Knowledge that Transforms

This paper estimates a model specifying the determinants of trade credit in the United States total manufacturing sector for the postwar period. Trade credit is considered as a selling expense, like advertising outlays. Its determinants are derived from a profit maximization model in which the price, volume of output, and the selling costs are all variables to be jointly determined. The opportunity or cost of accounts receivable and accounts payable are specified and the response of these accounts as well as net trade credit to changes in various monetary decision variables is examined. TRADE CREDIT HAS been a major and growing source of finance in all sectors of the United States economy since World War II. Its volume and widespread use have not been matched by any other kind of business financing. Yet trade credit, like other components of working capital, has received little attention in the literature. One reason for this neglect is that trade credit is buried in the distribution activity of the firm, and sorting out the complex institutional factors that influence its behavior is extremely difficult. The few available studies on the subject have been concerned primarily with assessing the response of trade credit to changes in monetary policy. Rarely has attention been given to developing an optimal model of trade credit based on the theory of the firm, to specifying the opportunity cost of extending or receiving trade credit, or to incorporating the influence of changes in the monetary policy instruments on the optimal level of trade credit. In this paper we attempt to analyze these three problems. The brief discussion in Section 2 introduces the issues. The theoretical framework for the study is sketched in Section 3. In Section 3a, the concept of opportunity or user costs of accounts receivable and payable is developed. The relationship and response of these forms of trade credit to changes in monetary policy are discussed in Section 3b. The adjustment process is formulated in Section 3c. The empirical results of the model for accounts receivable, accounts payable, and net trade credit, i.e., the difference between accounts receivable and payable, are presented and analyzed in Section 4. The paper is concluded with a summary and an appendix describing the data sources and definitions of the variables used in the study.

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A mixed model of regression with error components is proposed as one of possible interest for combining cross section and time series data. For known variances, it is shown that Aitken estimators and covariance estimators are in one sense asymptotically equivalent, even though the Aitken estimators are more efficient in small samples. Turning to unknown variance components, Zellner-type iterative estimators are compared with covariance estimators. Here, few small sample properties are obtained. However, it is shown that covariance and Zellner-type estimators have equivalent asymptotic distributions and equivalent limits of sequences of first and second order moments for weakly nonstochastic regressors. For the model analyzed, the theoretical results obtained, as well as ease of computation, tend to support traditional covariance estimators of the regression parameters. An additional interesting result presented in an appendix is that ordinary least squares estimates of the fl's (ignoring the error components) have unbounded asymptotic variances. On efficiency grounds, this argues rather strongly for some care in combining data from alternative sources in regression analysis.

This landmark text by Paul Baran and Paul Sweezy is a classic of twentieth-century radical thought, a hugely influential book that continues to shape our understanding of modern capitalism.

We begin by considering a simple model of accumulation, with a linear savings function, a constant reproduction rate, homogeneous labor, and equal division of wealth among one's heirs. In such an economy, if the balanced growth path is stable, all wealth and income is asymptotically evenly distributed, with the possible exception, in the case of negative savings at zero income, of a group with zero wealth. In the process of accumulation, there may, however, be a period during which wealth becomes less evenly distributed. We then show that the basic conclusions are unaltered under a variety of alternative savings assumptions, where savings is a function of wealth or of the distribution of income, or where savings is a nonlinear concave function of income, and that variable rates of reproduction make no difference at least to the asymptotic results. The effects of alternative taxes on the speed of equalization are investigated in Section 4, and in Section 5 we consider a simple example to see the order of magnitudes of time that are involved in the equalization process. In the remaining sections of the paper, we investigate the forces for inequality:

SOME DISCUSSION has arisen recently as to whether the imposition of an entrance fee on arriving customers who wish to be serviced by a station and hence join a waiting line is a rational measure. Not much of this discussion has appeared in print; indeed this author is aware of only three short communications, representing an exchange of arguments between Leeman [1, 2] and Saaty [3]. The ideas advanced there were of qualitative character and no attempt was made to quantify the arguments. The problem under consideration is obviously analogous to one that arises in connection with the control of vehicular traffic congestion on a road network. It has been argued2 by traffic economists that the individual car driver on making an optimal routing choice for himself-does not optimize the system at large. The purpose of this communication is to demonstrate that, indeed, analogous conclusions can be drawn for queueing models if two basic conditions are satisfied:

There occurs on some occasions a difficulty in deciding the direction of causality between two related variables and also whether or not feedback is occurring. Testable definitions of causality and feedback are proposed and illustrated by use of simple two-variable models. The important problem of apparent instantaneous causality is discussed and it is suggested that the problem often arises due to slowness in recording information or because a sufficiently wide class of possible causal variables has not been used. It can be shown that the cross spectrum between two variables can be decomposed into two parts, each relating to a single causal arm of a feedback situation. Measures of causal lag and causal strength can then be constructed. A generalisation of this result with the partial cross spectrum is suggested.

V OLUME ONE is dedicated to 'Four Generations of Students in Columbia College, and nonappearance of a proposed third volume was perhaps due to Harry Carman's added duties after he became, in preconfrontation days, very popular Dean of College. The reappearance of his History is a welcome event and offers an occasion to reflect on changes since its publication in American economic history. Even in their day these volumes did not purport to be economic history in strict sense. The title reads 'Social and Economic, and addition of Intellectualr would have been entirely appropriate. There was already a substantial corpus of professional work in American economic history. Guy Stevens Callender's Selections from Economic History of United States, 1765-1860, with its still unsurpassed analytical introductions, had appeared as early as 1909. The first edition of Harold Underwood Faulkner's American Economic History was published in 1924 and its second in 1931. Edward C. Kirkland's admirably written History of American Economic Life came out first in 1932. Of major texts written by economists, Ernest L. Bogart's Economic History of United States, with its particularly clear analyses of trade relationships, appeared in 1930. Although Chester W. Wright did not bring out his text until 1941, most of its material, including a wealth of statistical tables and his analyses of standard of living at various periods, was available to his students at Chicago as early as 1920. These books, indeed, and numerous monographs cited at ends of Carman's chapters, show how much of factual knowledge of American economic development, if not its theoretical analysis, was already at hand in early 1930s. With this background Carman book describes various sectors of economic activity with a full knowledge of techniques and processes, with a wealth of human detail drawn from contemporary sources, and with a firm grasp of geographic and economic determinants of regional specialization. The chapter on The Colonial Farmer is particularly brilliant. Much of work is devoted to play of economic forces in political life. Two chapters are given to American Revolution and a third to making of Constitution. Mercantilist restrictions are regarded as foremost among causes of Revolution, and in both these struggles, Carman follows Beard in discerning a sharp cleavage between propertied-business men and common people. Similarly, two chapters are devoted to Civil War and the sectional rivalry leading to that * Harry J. Carman. Social and Economic History of United States, volume I, From Handicraft to Factory, 1500-1820; volume II, The Rise of Industrialism, 1820-1875. New York: D. C. Heath & Co., 1930, 1934. Reprinted New York: Johnson Reprint Corporation, 1968. Pp. xii + 616; x + 684, 2 vols. $47.50.