Knowledge that Transforms

When any expensive machine is erected, the extraordinary work to be performed by it before it is worn out, it must be expected, will replace the capital laid out upon it, with at least the ordinary profits. A man educated at the expense of much labor and time to any of those employments which require extraordinary dexterity and skill, may be compared to one of those expensive machines. The work which he learns to perform, it must be expected, over and above the usual wages of common labor, will replace to him the whole expense of his education, with at least the ordinary profits of an equally valuable capital. It must do this, too, in a reasonable time, regard being had to the very uncertain duration of human life, in the same manner as to the more certain duration of the machine.2

T HIS paper contains a model that emphasizes the intimate connection between interregional trade and the location of economic activity. The author has blended input-output and linear programming techniques in order to achieve substitution and optimization within a general equilibrium framework. What emerges is a multi-region, multi-commodity, empirical study in comparative advantage. To the author's knowledge, it is the first such study. The Census regions of the United States are the areas analyzed. However, the model can be applied to most groupings of regions for which transfer costs rather than artificial restrictions are the major impediments to trade. It also seems likely that a related approach could contribute to understanding the problems of adaptation which confront members of the European Common Market and other contemplated economic unions. As mentioned above, the model synthesizes two approaches to interregional analysis: linear programming as applied to transportation problems, and regional input-output methods. These two techniques have been applied to quite different problems in the past. Three things are taken as given in the typical linear programming transportation study: (i) quantities of a specified good that are available at a number of originating points; ( 2) quantities of the good that are required at a number of destinations; (3) the cost of transporting a unit of the good from each origin to each destination. The problem is to find a network of trade which will satisfy the requirements with a minimum total expenditure on transportation. Thus, the transportation model concentrates on an individual good and sDecifies nothingz so far as interindustry relationships are concerned. It begins with known regional production and consumption and determines the network of trade for a specified good. Regional input-output techniques emphasize the interconnections between industries. Their aim is to determine outputs and requirements of all goods in all regions. To accomplish this, these studies have found it necessary to make assumptions regarding patterns of trade. In one way or another they have treated trade patterns as a datum. It is precisely this aspect of regional input-output analysis that is changed in the present study. Trading patterns as well as regional outputs and requirements of all goods are determined. The model involves the introduction of alternative production techniques and substitution into input-output analysis. This substitution takes place between regions. However, the model can be adapted to permit substitution between industries and between different technological layers of the same industry. The paper is divided into three sections. The first contains a description of the basic model. The second contains a brief explanation of the data and computational difficulties and how these difficulties were overcome by making adjustments in the model. The final section contains some of the empirical results and an analysis of these results. Thus, the first section will help the reader to comprehend more readily the empirical analysis and the reasons behind some of its restrictive assumptions. It also brings to light certain important issues which the empirical analysis must ignore. The second section, on the other hand, will help the reader to understand the process whereby the conceptual scheme was converted into an empirical study.

George F. Bennett, Some Examples of Experience with Growth Stocks, The Review of Economics and Statistics, Vol. 42, No. 3, Part 2. Higher Education in the United States: The Economic Problems (Aug., 1960), pp. 222-223

N this paper the distribution of before-tax income among consumer units in ten other countries is compared with that of the United States, and an attempt is made to explain the differences that are observed. The comparisons are made by selecting, from the relative wealth of American data, distributions that match those for other countries as closely as possible with respect to the strata of society covered, the concept of the incomereceiving unit, the definition of income, and general technique (e.g., whether tax returns or sample surveys or both were the basic source of information). The results are presented in a highly summarized form in Table i. The measures of inequality, the source materials, the way in which different bodies of data were matched, and the biases affecting particular comparisons are discussed in detail elsewhere.' Although we shall summarize some of the general sources of bias affecting the comparisons, our main attention in this paper will be devoted to the explanation of international differences in equality. While the comparisons in Table I still contain unknown margins of error, it seems likely that Denmark, Israel (Jewish population only), and the Netherlands have less inequality than the United States (with more certainty about Denmark than the others); Great Britain, Japan, and Canada about the same degree of inequality (with the first probably having a little less and the last a little more inequality than the United States); and Italy, Puerto Rico, Ceylon, and El Salvador more inequality than the United States (in most probable order of increasing inequality). The position of the last four countries tends to confirm the results of earlier comparisons indicating greater inequality in underdeveloped countries than in developed ones.2 Indeed, the remaining biases in the comparisons probably work in the direction of understating the relative equality in the distribution of income in the United States vis-a-vis the other countries, and, more generally, in the developed vis-a-vis the underdeveloped countries. Among the factors that tend to bias the comparisons so as to underestimate the extent to which the underdeveloped countries have less equality are (i) the frequent inclusion of non-money incomes in the data of developed countries and their exclusion in many distributions of the undeveloped countries, (2) the possibility that the lengthening of the accounting period beyond one year might reduce inequality more in the developed than in the underdeveloped countries, (3) the effect of old age pensions prevalent in the rich but not in the poor countries -in splitting off older individuals from units containing economically active persons and thus increasing the relative number of lowincome units in the rich countries, and (4) the likelihood that high incomes tend to escape measurement to a greater degree in underdeveloped countries which tend to have less efficient tax administration. The major factors working in the opposite direction are (i) the omission of incomes accruing mainly to high income units in the form of capital gains, expense accounts, and other tax-free forms, and (2) the existence of international differences in price structure of such a character that interclass differences in prices reduce the observed inequality in the distribution of money incomes more in poor than in rich countries. Considering the varied aspects of inequality measured by our five indexes, the results ' See Chapter VII of the author's Structure of Income, a forthcoming volume in the monograph series of the University of Pennsylvania's Wharton School Study of Consumer Expenditures, Incomes and Savings. The Study has been supported by a grant from the Ford Foundation. The author wishes to acknowledge helpful comments on an earlier version of this paper made by R. A. Easterlin, I. Friend, L. R. Klein, and S. Kuznets. Mr. Manoranjin Dutta did the statistical work. 2T. Morgan, Distribution of Income in Ceylon, Puerto Rico, the United States and the United Kingdom, Economic Journal, LXIII (December I953), 82I-34; and S. Kuznets, Regional Economic Trends and Levels of Living, F. M. Hauser, ed., Population and World Politics (Glencoe, Ill., I958), 79-II7.