Knowledge that Transforms

( N THE OCCASION of Lloyd Metzler's sixtieth birthday in 1973, the economic profession received two presents, one a collection of Metzler's papers [23, 1973], the other a volume of essays in his honor [24, 1974]. It is impossible to write a meaningful review of two volumes like these, and it would be presumptuous for me to try. I shall thus limit myself to a brief characterization of each volume and then concentrate on what is probably Metzler's most influential paper, Wealth, Saving, and the Rate of Interest [21, (1951) 1973], trying to evaluate its contribution after another quarter-century of macroeconomic theory. The Collected Papers, 24 in number, are said to include nearly all of Metzler's scientific articles. Of those listed in the Index of Economic Articles only one, a note on the effects of income redistribution published in the Review of Economics and Statistics, is missing. Three papers, all apparently written around 1962-63, were not previously published. One considers the transfer problem for the case of imported raw materials, another one discusses the significance of the tax system for the wealth effect, and the third explores the implications of partial adjustment for the stability of inventory cycles. A fourth paper, also described as previously unpublished, has, in fact, appeared before. Flexible Exchange Rates, the Transfer Problem, and the Balanced-Budget Theorem can be found in the Rivista Internazionale di Scienze Economiche e Commerciali, April 1966, and it is also listed as a contribution to the festschrift for Marco Fanno. Among the papers that remain unpublished seems to be the third chapter of Metzler's dissertation. The original texts are said to be lightly edited for consistency, which at least one reader regrets. The foreword, signed by Alice Bourneuf, Evsey Domar, Paul Samuelson, and Richard Caves, offers a concise characterization of each paper and its place both in Metzler's work and in the history of its subject matter. In earlier periods, the landmarks of scientific progress were Great Books like the Wealth of Nations, Ricardo's Principles, Marx's Capital, and Keynes's General Theory. However, as the progress of science manifests itself increasingly in journal articles, a selective library of important contributions will consist more and more of collected essays. Such a library will be deficient without Metzler's collected papers. The profession is indebted to the editors for their publication. The 22 essays in honor of Lloyd Metzler, edited by George Horwich and Paul A. Samuelson [24, 1974], range over all four fields of Metzler's own contributions, namely international trade (Ronald W. Jones, John S. Chipman, Harry G. Johnson, M. June Flanders, Joanne Salop, and Akira Takayama), mathematical economics (Kenneth J. Arrow; James P. Quirk; Murray C. Kemp and Henry Y. Wan, 84

The Report of the is of necessity a somewhat schizophrenic document. This is so because the Employment Act of 1946 (which called it into being) ordains that it seek to serve two purposes that are not entirely compatible. On the one hand, it is an apology for the President's economic program, prepared by the and a Council of Advisers appointed by him for no fixed term. In this role, it seeks to show that the economic policies of the and his party will be successful (and, if the incumbent president has already been in office for a year or more, have already begun to be successful) in solving the grievous problems created by the foolish mistakes made by the other party when it was last in power. On the other hand, it is a professional economic report on the American economy and related public policy, prepared by three leading professional economists. These three economic advisers are chosen from among those who have devoted their previous careers (and will in all likelihood devote their subsequent careers) primarily to teaching and/or research in economics. In this role, the Report seeks to present to the Congress and the public an analysis that is competent by the standards of the economics profession, describing and assessing the present state of the American economy, how it came to be the way it is, and how it can and cannot be changed by public policy especially at the federal level. I believe this schizophrenia is unavoidable, unless the rules are changed either so that the has no professional economists as advisers, or so that an independent body of professional economists is constituted and charged with issuing reports on the economy and public policy without being responsible to any elected official. Neither of these changes in the rules would be desirable. The first would deprive the President, the Congress, and the public of the competence and discipline offered by professional economic standards. The second would divorce the President's economic advice from the different but equally important discipline of the political arena. The 1973 Report, like its predecessors from 1949 onwards, consists of three very different components. The first is the Economic Report of the President proper, addressed to the Congress and signed by the President. Mr. Nixon's 1973 report, like his 1972 report, is just 5 pages long. The second is the Annual Report of the Council of Advisers, addressed to the and signed by the Council. The 1973 version, by Herbert Stein, chairman, Ezra Solomon, and Marina v.N. Whitman, is 174 pages long, including two appendices. It is in this second part that the schizophrenia is most evident. The third is a statistical Appendix, con* The Johns Hopkins University. I am indebted to my colleagues, Louis Maccini and Jurg Niehans, for valuable comments on an earlier draft, and to Mary Anne Matthews for drawing Figure 1.

2 Of the many frustrations of any editor, surely, avoidable delay is the greatest. And this frustration is almost infinitely compounded when in the interim an unexpected death occurs. Professor Ferguson sent this manuscript as a draft; certain questions which he raised in the accompanying letter would normally have been resolved in the exchange of two or three letters or 'phone calls. I placed one call to learn he was ill; rather than press the query, I delayed. When next I 'phoned, I was shocked to learn of his completely unexpected and therefore all the more untimely death. Because the draft he sent contains so much of his own style and vigor, I have elected to print it in this incomplete form. The points he raised in his letter remain unclarified. In the face of this series of events, I have asked Professor Nell to undertake the task initially given to Ferguson. The two rarely saw things in the same way. Thus, the choice of Nell was not intended to finish Ferguson's incomplete assessment. I mention the foregoing simply to explain the unique treatment in these review essays. Of Charles Ferguson's death so little can be said-he was an ebullient souil, and a man of significant originality. -M. P.

AXEL LEIJONHUFVUD has recently provided us with an insightful and refreshing reappraisal of the so-called revolution in his On Economics and the Economics of Keynes [8, 1968]. In light of the significance and importance of this book, it is disappointing that, although the reviewers have been very complimentary, the published discussion seems to have offered little in the way of critical evaluation of Leijonhufvud's arguments. This paper attempts to remedy this situation. Leijonhufvud argues convincingly that popular Keynesianism, as well as its offspring, the so-called neoclassical synthesis, does not have an adequate choice-theoretic, i.e., microeconomic, basis. This view seems to be finding wide and warranted acceptance. In addition, Leijonhufvud argues that, although this defect pervades popular Keynesianism, it does not characterize Keynes' own writings. Leijonhufvud suggests that Keynes himself would have been unsympathetic with the development of popular Keynesian macroeconomic theory. This paper argues, to the contrary, that this latter contention is not consistent with a complete and careful reading of the General theory. My analysis will suggest that Keynes' thinking was both substantially in accord with that of his popularizers and similarly deficient. Leijonhufvud's argument emphasizes the interpretation of the consumption function developed by R. W. Clower in his The Counter-Revolution: A Theoretical Appraisal [3, 1965]. I certainly accept Leiionhufvud's contention that Clower's conception, which is discussed more fully below, provides the choice-theoretic basis for macroeconomic theory, which popular Keynesianism lacks.' However, Leijonhufvud also suggests that Clower's conception may be attributed to Keynes himself.2 This latter is the hypothesis at issue. Leijonhufvud can point to no specific content in Keynes' writing which explicitly supports this attribution. His argument (pp. 91-102) seems to amount to the following: Keynes' discussion is dreadfully confusing, but Clower's interpretation offers the only conceivable way to make sense of it.3 Therefore, Keynes must have had Clower's idea in mind. My analysis will focus upon Keynes' treatment of the demand for labor services, a part

FOR THE past 45 years, the Institute of Finance of the Graduate School of Business Administration of York University has been releasing Bulletins (at the rate of four to eight numbers a year) on financial and economic developments in foreign countries and in the United States. Some 208 reports were released between 1926 (when a staff was originally assembled-under the late Marcus Nadler's distinguished editorship-to work exclusively on the credit situation in foreign countries on behalf of the Investment Bankers Association) and 1959 when the Institute was reorganized and a New Series was introduced.' Until 1938 about 90 percent of the Bulletins were related to the creditworthiness of foreign countries; but international problems of a broader interest, and then domestic financial topics gradually replaced the country studies (see Table 1). The most drastic change in the contents of these Bulletins occurred around 1964 when, under a new editor (Arnold W. Sametz), the unsigned products of the Institute's research staff were replaced by original papers prepared by identified scholars, increasingly from outside the York University community. This review is primarily concerned with the output over the past six years, a period when the quality has improved and the frequency and size of issues have increased.

THE POSTHUMOUS DISTRIBUTION of two of Michal Kalecki's last works [3, 1969 and 4, 1971] offers an opportunity to draw attention to the career of one of Poland's most illustrious economic theorists. If Kalecki's formulation of a macroanalytic theory was overshadowed by Keynes in the mid-'thirties, he nonetheless went on to develop it and to make other contributions -both theoretical and applied. In the latter category was his participation in the establishment of the United Nations' World Economic Report. Kalecki's voluntary return to Poland was not uniformly beneficial to his career; there is, unfortunately, ample evidence that any official recognition of his brilliance was accompanied by an overt distrust of his revisionism. The calamities that befell the Polish economy in 1969-70 are ample proof that Kalecki had the rare distinction of being a prophet in his own country. He repeatedly warned Gomulka of the disastrous effects that his economic policy was likely to have. Although he was a Jew, Kalecki was not directly subject to the slanderous official antiSemitic campaigns launched after the 1967 Arab-Israeli War. But he personally was greatly tormented by the inequities and the upsurge of forces of retrogression. In 1968 Professor Kalecki retired voluntarily in protest against the dismissal of many colleagues who fell victims to the wave of repression against alleged revisionists and Zionists. Another form of protest was his refusal to publish in his native country. Kalecki was greatly esteemed by the various groups of progressive economists in Eastern Europe and the U.S.S.R. Also, in the West, he found many staunch admirers of his analytical powers and towering personal integrity. Yet his work has gained in neither East nor West the recognition that it merits. The reputation in the West of Michal Kalecki (who died in 1970) probably rests on his seminal contributions to (1) the theory of economic dynamics and distribution of income, (2) his anticipation and independent discovery of all the essential ingredients of the Keynesian system, (3) his prediction of the regime of the political business cycle, and (4) his development of the concept of general rationing, etc. His contributions to the development of a theory of economic growth and planning under socialism, and to the elaboration of a perspective plan, will probably gain a fifth and equal place in the history of economic thought-and will become just as important in influencing economic policy. (Historical parallels are difficult, however, and this is not the place to make conjectures on the likely impact of theories on policy.) These books bear witness to the clarity of his thinking as well as to the capacity of an adept translator to convey the beauty of his exposition. The study at hand on the socialist economy [3, 1969] reflects Kalecki's first hand knowledge of the realities of planning, the wealth of experience he accumulated as an adviser to the Polish and other governments, and the acuteness of a brilliant theoretical mind. A parallel could, perhaps, be drawn between the development of Kalecki's theory of growth in a socialist economy and the development of his business cycle theory (theory of economic dynamics of the capitalist economy); both were essentially derived from a perceptive observation of economic realities. Kalecki was always primarily interested in and preoccupied with the most urgent problems requiring solution. Kalecki stresses throughout that his work