Knowledge that Transforms

T1~HIS paper will analyze changes in income velocity from I95I through I957. Velocity changes are, of course, the composite of the various leakages to monetary policy, perhaps best interpreted, in Keynesian terms, as a shift of money from inactive to active balances (dishoarding). Indeed, it could be argued that the large increases in interest rates during the tight money policy of I955-57 served as the incentive to bring into play alternate sources of credit sources which were not directly subject to control by the Federal Reserve. The attempt to cut off the peak via general monetary controls did not prove effective. Under the circumstances, a re-evaluation of indirect controls may be in order. The usual arguments in support of general monetary controls turn on the supposed impersonality of such controls and their compatibility with the principles of democracy and free enterprise. General monetary controls may be defined as those which affect the environment within which individual decisions are made without consciously singling out any particular individual; the impact on individuals depending on the states of individual asset preferences or the changes induced in such preferences by changes in the intensity of general controls. The definition, of course, does not exclude the likely probability that the impact of a change in general controls will be unequal in its effects on different individuals, particularly when differences in individual market power exist. That is, as long as either (i) market power is unequally distributed, or (ii) asset preferences differ, general controls will be selective in their impact. It can be argued, further, that the patterns of asset preferences are not independent of the power constellations in the economy. And if the effects of general controls are not randomly distributed, they must follow the existing channels of power, with the consequence that the power differences are further reinforced. There is no such thing as a neutral monetary policy. An additional point concerns the dilemma of the general controls approach. Monetary policy, by design, does not intervene selectively in particular markets or sectors of the economy. The Central Bank does not have the power, in other words, to encourage expansion in depressed sectors and restrain other sectors or markets where expansion would result in economic disharmonies.' If an excessive rate of growth in one or more sectors of the economy introduces distortions which threaten the stability of the whole, indirect controls, in their general approach, are faced with a dilemma. Either they permit the disequilibrating expansion to continue, or general restraints are introduced which affect other sectors of the economy as well. If these other sectors were initially in a depressed condition, their situation worsens. If, on the other hand, they were expanding at a reasonable rate, they should have been left alone. In either case the results are not conducive to stability. And if general controls have only a minimal effect on the unduly expanding sectors because of their over-riding profit expectations, the net result is worse than if nothing at all had been done. It may be that if monetary policy is to be made an effective instrument for economic stability and growth, direct and purposefully selective financial controls are needed. This, however, is beyond the immediate scope of this paper.

The study led to the following findings about Soviet export prices: (1) Individual Satellite countries experienced different average degrees of price discrimination on Soviet exports. The discrimination effect tended to be stronger for the Balkan countries than for Poland, Czechoslovakia and East Germany. Poland was the only Satellite that enjoyed a continual decline in the degree of Soviet export price discrimination over the period as a whole. (2) In comparison to West Germany, East Germany's terms on Soviet exports were, on the average, consistently unfavorable during the period. (3) Finland and Egypt, two non-Bloc countries with especially close trade ties to the Soviet Union, tended to pay more for Soviet exports than did Free Europe as a whole, but less than the Satellites. (4) Soviet export prices to the Satellites showed sizable year-to-year fluctuations, for individual commodities. But the uneven timing of these fluctuations from commodity to commodity, which was caused by the noted lag effects, tended to smooth out the movements of a general index of Soviet export prices to the Satellites, relative to an index of such prices to Free Europe.

RECENT surveys of population growth in RIndia and the slow progress of the Second Five Year Plan confirm the awful suspicion that India's extra consumer-goods output will be needed for extra population. Some Indians accordingly wonder if the central government should not now institute a program of incentive payments to families that limit births. This would be a logical evolution of schemes already developed in India, where three states and one large private company already offer free vasectomies, sometimes with a bonus, to certain of their employees. Such bonuses, if paid by the central government, could be large in terms of average family income, because the discrepancy between the average and marginal product of population is relatively very great in India. The discounted value to the economy of permanently preventing a birth is at least Rs 500-600, or about twice the value of per capita consumption. It is possible that two voluntary incentive programs one of vasectomies for husbands and another involving three examinations annually of wives for non-pregnancy might reduce births by 24 million over ten years at a resource cost of Rs I2 to i8 crores.' This reduction in births should reduce consumption during the ten years by Rs 750 crores with no loss of production. The possible resource return over ten years is hence about 50 to i. Resources so invested can perhaps raise per capita consumption several hundred times more effectively than if invested in conventional development projects. In this paper a preliminary attempt is made to estimate the value of permanently preventing a birth, to outline one incentive scheme for husbands and another for wives to reduce births, and to assess the impact of these schemes on the economy's resources and the government's finances.2 Threat of Population to Indian Progress

N recent years economists have worked out a considerable number of theories and concepts designed to help explain various types of economic development. These theories and concepts often overlap in analytical content and are not always clearly distinguished from each other. At this stage in research it may be useful to look for general models that encompass several theories. Such a procedure has been found helpful in the study of business cycles,' where the second-order difference equation has provided a general model of which several types of business fluctuations are special cases. Different patterns of cyclical behavior represent different ranges of parameters in the general model. This paper suggests a model -also in the form of a difference equation -which has, as special cases, some, though by no means all, theories of economic development. The model is concerned mainly with types of development that may be called in the sense that they represent relationships between two different economies or between two different sectors in an economy. As examples of dualistic theories, attention is called to a modification of the Hoselitz system of types of development, to a model of Myrdal, and, in a somewhat generalized form, to an argument of Prebisch.

T HIS is second series of Wicksell Lectures which were auspiciously inaugurated in I958 by Robert Triffin's brilliant lectures, Future of European Payments System. Nurkse delivered his first lecture, Contrasting Trends in igth and 20th Century World Trade, in Stockholm on April 7, I959, and second, Economy and Problem of Growth, on April io. He was able to add an appendix, Dynamic Aspects of Trade Theory (summarizing remarks presented for discussion in a seminar at Stockholm after lectures) shortly before his sudden and entirely unexpected death, which occurred on May 6 while he was walking on Mont Pelerin above Vevey in Switzerland. These papers thus constitute last contribution of a distinguished economist of our time whose career was tragically cut short in fifty-second year of his life. And a most important contribution it is to two fields of economics, international trade and economic which he so much enriched in several books and a long series of articles. He had evidently spent much care in preparation of these lectures. They are a gem of genre of economic literature, the combination of history and theory, in which he was a master, and a perfect example of the delicate manner in which he used but did not over-use available statistics as well as his sense for finding balanced proportions between theory and historical facts in interpreting trends of economic development, to quote from Professor Lundberg's moving introduction. In first lecture he contrasts of underdeveloped in nineteenth and twentieth centuries. The nineteenth century method he characterizes as development through international trade, quoting Marshall's dictum, which sounds strange to our ears, that the causes which determine economic progress of nations belong to study of international trade. 1 Nurkse finds role of international trade in stimulating of poorer greatly reduced in our time. Much emphasis is placed upon alleged lag in exports of poorer as compared with total world exports in recent years (I928-54). In my opinion, this theme is somewhat overemphasized. But Nurkse does not fail to mention that such a lag can be found only in exports of poorer and that it is sizable only if oil-exporting are excluded. On other hand, imports of poorer countries, excluding or including petroleum exporters, have risen faster than world imports. The gap between exports and imports reflects, of course, larger capital imports into poorer areas. It is undoubtedly true, however, that in mid-twentieth century the world's industrial centers . . . are not exporting their own rate of growth to primary producing at same rate as in earlier periods. The most important reason for this difference is, it seems to me, lack of massive emigration from Europe in our time. This fact is only hinted at in present lectures, but Nurkse dwelt on it in other publications.2 The underdeveloped and rapidly-developing in nineteenth century were countries of recent settlement (Hilgerdt), which received capital and skilled labor in large quantities from Old World. Today's underdeveloped cannot expect (or do not want) large immigration to speed their development. There are, however, a few exceptions. Some in Latin America had a chance immediately after World War II to get large numbers of European immigrants. But nationalistic policies prevented them from making use of this unique opportunity to accelerate their rate of growth. In second lecture three patterns of are distinguished: (i) growth through exports of primary products, (2) growth through exports of manufactured consumer goods, and (3) expansion of output for domestic markets. * Patterns of Trade and Development. Wicksell Lectures I959 (Stockholm, Distributors: Almquist & Wicksell) by Ragnar Nurkse with an introduction by Eric Lundberg. 63 pages. 'Principles (8th edition), 270. 2 E.g. in International Investment To-day in Light of Igth Century Experience. The Economic Journal, December, 1954.

HE purpose of this paper is to explore T the effects of variations in employment on family and aggregate consumption. The results illustrate a general thesis that the effects of income variation on consumption expenditures depend on the sources of such variation. This is true in cross-sections as well as in time series, even though the major factors related to changes of income over time are not equally important as determinants of income differences at a point of time, and conversely. Growth of productivity is, of course, the essence of long-run changes in real per capita income, and fluctuations in amounts of factor inputs, particularly labor, dominate the short-run changes in income. In a cross-section, a long list of factors responsible for differences in income can be named, and, once again, differences in the degree of employment among individuals and families play an important role. For purposes of emphasis and brevity, we shall abstract from other factors in tracing the effects of the employment variable. Note that the degree of employment of members of a consumer unit observed in a given short period (say, a year) is a very unreliable indicator of the unit's longer-run income position, compared with other income-determining characteristics, such as education, occupation, property ownership, or even age (experience). This observation points to an obvious way of introducing the employment factor into consumption analysis. This is achieved by a special interpretation of the theory according to which a family's aggregate consumption is determined by its income.' As a first approximation, we may define expected or income as the income which a family receives per unit of time during which its labor input is normal.2 This definition is likely to be quite satisfactory for analytical purposes, if we restrict ourselves to the wage-earning group, particularly the unskilled. If we include the whole range of skills up to the highly trained professions in our population, we must take account of another factor which makes for a difference between current and expected income, namely changes in income with age3 (experience), quite apart from the effects of variations in employment. These age-changes are more pronounced the higher the skill level of an occupation, so that in the top occupation groups (professional and managerial) they are much more important than employment changes in distinguishing between current and expected income. Thus, in each individual case the previously defined measure of expected income should be corrected upward whenever the individual is located on the upward phase of his age-income curve, the correction being larger the steeper the curve, and conversely. In the case of income from self-employment or from property, expected income is best identified with normal returns in a given industry, and the differences between current and expected income are cyclical for groups as well as both random and age-associated for individuals. Let us now specify a model of consumption behavior along the lines of expected income theory, using this particular approximation of the concept of expected income. Because of its commitment to a different interpretation of expected income, the Modigliani-Brumberg model is not useful in the present context. While Friedman's framework is more appropriate, some of its assumptions which the deliberate non-specificity of the concept of permanent income made possible will be changed to suit the purposes at hand. It is of interest to note that the modifications do not involve complica* This paper was presented at the Boston meetings of the Econometric Society, August I958. Research embodied in it was carried out as part of the Rockefeller Foundation Consumption-Income Distribution Research Project at the University of Chicago. The author is indebted to Dorothy S. Brady and Margaret G. Reid for valuable comments. 'As expounded by Friedman in A Theory of the Consumption (Princeton, I957); and by ModiglianiBrumberg in Utility Analysis and the Consumption Function in Post-Keynesian Economics, ed. K. Kurihara (New Brunswick, I954). 2 We abstract from property income throughout the analysis. 'Reference here is made to age and occupation of the family head.