1st Session, No. 46358 0 (Washington, D. C., 1957). In addition, there is expanded coverage of 5-digit product classes, and for many products there are ratios for both 1954 and 1958. Also, a smaller companion volume (Part II) presents some estimates of concentration within regional markets for a number of 4digit industries.
49Â citations
••
TL;DR: In this article, the authors present an intensive study 6 of stock demand elasticities for housing in which they rejected Morton's conclusion, stating that the income elasticity of demand for housing is about unity; i.e., more elastic than what Morton estimated.
Abstract: H OUSING demand is a major factor in determining national income via private residential capital formation. Moreover, it fluctuates so widely, in many cases independently, in comparison with the demand for other consumer goods that it has been the focus of considerable attention on the part of economists. Yet there are markedly different opinions about the basic relationship of housing demand to changes in income or prices. As early as 1857, Engel made the first classic study of the relationship of family expenditures to income based on budget data; among other things, the percentages of housing to total expenditure were roughly estimated for three different socioeconomic groups. Later, Wright interpreted these estimates to mean that housing expenditure for lodging or rent takes a constant percentage of income at all levels of income. This is known as one of "Engel's laws" of consumption. However, Schwabe in 1868 presented empirical evidence that the percentage of income spent on rent falls as income rises.1 On the other hand, Marshall in his theoretical analysis, viewed housing as a means of obtaining social distinction as well as shelter, and said that "where the condition of society is healthy, and there is no check to general prosperity, there seems always to be an elastic demand for house room, on account of both the real conveniences and the social distinction which it affords." 2 With these views Marshall seems to distinguish himself from his predecessors by stating that the demand for housing is rather elastic with respect to income. In recent years further controversy based on various empirical evidences has arisen. These dissimilar findings have led to radically different implications for important issues in the field of housing such as residential capital formation and the incidence of property taxes. Morton arrived at an income elasticity of demand of around 0.6 for the value of a house purchased, using cross-section data. Combining his estimate with the view that the property tax rate is constant over the different levels of property value, Morton concluded that the property tax was regressive.3 Winnick similarly derived an income elasticity of demand for the value of a house purchased of about 0.5, and noted a downward trend in per capita residential housing stock since 1900 (observed by Grebler, Blank, and Winnick) when real income was rising. Combining these with the assumption of a low price elasticity for housing, Winnick concluded that there had been a downward shift in consumer preferences for residential capital formation since around 1900. Recently Muth presented an intensive study 6 of stock demand elasticities for housing in which he rejected Morton's conclusion, stating that the income elasticity of demand for housing is about unity; i.e., more elastic than what Morton estimated. The price elasticity for housing stock estimated by Muth also exceeded unity, differing substantially from Winnick's contention. In view of high elasticities with respect to both income and price Muth cast doubt on
42Â citations
••
TL;DR: In this paper, the authors present a nine-equation econometric model dealing with the decisions about residential density, auto ownership, journey-to-work transportation media, and length of worktrip of workers employed at 254 Detroit workplace locations.
Abstract: T HIS paper presents a nine-equation econometric model dealing with the decisions about residential density, auto ownership, journey-to-work transportation media, and length of worktrip of workers employed at 254 Detroit workplace locations. Understanding these aspects of household behavior is crucial to a number of enormously important investment decisions being hotly debated in urban communities. The economic stake in urban transportation investments alone is immense, as witness the nearly billion-dollar plans under consideration in the San Francisco-Oakland Bay Area, in Los Angeles, and in Washington, D.C.' The revenue estimates used in all proposed transit plans assume that the post-war decline in transit use not only will halt, but will be reversed as automobile commuters switch to the new rail facilities. The Los Angeles "Backbone Plan," for example, expects a ridership of 38 million passengers, of whom 22 million would be persons diverted from private autos. At the same time, highway capacity is to be significantly increased with the completion of a major paralleling freeway. In advocating these expensive mass transit systems, some urban researchers and planners have postulated a "vicious circle" theory to explain the decline in transit ridership. They argue that reductions in transit use lead to reductions in service levels, which lead to further declines in transit use, still further reductions in service, and so on. This argument probably has some validity, but whether the policy prescriptions derived from it follow logically is another issue. Its proponents often recommend a short-run policy of granting large subsidies to improve transit service until a new service-usage equilibrium is reached, at which point the system becomes self-sustaining or can operate with only a small subsidy. The empirical findings of this paper raise serious doubts about such policies.
40Â citations
••
TL;DR: In this article, the authors examined the long-run trend in output per man-hour and examined the sources of that trend, and the short-run or cyclical behavior of productivity.
Abstract: IN recent years the behavior of productivity has received increasing theoretical and empirical attention. Two basic approaches have been developed. The first focuses upon the long-run trend in output per man-hour and examines the sources of that trend. The second focuses upon the short-run or cyclical behavior of productivity. The purpose of this paper is to explain the characteristic behavior of output per man-hour over the business cycle and to identify changes in the cyclical response mechanism. An explanation of cyclical changes in productivity is essential for an analysis of unit labor costs, and is therefore a necessary ingredient in an explanation of the price level and its movements. It is also a necessary precondition to understanding the longer-run trends; cyclical fluctuations in output per man-hour are large, and the trends based on capital and technology cannot be seen until the short-run variations have been removed.
••
••
TL;DR: In this article, the authors measured a bank's success in meeting the challenge of its environment by the growth of its assets, which is not the only measure of success but, unlike some other measures (e.g., profits), asset figures are available in published sources and are comparable for all banks.
Abstract: T HE secular decline in the number of banks and the associated increase in the size of the average bank have raised serious questions about the viability of a banking structure which contains the vast extremes of bank size which are found in the United States. In spite of the widespread interest in this matter, very little statistical evidence has been available to gauge the success with which different size banks have met the challenge of their environments. We have attempted to fill part of this gap in the literature by investigating the performance of large banks during the years 1930 to 1960. In this study, we measured a bank's success in meeting the challenge of its environment by the growth of its assets. This is not the only measure of success but, unlike some other measures (e.g., profits), asset figures are available in published sources and are comparable for all banks. Although we recognize that all banks neither operated in an identical environment nor faced an equal challenge from their environments, we did not attempt in this paper to assess the nature or sources of the comparative growth record of large banks. Our more limited goal was to determine, as a matter of historical fact, whether large banks grew more or less than the banking system as a whole during those years. This analysis of the growth of large banks is based on the performance of the 200 largest banks in the system on particular dates. The 200 largest banks were only .84 per cent of the bank population in 1930 and 1.48 per cent in 1960, but they accounted for more than half of all the commercial banking resources in the country on both dates.' We identified by name each of the 200 largest banks in the country on three different dates, 1930, 1940, and 1950,2 and traced the growth of each bank in each of these top groups (i.e., the 1930 top group, the 1940 top group, and the 1950 top group) for different periods of time up to 1960. A word about some limitations of these basic bank figures is in order.3 First, only three groups of large banks were included in this study. Second, the periods covered for these groups, ranging from ten years for the 1950 top group to thirty years for the 1930 top group, provided three observations on the effects of a ten-year period, two observations on the effects of a twenty-year period, and one observation on the effects of a thirty-year period. Third, the composition of these bank groups overlaps because some of the leading banks on one date were also the leading banks on another date.
••
TL;DR: In this article, the authors employ a more conventional representation of the autonomous expenditure theory and demonstrate why Friedman and Meiselman's tests are misleading, using this conventional model and some of their data, little empirical evidence is found which favors the quantity theory.
Abstract: PROFESSORS Friedman and Meiselman' recently have reported that a simple quantity theory model describes aggregate consumption more accurately than a simple autonomous expenditure model. They believe this result is evidence that the "quantity" theory is a better description of the American economy than the autonomous expenditure or "Keynesian" theory.2 If their interpretation were correct, the Friedman-Meiselman paper would be one of the most significant economic studies in many years. But it is not correct. Friedman and Meiselman have represented the autonomous expenditure theory in a very unorthodox form. Their statistical comparisons are extremely sensitive to how the autonomous expenditure theory is represented. Below, I employ a more conventional representation of the autonomous expenditure theory and demonstrate why Friedman and Meiselman's tests are misleading. Further, using this conventional model and some of their data, little empirical evidence is found which favors the quantity theory. Finally some other conceptual weaknesses of the Friedman-Meiselman tests are illustrated. Briefly, Friedman and Meiselman compare simple, partial, and multiple correlation coefficients obtained from the following equations, estimated from annual (1897-1958) and quarterly (1945-1958) data for the United States: C=al+8(A (1) C=a2 +82M (2) C = a3+/33A +13P (3) C = a4 +84M+y4P (4) C = a5 + 35A + 85M (5) C = a6 + 86A + 86M + Y6P (6)
••
TL;DR: The most widely held view in the recent literature is that companies are conservative in their financial policy, and, consequently, their dividend disbursement activity is characterized by a considerable degree of inertia, and more precisely, that there exists some "optimal" or "target" dividend payment (per share) to which corporations adhere.
Abstract: D URING the past twenty years a great deal of econometric research has been directed toward the study of the saving behavior of economic units. Thus, personal saving has been explored quite intensively through (personal) consumption studies, especially so in the post-war period. The question of corporate saving, however, has in large measure been neglected, although a casual look at the data would disclose that it has ranged in magnitude from about 300 per cent of personal saving in 1947 to just under 50 per cent in recent years. Undeniably, this is a very significant component of total savings. By corporate saving we mean, of course, undistributed profits; hence, this question could be studied equivalently by studying the dividend policies of firms. On the latter topic some studies have been made and some tentative hypotheses have been formulated. The most widely held view in the recent literature is that propounded by Lintner in his pioneering contribution, [2] and [3]. Lintner's hypothesis states that corporations are conservative in their financial policy, and, consequently, their dividend disbursement activity is characterized by a considerable degree of inertia, and more precisely, that there exists some "optimal" or "target" dividend payment (per share) to which corporations adhere. Departures from this level are made only reluctantly, following a change in the level of profits which is deemed to be more or less permanent. Lintner's statistical analysis is based on time series data pertaining to aggregate corporate dividend disbursements and profits. His model has dividends at time t, explained by dividends at time t 1, and profits at time t. This is not a very satisfactory approach, except for shortrun prediction (of aggregate dividends), since it fails to account for apparently wide (intertemporal) variations in the dividend policy of various corporations, and does not go sufficiently far in elucidating the motives and factors involved in deciding the amount of corporate profits to be retained.
••
TL;DR: In this paper, the cyclical performance of fiscal policy over two recent cycles ranging from 1957-3 (peak) to 1960-2 (peak), and from 1960 -2 to the first quarter of 1963 was evaluated.
Abstract: PpT HE purpose of this paper is to appraise the cyclical performance of fiscal policy over two recent cycles ranging from 1957-3 (peak) to 1960-2 (peak), and from 1960-2 to the first quarter of 1963. Also, an attempt is made to appraise the full employment adequacy of fiscal policy over this period. The exercise shows that grading, as always, is a delicate matter and that the results will differ depending on what formula is used. The effectiveness of fiscal policy is not easily measured. Obviously, it cannot be demonstrated by searching for a simple association between budget deficit and prosperity, nor can its ineffectiveness be proven by showing deficits to be associated with declines in GNP.1 What matters, first of all, are changes in budgetary position relative to changes in GNP. Moreover, a distinction must be drawn between the built-in effects of changes in GNP on changes in fiscal position, and the effects of discretionary changes in fiscal parameters on GNP. The former relation, which dominates the picture of the last decade, leads to the observed positive association between change in GNP and the level of budget surplus. This association in no way disproves the proposition that the built-in increase in deficit dampens the decline in GNP, just as the built-in increase in surplus dampens the rise. The effects of discretionary changes in fiscal parameters, in turn, should lead to a negative relation between changes in GNP and budget surplus, but this relationship involves lags and is not easily read from the data. Ultimately, the only satisfactory way of measuring the effects of budget policy on GNP during a past period is in terms of an econometric model which isolates fiscal factors. No such attempt will be made here. Rather, we shall compute various overall indices of fiscal performance, based on a more or less simplified multiplier model of fiscal policy effects, and address ourselves to certain conceptual problems which they pose. Our concern will be first with the contribution of fiscal policy to cylical stability, and then with measures of its full employment adequacy.
••
TL;DR: In this article, the authors report on an effort to measure both the direct and indirect impact of defense-space expenditures on the manufacturing sector of the Los Angeles-Long Beach Standard Metropolitan Statistical Area (SMSA).
Abstract: CONSIDERATIONS of the impact of changes in the volume and composition of expenditures by the defense and space agencies will be misleading if they ignore the regional component. In considering disarmament, traditional monetary and fiscal policy responses produce an effect which is nationwide in scope. Such policies may not be of much help to states and communities, such as California or Wichita, whose economies are heavily dependent upon defense expenditures. In addition, shifts in the regional pattern of these expenditures can produce similar stresses in local economies. A major problem in this connection has been the measurement of the defense-space expenditure impact in a region. Aside from an induced impact operating through regional consumption and business investment functions, the impact on income and employment can be divided into two components: (1) the direct impact through prime contract awards to firms, and (2) the indirect or inter-industry impact through subcontracts and purchases of supplies by prime contractors. While there have been some attempts to measure the direct impact, little work has been done which also accounts for the indirect impact. This paper reports on an effort to measure both the direct and indirect impact of defense-space expenditures on the manufacturing sector of the Los Angeles-Long Beach Standard Metropolitan Statistical Area (SMSA). The task is an empirical one. Hence, we shall briefly review some of the various techniques of measurement and present the results of a short-cut method to measure the impact on Los Angeles manufacturers. Empirical Difficulties Almost all approaches to the measurement of the regional impact of defense-space expenditure involve variations of an input-output framework.1 Unfortunately, given the present state of data availability, they are not operational, at least without extended research effort. National data from the 1947 table, while useful, are somewhat out of date.2 Regional data are all but nonexistent. Pending the development of more adequate data, some short cuts need to be examined. In the search for short cuts, it is useful to keep in mind what the gross flows data of an interregional input-output table reveal. Row information reflects where sales are made in terms of industries, final demand sectors, and regions. Column information indicates the source of inputs from other industries both inside and outside of the region. Short cuts, essentially, involve something less than the complete cross-check of independent estimates of the row and column entries. Most regional input-output studies, in fact, get these estimates sometimes from row information and sometimes from column information, but rarely from independent estimates of both. A column-oriented approach, which has a good deal of appeal, simply traces down the subcontractors. There is some evidence to suggest, as an order of magnitude, that half of a specific defense or space program prime contract is subcontracted.3 It would seem that tracing down a few layers of subcontractors would account for most of the impact. Unfortunately, this is not the case. When a prime
••
TL;DR: The question of whether a country gains or loses by having its currency used as an international reserve by other countries has been discussed for some time in the United Kingdom and is also of particular interest to the reserve currency countries as discussed by the authors.
Abstract: SINCE Professor Triffin launched his plan five years ago, the international liquidity problem has been the subject of vigorous discussion. The debate will probably reach a climax this year and next when the IMF and the Group of Ten complete their studies of the subject. Some proposals for international monetary reform would retain the role of the dollar as the principal reserve currency, perhaps strengthening it by further building up what Under Secretary Roosa has called its "perimeter defenses." Others envisage that the dollar would share that role with other currencies, as in the Posthuma and Lutz plans, or with a new international unit which would represent a claim against the International Monetary Fund, as in the proposals advanced by Chancellor of the Exchequer Alaudling in 1962 and by E. M. Bernstein in 1963. Finally, Triffin's original plan would transfer the reserve currency function outright from national currencies to an international unit.' Miost of the discussion has centered around the relative merits of the different plans in providing adequate, effective, and stable arrangements for supplying international reserves and settling international balances and rightly so, since this is clearly the crucial issue. A subsidiary question, which has recently received some attention in the United States and has been discussed for some time in the United Kingdom, is whether a country gains or loses by having its currency used as an international reserve by other countries. This question is closely related to the central issue, and is also of particular interest to the reserve currency countries. It is the subject of the present paper. Space limitations make it necessary to confine the discussion to one aspect of the question.2
••
TL;DR: In this paper, the authors examined factors affecting the differences in aggregate consumption ratios of various nations and concluded that the level of current income is the main determinant of the level consumption in the short run, and the marginal propensity to consume is less than unity.
Abstract: Introduction JN spite of the voluminous studies that have been made on the theory of the consumption function, one important question remains unanswered. Does the Keynesian theorem of consumer behavior operate in any modern community as Keynes claimed it would? ' The first section of this paper will be devoted to testing the Keynesian hypotheses: (1) the level of current income is the main determinant of the level of current consumption in the short run, and (2) the marginal propensity to consume is less than unity. In the second section, we shall examine factors affecting the differences in aggregate consumption ratios of various nations. While much effort has been spent on study of the aggregate consumption function of the United States, our knowledge of the consumption patterns of countries in the rest of the free world, particularly of less advanced countries, continues to lag.2 The relative scarcity of research in this area has been due primarily to the absence of reliable data. Until the introduction of a uniform national account system by the United Nations in 1947, national income data were virtually non-existent except for the highly developed countries.3 As reports of the member nations have been published for a number of years, sufficient data are now available to calculate and compare the aggregate consumption functions of various nations. The following criteria were used in selecting countries for this study:
••
••
TL;DR: In this paper, the authors analyze the role of administration and risk charges in the determination of interest rates in rural areas throughout the underdeveloped world and show that risk and administration costs in particular play the major role in forcing high interest rates upon farmers in poor countries.
Abstract: T HE determination of interest rates in rural areas throughout the underdeveloped world is best explained in micro-economic terms. The typical village moneylender will either be an outright monopolist, or he will be an imperfect competitor.1 The market for loans will center around the village itself. The farmer will normally only borrow from the one or more moneylenders that the village can support. He will not often have access to a bank or other lending institution. In these circumstances, the moneylender will face a demand curve for his loans which will slope downwards from left to right. The rate of interest will be on the vertical axis and the volume of loans on the horizontal axis.2 He will also have a schedule of costs for lending. This will be compounded of the administration and risk charges on each unit which he lends, together with the opportunity cost of his raw material money. It is this last cost component which corresponds to the pure rate of interest of existing theory. The average cost-of-lending curve will describe the arc familiar to the student of the principles of economics. There will be a certain volume of loans which will maximize the moneylender's net returns. This volume will be at his equilibrium level of lending, and it will determine his most profitable interest charge. It is the opportunity cost of each dollar or rupee which he advances at this equilibrium point which we will analyze here. Questions of average administration and risk charges, as well as of monopoly profit, must be left to other discussions. But it should not be supposed that these are relatively unimportant considerations. Risk and administration costs in particular probably play the major role in forcing high interest rates upon farmers in poor countries.3 If we view the opportunity cost of the lender's money as one of the determinants of his costs, then we could draw a curve representing these charges. It would probably run parallel to the volume of lending axis to begin with and then rise quite sharply as the moneylender adds to his loans. The unit opportunity cost is thus registered on the vertical axis and it forms one of the components of the interest rate which the farmer must ultimately pay. The reasons why the opportunity cost of the money used in a lender's loans will describe such a curve can best be explained under two separate headings. They are: (1) the returns on alternative investments, and (2) liquidity preference.
••
••
TL;DR: Domar et al. as discussed by the authors presented a long summary of a long report on the rates of growth of outputs, inputs, and factor productivities in the United States, Canada, United Kingdom, Germany, and Japan in the post-war period, for the countries as a whole and for major economic sectors.
Abstract: T HIS is a brief summary of a long report on the rates of growth of outputs, inputs, and factor productivities in the United States, Canada, United Kingdom, Germany, and Japan in the post-war period, for the countries as a whole and for major economic sectors. Like many empirical studies, this paper shows numerous scars from battling statistical data: frequent use of the "n. a." abbreviation, insufficient disaggregation (particularly for Germany), heavy reliance on ingenuity in bridging statistical gaps, and finally a rather weak conceptual framework chosen under duress. For all these reasons, the reader is urged to take our findings with a good dose of salt. Space does not permit us to discuss the numerous qualifications, sources, and statistical procedures. These are available, however, in the unabridged report which will be furnished on request.1 Since there exists a large literature on the methodology of such studies, we can be brief here.2 On the whole, we have used the Kendrick method in obtaining what he calls the "Index of Total Factor Productivity" and what is called here the "Residual," as well as in measuring specific factor productivities, with the following major modifications: (1) the outputs (in their several variants) are expressed gross rather than net of depreciation; (2) labor input is aggregated without being weighted by the average wage of each industry, as Kendrick did; (3) imports (when present) are treated as inputs. Much as we wanted to deviate from Kendrick and to include materials among the inputs (in the several sectors), lack of data forced us to follow him in subtracting material inputs from both sides of the production equation and to express output as value added (in constant prices). This exclusion of material inputs is unfortunate: it reduces the usefulness of Kendrick's Index and of our Residual, the most novel feature of both studies, because labor endowed with a large weight dominates the input side (capital playing a rather minor role) and frequently pushes the Residual rather close to the conventional measure of labor productivity (see below). One special qualification of our results should be mentioned. Neither Kendrick's nor our indexes of productivity have been corrected for the degree of utilization of inputs. During slack periods, even labor, although paid for, is not fully utilized, nor of course is capital. Hence both the rates of growth of the index of labor productivity and of the Residual will usually rise during the expansion phase of the economy or a sector and fall during a contrac* The original study was sponsored by the Organization for Economic Cooperation and Development, whose financial support is gratefully acknowledged. The study does not necessarily reflect the views of, or the approval by, the sponsor. We are grateful to Professor John M. Kendrick and his assistant, Mrs. Maude Pech of the National Bureau of Economic Research, for their generous help; they are not, of course, responsible for our errors and conclusions. Mr. Carl Riskin and Mrs. Marilyn Wright helped with computations; Miss Sharon Dewar deserves thanks for her aid in typing and computations, and Mrs. Juliet Raventos for preparing the final copy. We are also grateful to the Center for Advanced Study in the Behavioral Sciences at Stanford, where the final version of this paper was written, for the use of its facilities and for many other things. 1 Please contact E. D. Domar, Department of Economics, Massachusetts Institute of Technology, Cambridge 39, Massachusetts. 2 The most important recent work on factor productivities belongs to John W. Kendrick, Productivity Trends in the United States, a study by the National Bureau of Economic Research (Princeton, 1961). See also E. D. Domar's methodological comments in "On the Measurement of Technological Change," The Economic Journal, LXXI (December 1961), 709-29, and in "On Total Productivity and All That," The Journal of Political Economy, LXX (December 1962), 597-608. The first paper also contains a partial bibliograDhv on this subject.
••
••
TL;DR: In this paper, the relative performance of the USSR and leading western industrial countries as markets for primary products in the period 1955 to 1961 was compared based on available official foreign trade statistics of each country.
Abstract: Soviet spokesmen have claimed repeatedly that the USSR is an ideal market for primaryproduct exports of underdeveloped countries. The markets of leading western industrial countries, on the other hand, are said by the Soviets to be extremely unsatisfactory due to the chaos and stagnation allegedly inherent in the capitalist system. The purpose of this paper is to assess the validity of these Soviet claims by comparing the relative performance of the USSR and leading western industrial countries as markets for primary products in the period 1955 to 1961. The method used is one which tests whether Soviet primary product imports were larger, more rapidly growing, and more stable than western imports. This comparison is based entirely on available official foreign trade statistics of each country.
••
TL;DR: In this paper, Tsujimura et al. presented a method to estimate the consumers' preference functions in a numerical form, making use of continuous time series of the family budget data which were available, at that time, for interwar years in Japan.
Abstract: T a given rate of growth in the general A level of personal income, which kind of expenditure will increase its share and which will decrease and, further, what will be the extent of these changes? The requirement for this kind of knowledge has increased in recent years in relation to the theory of economic development as well as for purposes of short-run projection. Prior to the latter half of the 1940's, it had been thought that the above questions might be readily answered by the straightforword application of the generalized Engel's Law. Professors Allen and Bowley I gave the theoretical explanation with a specified form of preference function which was found to be consistent with the empirical cross-section regressions. Thus, it was suggested that if we could assume the invariability of the consumers' preferences both among income groups and over time, it would be possible to predict the consumption of various categories of goods and services and future savings, given income and prices and with the knowledge of the numerical values of the preference parameters. This line of approach had been tried from the time of Professors I. Fisher and R. Frisch.2 It is well known, however, that the validity of the analogy between the cross-section and the time series came to be doubted with the discovery of the long-run stability of the savings ratio in the aggregate time series by Professor Kuznets. Several new theories of consumption appeared with the common target of explaining with a unified theory all of these three kinds of empirical observations: the long-run time series, the short-run time series, and the cross-sectional relations. About ten years ago, the present authors began to try to estimate the consumers' preference functions in a numerical form, making use of continuous time series of the family budget data which were available, at that time, for interwar years in Japan. We undertook this task partly because of pure curiosity and partly because of the practical desire to improve the analysis of index-number problems,3 as well as to make predictions on the simultaneous determination of family expenditures. Starting from the classical model of Professors Allen, Bowley, and A. Wald,4 and after making some tentative computations, we came to see the necessity of introducing some shift elements into the structural equations which were used. First, we tried to adopt Professor Tobin's 5 liquid asset hypothesis in a generalized form which took not only the liquid assets, but also the asset holdings for every individual category of family expenditure into account. The results of the empirical tests, however, did not show a logical consistency with our interpretation of Tobin's hypothesis. This forced us to examine the applicability of Professor Duesenberry's theory of interdependent preferences.6 * The work on this paper was done as part of the Keio Economic Research Project financially supported by the Institute of Industry & Labor Studies, Keio University. The final, considerably revised, version was prepared at Professor W. W. Leontief's Research Seminar during Tsujimura's stay at Harvard as a Fulbright Research Scholar, 1961 to 1962. We are also heavily indebted to Professors J. S. Duesenberry and H. S. Houthakker for valuable suggestions. They, of course, are not responsible for any remaining errors. 'R. G. D. Allen and A. L. Bowley, Family Expenditure: A Study of Its Variation (London, 1935), especially appendix. 2 Ragnar Frisch, New Methods of Measuring Marginal Utility (Tubingen, 1932). It is interesting to see that Frisch's analogy of the spring balance on the dynamic feature of consumer's taste appears to be very close to our present specification of Duesenberry's theory of habit formation. 'H. S. Houthakker, "The Influence of Prices and Incomes on Household Expenditures," Bulletin of the International Statistical Institute (Bruxelles, 1960); W. W. Leontief, "Composite Commodities and the Problem of Index Numbers," Econometrica, iv (1936); and P. A. Samuelson, The Foundations of Economic Analysis (Harvard, 1945). 'A. Wald, "The Approximate Determination of Indifference Surfaces by Means of Engel Curves," Econometrica, viii (April 1940). 'James Tobin, "Relative Income, Absolute Income, and Saving," in, Money Trade, and Economic Growth (Macmillan: New York, 1951). 6 J. S. Duesenberry, Income, Saving, and the Theory of Consumer Behavior (Harvard, 1949).
••
TL;DR: Many plans have emerged for changing our reserves and liquidity arrangements as discussed by the authors, reflecting more than just divergent views on how to handle a given problem, but also stemming from differing diagnoses about the exact nature of the liquidity problem, differing prescriptions for related features of international economic policy, and differing hunches about the political acceptability of the changes proposed.
Abstract: T HE successful completion of European recovery in the 1950's brought to the western industrial countries the least restricted regime of international trade and payments in many decades. Its very freedom, however, has revealed a number of problems in maintaining consistent domestic and international economic policies, and in keeping the international policies of different countries consistent with each other. Increasingly, these problems have seemed to center on the matter of international reserves and liquidity. Many plans have emerged for changing our reserves and liquidity arrangements. The variety of proposals at hand reflects more than just divergent views on how to handle a given problem. It also stems from differing diagnoses about the exact nature of the liquidity problem, differing prescriptions for related features of international economic policy, and, finally, differing hunches about the political acceptability of the changes proposed. This paper aims not at cluttering the scene with a new proposal, nor even a new summary of existing plans.1 Rather, it turns to the problem of picking among the alternatives. Once the substantive issues are settled regarding the nature of the difficulty and the future network of international monetary arrangements, then assembling the optimal "plan" becomes a task for the technicians. What follows is an attempt to classify, first, the diagnoses of present ills and, second, the underlying substantive issues. It is an essay, not on the efficient solution, but on the efficient search procedure.