Knowledge that Transforms

TOT THE LEAST of the problems involved in reviewing the economic history portions of the International Encyclopedia of the Social Sciences [5, 1968] is that of determining which portions properly are economic history. Some items easily fall into that category, but many others having such headings as Economic Thought, Poverty, or Slavery frequently provide interesting material though their contents are largely peripheral. In order to keep this review within reasonable bounds, attention will be confined to items specifically classified by the editors as economic history, with only an occasional glance at tempting subjects technically off limits. Some comparisons with the earlier Encyclopaedia of the Social Sciences [4, Seligman, 1930] which appeared more than thirty years ago are especially interesting. This earlier work will be referred to i what follows as the Encyclopaedia; the current one as the International Encyclopedia. In actual fact neither encyclopedia is international in any thorough-going sense. Both are written largely by, for, and about Western Europeans and North Americans. The editor of the original fifteen-volume Encyclopaedia made a courageous though not notably successful attempt to define the The tremendous expansion of the social sciences since that time has made the task of definition even more difficult. So the editor of the International Encyclopedia wisely gave up the attempt and merely indicates that the contents of the present work provide sufficient meaning for the term and the best indication of the expanded scope of the field. The heading does appear in the International Encyclopedia and a subtitle, the Philosophy of Science by Michael Scriven (Volume 14, Pp. 83-90), includes an excellent essay on the social sciences. His perceptive statement along with an unusually provactive one by Jack Hexter on the Rhetoric of History (6,368-94) might well be made required reading for all graduate economic history students. As is often true of general reference works, the reader may find most interesting some of the contributions lying outside the field of his own specialty. The editor makes clear that the International Encyclopedia is designed to supplement rather than to replace the earlier work. He also announces the plan to put special emphasis on method. Success in achieving these objectives, although considerable, varies from one subject to another. A general historical introduction, one of the major contributions of the older work, does not appear in the new one. Substantive historical coverage, especially for the years since 1930, is occasionally sketchy in the special topics. The new emphasis on method provides an attractive focus, though many sections and articles fall short of this intention. In its indexing of topics the International Encyclopedia reflects the uneasy position of

tends to creep into economists' assessment of foreign aid. In a respectable journal one reads that discipline seems of little use, our theories unrevealing or even irrelevant, and our evidence fragmentary and inadequate [10, Griffin, 1970, p. 313]. Similar statements abound. Their authors appear to regard aid as a political instrument to influence people and they claim that in the realm of political calculus scores need not be measured the way economists like to quantify entries into a balance sheet. One may wonder if the interdisciplinary character of the subject induces regression toward the lowest common platform? Do economists put aside their analytical techniques for the sake of facilitating communication with a larger audience, or do they simply acknowledge the inadequacy of their tool kit? Whatever the reasons, results usually lack the sophistication so characteristic of other branches of international economics, e.g., trade theory and policy. The articles touching upon foreign economic aid in the International encyclopedia of the social sciences [32, 1968] break only partially this execration. By and large, the overly simplistic presentation tends to lag behind the proficiency evident in the treatment of other economic topics elsewhere throughout the volumes. In this review I propose to follow the authors' coverage of the field, assessing exposition and filling gaps. Also, I shall abstract recent developments in the analysis of international grants. At the outset let us note that in the 17 volumes of the Encyclopedia there appear four contributions which discuss at some length foreign economic aid in one context or another. Foreign Aid: Economic Aspects by Gerald M. Meier [32, Vol. V, pp. 521-29] is the broadest in scope. Technical Assistance by Francis X. Sutton [32, Vol. XV, pp. 565-76] delves substantively into a more narrowly defined subject. This article in fact focuses only on the above two pieces. Still, it must be acknowledged that the essay on Social Overhead Capital by Henry J. Bruton [32, Vol. II, pp. 287-89) offers a good balanced exposition of the topic. Further, Community Development [32, Vol. III, pp. 169-73) is treated quite clearly by Irwin T. Sanders as the road toward . . conscious acceleration of economic, technological, and social change [p. 169]. Gerald Meier organizes his essay on the economic aspects of foreign aid under the following sections: evolution of aid programs, objectives and magnitude of aid, forms of aid, use of aid, burden of aid, and need for further research. The choice of these particular subheadings, however, fails as a guide to consistent presentation. The author accumulates a wide range of information and does probe relevant issues; nevertheless, the recurrent overlaps and ill-focused labels result in something like the transcript of a casual fireside chat at the World Affairs Club of Middletown. I agree with the author about 90 percent of the time, but that remaining 10 percent causes considerable concern; truly, what he does not say is more the problem. The evolution of aid programs is traced primarily through the actions of the donor countries after World War II. In the United States the Export-Import Bank of Washington has turned increasingly to development loans, the Marshall Plan supported European recovery,

NANCY STOKEY AND ROBERT LUCAS, JR., and Ed Prescott have produced an exceptionally useful, thorough, and timely introduction to stochastic economic dynamics. Dynamic optimization techniques developed in Operations Research, formulated initially by Richard Bellman (1957), have been used extensively in economics, particularly in macroeconomics, finance, and public finance. Economic theorists have extended dynamic programming theory in several valuable directions. Of particular note for this book is the concept of recursive equilibrium introduced in Edward Prescott and Rajnish Mehra (1980). While these techniques have been used extensively, there has been no broad, unified, and comprehensive presentation of the concepts, tools, and applications of recursive dynamic techniques that is written for economists and demands no more mathematics than a typical student is exposed to in a good graduate program. This book succeeds marvelously in filling this need. Furthermore, given the depth of development, it is also a valuable reference for researchers. Before describing the book's contents in detail, we should discuss what is distinctive and important about the recursive approach to dynamic economic problems. To do this, let's examine a simple problem and an alternative approach to its solution. The canonical problem for economic dynamics is the infinite horizon deterministic growth problem. Let k, be the capital stock at the beginning of period t, f(kt) a neoclassical production function expressing period t production as a function of kt, ct consumption in period t chosen at the end of the period, u(c) a concave utility function, and I the discount factor. Then a social planner for this infinitely lived economy will solve the problem

pUBLIC FINANCE iS treated in the new International Encyclopedia of the Social Sciences (IESS) in 14 articles totaling some 74,000 words, exclusive of bibliographies (see the accompanying tabulation). In addition, several biographical articles deal with contributions to public finance made by their subjects. The authors are all scholars of standing, and readers can be confident that the treatment meets accepted standards of professional competence. Rather than commenting systematically on the individual articles, I propose to try to characterize the scope and nature of the coverage of the field, illustrating points by reference to particular articles, and to compare the treatment of public finance in the new encyclopedia (IESS) with that in the Encyclopaedia of the Social Sciences (ESS) which was published in 1930-35. The biographical articles are mentioned but not examined. Finally, I shall venture some remarks on the editorial emphasis of the IESS and the state of the discipline of public finance.

THIRTY YEARS AGO, when Koopmans began to be well known as an economist, he seemed to be a foreigner in a field where his approach to problems was often so different from the prevailing ones. Today a large group of young economists follows his path to scientific discovery. In this respect the book under review is particularly interesting. Not only does it serve as an easy access to articles that appeared in a large number of journals, but it also gives to the careful reader an opportunity to understand the true personality of Tjalling Koopmans, the scientist, and, beyond him, the methodology of modern economics.

Many barriers to the international movement of capital across national boundaries have been dismantled over the course of the last 20 years. Financial integration was greatly enhanced by the removal of capital controls on the part of the United States, Germany, Canada, Switzerland, and the Netherlands after 1973; the recycling of surpluses to developing countries through the Euromarkets in the 1970's; the removal of capital controls in the United Kingdom and Japan beginning in 1979; financial integration among European Community countries, including France and Italy, in preparation for 1992; recent moves toward financial liberalization in smaller countries in the Pacific; and the steady process of technical and institutional innovation that has proceeded around the world. Some popular tests of international capital mobility, however, appear to show anomalous results. Martin Feldstein and Charles Horioka upset conventional wisdom in 1980 when they concluded that changes in countries' rates of national saving had very large effects on their rates of investment and interpreted this finding as evidence of low capital mobility. The argument