Knowledge that Transforms

MILTON FRIEDMAN AND ANNA SCHWARTZ Monetary Trends reports a great many findings-53 are enumerated in the introduction-but paramount is the stability of the demand for money in the US and Britain over the past century. The money stock controls money income. This proposition more than anything else is the point of their painstaking investigation. Friedman and Schwartz argue against what might neutrally be called the early post-war view of the macroeconomic role of money: Velocity will move easily to reconcile any level of nominal income to any money stock. The demand for money in this view is a will-o'the-wisp, as the authors put it. Monetary policy has little influence over real activity; stabilization policy necessarily relies on fiscal instruments. The volume is completely convincing in disposing of this idea; today's reader is likely to be puzzled why so much space is devoted to a view that has no serious adherents among professional economists. Friedman and Schwartz are generals fighting an earlier war, a situation accentuated by the long lags in putting this volume into print. Though the opposing armies fighting for the early postwar view have withdrawn in total rout, a new front has opened up, and the quantity theory is fighting for its life once again. Worse yet, the new armies are fighting under the banner of free-market economics and are led by former colleagues and students of Milton Friedman. The midwest, once the stronghold of the quantity theory, is now largely occupied by the enemy. The new monetary economics views the quantity theory as nothing more than an artifact of government regulation. An economy organized along free-market principles could function without money at all (Fischer Black, 1970). It is true that the kinds of monetary regulations imposed by the American and British governments of the past century create a more-or-less stable relation between a certain class of assets called money and nominal spending (Eugene Fama, 1980), but different regulations would alter that relation. Even the real bills doctrine, anathema to quantity theorists because it invites unlimited expansion of the money supply, has advocates in the new school (Thomas Sargent and Neil Wallace, 1981). monetary system where the government is unconcerned about the money stock has been advocated by a University of Chicago economist while visiting the Hoover Institution (John Bilson, 1981). Restoring the intrinsic value of money, not limiting its quantity, has been found to be the key to successful disinflation by one member of this group (Sargent, 1982). critical summary, titled A Laissez Faire Approach to Monetary Stability, written * See p. 1528, above, for publication information.

The author reviews and evaluates Beckers A Treatise on the Family which concerns (a) the allocation of roles and resources and distribution of income within families; (b) the formation dissolution growth and structure of families and (c) the implications of these analyses for inequality and social mobility. In the present paper Beckers approach and substantive conclusions regarding the role of theory and empirical evidence in the study of economics and the family are critically examined. It is suggested that while Beckers discussion is a source of many useful insights the theory does not attempt a systematic treatment of the transition from traditional to modern types of family. (EXCERPT)

Each of 2 Universities-National Bureau of Economic Research Conferences on demographic economics held in 1958 and in 1976 resulted in a volume of essays with great significance for those working in demographic economics. Both are discussed for the 2 sets of essays do much to illustrate what the subdiscipline is doing and neglecting. The 1st dealt nominally with more developed countries and the 2nd purportedly with less developed countries. During the 1st period the dominant idea was neo-Malthusian with emphasis on demographic performance as a consequence of economic progress although in which direction (more children and sooner or fewer children and later) was in part a matter of choosing between the Becker/Mincer formulation of opportunity costs of parenthood and the Easterlin formulation of satisfaction with oneself or alternatively a fear that prosperity was effectively bounded. The book of the 2nd conference includes 9 essays plus a brief introduction by the editor. Each of these essays is reviewed briefly. What is most impressive about this volume are the preferences for the Iron Law of Wages/neo-Malthusian approach -- economic progress leads to demographic response and not the other way around.

PRICES AND QUANTITIES iS the brilliant and disturbing last work of Arthur M. Okun (1928-1980). For more than a decade Okun was the foremost practitioner of macroeconomics in the United States. His critical intelligence at both the theoretical and empirical ends of economics was unsurpassed. These facts were virtually a manufacturer's warranty that the book, whatever its argumentation and evidence, would be significant; we want to know what Okun thought. But this background was no guarantee of an important treatise, and it must have taken some courage to venture a big theoretical work, in an accessible style, on urgent questions. In fact, Okun has delivered a creative and virtuosic study in economic theory. The book's contribution is to provide a complete description of an economy in which rational economic agents consider the distributional consequences of wage and price decisions. The perspective adopted, one which is winning growing favor of late, is contract-theoretic. Because they wish to economize on their costly transactions with one another, people trade repeatedly with the same agent; so trust and fidelity to understandings are important. The ensuing analysis lodges some basic dissents from the informational-expectational paradigm developed over the last score of years. It is particularly stimulating, and troubling, on the main policy controversy of the decade, the question of disinflation.

For helpful comments on earlier drafts, we thank, without implicating, Moses Abramovitz, Yves Balcer, John Bishop, Alan Blinder, Richard Burkhauser, Michael Darby, Irwin Garfinkel, Alan Gustman, Daniel Hamermesh, Martin Holmer, George Jakubson, Robert Lampman, Paul Menchik, Robert Moffitt, Michael Murray, Joseph Quinn, Timothy Smeeding, Eugene Smolensky, Barbara Wolfe and two anonymous referees.