Knowledge that Transforms

controls, has found many advocates. The idea of employing OPA methods of price control without rationing would be patently stupid. The establishment of maximum prices which are below free market prices and not coupled with official rationing would create a strong excess demand and would force distribution of the goods to be accomplished through private rationing techniques of retailers favoritism or through first-come-first-served techniques standing in lines or through secret price premiums black markets. Hence, rationing by the government would have to be introduced in order to permit an orderly distribution of the commodities, which would all be scarce at prices fixed below the free market level. In peacetime, without the strong feeling of urgency in the striving for a universally accepted goal, such a system would provide increased incentives to consume the goods, reduced incentives to produce them, increased incentives to break the law, increased incentives to enforce red tape, increased incentives to use arbitrary power and restrict individual freedoms. It would be a disequilibrium system, making shortages and excess demand a chronic condition, without hope for correction and with increasing difficulties of enforcement. It is not intended here to oppose rationing of anything under any circumstances. One may make a plausible argument for resorting even in peacetime to direct controls for a few selected things under very specific circumstances; to wit, (i) if the object of control is a necessity (such as bread, not meat), (2) if the elasticity of its supply in the short run is practically zero, (3 ) if the elasticity of demand for it is very low, and (4) if it can be reasonably and safely expected that the will be over soon, for example, because demand at the controlled price will greatly decrease or supply greatly increase in the very near future. One may conceivably even argue, although less plausibly, for a general price reduction scheme with general rationing if there is evidence that the reduced prices will within a very brief time be the equilibrium prices owing to an imminent decline in demand or increase in supply. No sound argument, however, has thus far been presented to justify direct controls to enforce a general roll back of prices if neither a decline in demand nor an increase in supply is in sight. From this point of view, the United States is not in an emergency expected to pass quickly. We cannot expect a drastic reduction in demand in the near future nor do we wish for it -and production is now at a rate as high as we can possibly maintain.

THIS paper aims at clarifying existing similarities and differences in the field of national income statistics in six English-speaking countries.' The discussion proceeds in three stages. First, the general lines of development and the present status of national income research in the several countries, as reflected in their latest official publications, are described. The definition of national income employed in each country is then examined in detail, and particular attention is focused on areas of disagreement. Finally, the estimates of national income based on the respective national definitions are adjusted to show national income according to a common definition. In the last year, four new official national income publications have been issued in Engglish-speaking countries. These publications not only present revised estimates of national income and related aggregates but, more important for our purpose, bring to light the recent changes in definitions and methodology adopted by national statistical authorities. The most comprehensive of such publications is National Income and Product Statistics of the United States, I929-46, issued as a Supplement to the Survey of Current Business, July I947. This publication presents revisions of the basic aggregates, largely the result of important changes in the treatment of certain items, and at the same time integrates the entire body of national income statistics within a framework of social or national accounts 2 covering the major sectors of the economy. The other publications make a less dramatic break with the past, and the revisions shown do not stem primarily from changes in definition. National Income and Expenditure of the United Kingdom, I938 to I946, prepared in the Central Statistical Office, differs from the preceding White Paper on the subject chiefly in that a system of social accounts for the years I938 and I946 is appended. The Australian paper, National Income and Expenditure, I946-47, also differs from its predecessor mainly in that a simplified system of social accounts for two years is shown. The Canadian publication of the Dominion Bureau of Statistics, National Accounts, Income and Expenditure, I938-I946, which presents some new breakdowns, notably of personal expenditure, reveals no striking departures from preceding publications, and must be studied in connection with its forerunner of a year ago which contained much fuller notes and explanations.3 Two other English-speaking countries which can conveniently be dealt with here are Eire and New Zealand. As of this moment, no successor to the Eire publication, National Income and Expenditure, I938-I944, has appeared. New Zealand still does not publish estimates of national income but makes use of private a concept related to private income as used in most other countries.4 While the year to year variations in aggregate private income probably afford a reasonable guide to changes in national income, aggregate private income undoubtedly understates national income. ' United States, Canada, United Kingdom, Eire, Australia, and New Zealand. For a broader survey and analysis covering all countries, together with an account of the national income work being carried on in the Statistical Office of the United Nations, see The Comparability of National Income Statistics (mimeographed) by Dr. J. B. D. Derksen, a paper presented at the International Statistical Conferences held in Washington, D. C. in September, I947. The present author wishes to acknowledge his indebtedness to the National Income Section of the Statistical Office, and in particular to Dr. Derksen. The views expressed in this paper are, of course, not to be construed as binding on the Statistical Office. 2 Editorial note. For a discussion of this publication, see pp. I5I-I97, above. 3 Since the above was written, preliminary figures for I947 have been made public in a two-page pamphlet National Accounts, Income and Expenditure, Preliminary,

( OMPARATIVELY little is known of the a'.4 degree to which income concentration has changed in the United States, either secularly, or from prosperity to depression.2 Even less is known of how these shifts are related to variations in the proportion of income arising from property ownership or from personal exertion, or to other economic movements less directly related to income distribution. A knowledge of the mechanics of income distribution is of obvious importance for all policy-making purposes, but as yet we are unable to describe adequately the processes which have made our distribution what it has been in the past, and much less able to predict the future. Aside from the Census samples for I944, I945, and I946 and the Federal Reserve studies for I946, I947, and I948, Statistics of Income, tabulated as a by-product of income tax reporting, is the only source giving distributions of income by size for successive years or periods on a national basis. As is well-known, however, separate reporting by husbands and wives makes it difficult or impossible to interpret taxable incomes in terms of income of families. Furthermore, taxpayers' incomes lie in the upper range of the entire income distribution. Despite these limitations, Statistics of Income has been used as the source for the following analysis, which attempts to relate shifts in the magnitude or size distribution of the principal components of income to changes in the concentration of the total in several selected years. A number of studies of the income tax data have been made by various analysts for the purpose of inferring changes in the entire income distribution from that of the upper income groups. These studies have assumed that an increase in equality among the wealthy is symptomatic of a general movement toward greater equality.3 This will not be true, however, if the decrease (or increase) in concentration of incomes among the upper income groups arises from a general shift in money incomes accompanied by a change in the numbers having incomes above any given money level. An income level which in one year may indicate the lower limit for the top one-half of the income recipients may in another (lower) income year show the lower limit for the top one-third. In I933, for example, 332,000 income reclpients reported net incomes of $s,ooo or over, while the same number of recipients, cumulating from the top down, had incomes in excess of $II,ooo in I929 and in I942. A shift in the concentration of income lying above any given money level from year to year consequently carries no implication as to the direction of change in the entire income distribution. The conclusion is simply being drawn for a different segment of the distribution. The following analysis departs from usual practice by constructing distributions for groups whose income comprises a given top fraction namely, the top I2 per cent of the national income, rather than for groups whose income lies above a given level. This does not imply that the distribution for the top I2 per cent is typical for the whole range of incomes; however, the method described may be applied to the entire range when more data are available. Twelve per cent of income recipients represents the largest fraction which could be shown for the years selected (I929, I933, I940,

T HE Keynesian concept of liquidity-preference is not a single idea, but like a prism has several facets. The views produced by a prism depend on the way it is turned and whether it is in motion or perfectly still. Users of the concept of liquidity-preference, like a person with a prism in his hand, may unconsciously turn it around and produce confused and changing images when they are seeking precision and clarity. This kind of effect appears to have been produced by Mr. James Tobin in his article, Liquidity Preference and Policy. ' However, the problem which Mr. Tobin attempts to clarify changes in the desire to hold cash balances, and their bearing on the effectiveness of monetary policy in maintaining or expanding money national income is one which needs the best possible illumination. In this article I propose to examine four aspects of this problem. First, I shall distinguish between the three chief facets of the concept of liquidity-preference, and show that failure to recognize the differences between these concepts has led Mr. Tobin, as well as his predecessors, into an ambiguity in his discussion of the L function, expressing the demand for cash balances as a function of the rate of interest. Along with this discussion I shall mention some inadequacies in the Keynesian analysis which have an important bearing on Mr. Tobin's presentation or on his criticism of my views. Second, I shall elaborate the nature of the liquidity-preference assumption underlying my Monetary Theory of Deficit Spending, 2 inasmuch as Mr. Tobin's presentation of my view is inaccurate. Third, I shall examine the statistical data used by Mr. Tobin to support his position, and present some additional data bearing on the problem. Fourth, I shall add a few comments on the aims and techniques of monetary policy.