Knowledge that Transforms

A LTHOUGH homogeneous capital stocks remain a frequent construct in growth theory and the literature on production relations, economists have not missed the fact that trucks are not lathes. Thus considerable effort has gone into specifying the conditions under which aggregation is conceptually permissible.1 Recently, the aggregation of capital services from diverse capital stocks has become an important consideration in the explanation of productivity change for the American economy. Jorgenson and Griliches 2 note the rise in the ratio of equipment stocks to structures stocks over the period 1945-1965. They employ the presumed increase in aggregate capital services from the use of relatively shorter lived assets to explain about 25 per cent of the residual change in the measure of total factor productivity. But very little has been done thus far to identify those variables that exert major influences on changes in the composition of capital goods.3 This paper is directed toward a remedy for this deficiency. In assessing shifts in composition, we have two principal objectives. First, to determine (through the use of an investment matrix) the extent to which changes in the composition of aggregate investment arise from differential industry investment rates as distinct from changes in the coefficients of the matrix itself. Second, to ascertain the determinants of the shifts in aggregate investment, particularly the ratio of equipment to structures. We shall show that the relative prices of capital goods have not been among the principal determinants of such substitution. The theory and estimates of this paper ascribe the changes in composition to variations in the relative costs of capital and labor and to the shift of investment in times of capacity expansion toward new plants with higher ratios of structures to equipment outlays than those for existing plants.

A BETTER understanding of the professional labor market for registered nurses is important as it relates to current concerns about the rapidly increasing demand for and cost of medical care and the alleged shortage of registered nurses and other medical personnel. In addition, investigation of this market may help to further knowledge about the labor market in general, since registered nurses have a number of characteristics in common with various expanding sectors of the labor force: they constitute a profession, at present over 98 per cent are female, and their work is in the service sector. This study investigates factors influencing the number of employed registered nurses and their earnings across states. Several aspects of simultaneous response patterns in this labor market are examined by use of a simple model which includes one structural equation for demand, one for labor force participation, and one for geographical location. Specific aspects of labor force behavior, such as migration or labor force participation, have been examined in many earlier studies, but few efforts have been made to estimate the interaction of labor market responses. Models of the type developed here, if they successfully incorporate the principal structural relationships within a labor market, can allow examination of a whole range of issues in more precise terms than has been possible previously. For the market investigated here, these include the effects of shifting patterns of demand for medical services, changes in the supply of substitutes for registered nurses, increases in the number of nursing schools, and so forth. For a priori specification of the individual structural equations, existing theory and past studies on demand functions, labor force participation, and migration were used, but these were not sufficient to give very precise guidelines. Therefore, several alternative plausible forms of each equation were initially estimated using cross-sectional data by states for 1950.' In general, the coefficients were not very sensitive to the variations in specification examined. The complete model composed of selected forms of the individual structural equations was then estimated by three-stage least-squares, using the 1950 data. A number of variants of the model were considered for 1950, and the model was found to be fairly robust. As one test of the stability of the cross-sectional relationships, the parameters were then re-estimated using data for 1960.

In a recent article in this Review, Franklin M. Fisher and Peter Temin [2] seek to illuminate the influence of regional specialization and the causes of Populism by estimating supply functions for wheat during the 1867-1914 period. Unfortunately, a fundamental error in their application of the model to the data mars the study. As a result their findings are difficult, if not impossible, to interpret, and I am skeptical that any light has in fact been shed on regional specialization or Populism. The problem arises because the variables specified by the model are different from the variables represented by the data. The model relates the share of acreage planted in wheat to the relative price of wheat, but the data are for acreage harvested in wheat. Significantly, only one price observation is available for each year: the price received by farmers on 1. Fisher and Temin recognize that the acreage planted in a given year depends upon the price in the previous year . . because farmers could not have based their decisions about planting in one year on prices of the following December [2, p. 137]. Therefore, for example, their regression explains the share of acreage harvested in wheat in 1900 as a function of its relative price in 1899 and, with geometrically declining weights, in previous years. What they overlook is that two kinds of wheat are grown: winter wheat, planted in the autumn and harvested in the late spring; and spring wheat, planted in the spring and harvested in the late summer. Within a given year, say 1900, both kinds of acreage were harvested, but while decisions concerning the acreage of spring wheat were influenced by the price on 1, 1899, and by prices in previous years, decisions concerning the acreage of winter wheat were influenced by the price on 1, 1898, and by prices in previous years. In the case of winter wheat, which constituted the bulk of the American supply during the 1867-1914 period, the acreage harvested in 1900 could not have been influenced at all by the 1899 price, since decisions concerning the planting of that acreage were made several months before the 1899 price could be observed. In states where winter wheat predominated, which include all those studied except Minnesota, Wisconsin, and the Dakotas, and possibly Iowa [6, pp. 100-101; 7], the functional form that Fisher and Temin impose on their regressions geometrically declining weights on past prices starting with the previous year is simply incapable of producing results that can be given a meaningful interpretation. The regression results obtained by Fisher and Temin might well have alerted them to potential problems. They find, for example, long-run elasticities of supply of 0.1633 for Illinois, 1.1211 for Wisconsin, and 10.7640 for Iowa. Given the great similarities of agriculture in these states, differences of this magnitude are simply incredible. Though they assert that . . the coefficients of lagged relative price were almost always 'quasi-significant' [2, p. 143], in 11 of their 34 regressions the ratio of the regression coefficient for the previous period's price to its asymptotic standard error is less than 2. And one must be uneasy about their quasi-significant coefficients in any event. Fisher and Temin offer their finding that farmers reacted slowly to a decline in the relative price of wheat as an explanation for the Populist unrest of the 1890's. Populism was hardly popular everywhere or at all times. At the very least it must be shown that the estimated reaction speeds were significantly slower in the areas of Populist strength (e.g., Kansas, Nebraska, and the Dakotas) than elsewhere, but their estimates of reaction speeds show no such systematic differences. And even if such differences were apparent, one would still be faced with the task of explaining why Populism appeared in the 1890's and not in 1903 or some other time. Recent work on Populism [1, 3, 4] has advanced considerably beyond such a casual, conjectural, and highly-aggregated approach. Quite apart from its oversight concerning winter wheat, Fisher and Temin's study suffers from a more general lack of information about agriculture during the period considered. For example, they say: If crops had declined because of poor weather, the farmer's loss of income should have been moderated by a rise in the price of crops attendant on their scarcity [2, p. 136]. But the price of wheat was established in a world market during this period, and it was common for a short crop at home to correspond with a low price, and therefore low incomes, because of bumper crops in the Ukraine, Argentina, and elsewhere in the same year [5, p. 35]. Indeed, the farmer's position as a supplier in the world market is a crucial backgrouind feature of the Populist uprising. Examples of this sort might be multiplied but the conclusion is obvious: though Fisher and Temin have focused attention on an interesting subject, the elasticities of

This note is intended as comment on paper by P. A. Samuelson that was initially published almost 30 years ago.' Such delay in reaction may seem surprising. But in fact it is only in the last few years that our understanding of the subtle problem of decision making with infinite horizons has advanced sufficiently to bring to light certain difficulties in Samuelson's attempt to confound Robbins' criticisms of Schumpeter. J. A. Schumpeter, in his Theory of Economic Development had argued that the classical stationary state must always involve zero interest rate. Subsequently, L. C. Robbins argued in criticism of Schumpeter that the interest rate could never remain permanently at zero For if there were no yield to the use of capital . . . there would be no reason to refrain from consuming it. 3 Robbins was in turn taken to task by Samuelson and accused of being wrong, economically, mathematically, and logically. 4Samuelson, dazzling his audience with appeal to a simple iso-perimetric problem in the Calculus of Variations, Y was able to argue that: We have shown that there is no logical inconsistency in Professor Schumpeter's theory of interest on the side of supply. On the contrary, the strict assumption of absence of time preference implies no decumulation at zero rate of interest, and no cessation of accumulation at any positive rate of interest. 6 The particular case that Samuelson employed in his defence of Schumpeter was that with immortal individuals or constant-size families, all maximizing at any date t Ramsey preference function of form

DESPITE the importance of wage rates in our understanding of economic activity, there are almost no wage data available appropriate for studying changes in the wages received by different race, sex, age, and education groups in the labor force. The only official data on hourly wages, those published in Employment and Earnings, are disaggregated by industry, but not by the personal characteristics of the wage-earners. Data on annual incomes and earnings by personal characteristics are available from the Current Population Survey, but they are not suitable for the calculation of hourly wage rates. As a result of this substantial defect in the wage statistics of the Federal Government, the recent controversy about the changes in the last decade in the relative economic well-being of blacks and whites was carried out in the absence of any information about changes in their wage rates. This study uses the 1967 Survey of Economic Opportunity (SEO), a new source of data, and the 1960 Census 1/1000 Sample in a comparison of wage rates in 1959 and 1967. Estimates of wages of individuals in 1959 are obtained by making use of additional data which were unavailable to previous investigators.' Using 1967 wage rates, recorded directly in the SEO, and the improved estimates of 1959 wage rates, average wages by race and sex are found in each of the two years. The variation of individual wages by characteristics such as age, race, sex and education is then estimated in both years, so that changes in wages can be calculated when hours worked by age, race, sex and education are held constant. This gives Laspeyres and Paasche indices of wage rates. In the final part of the paper, the structure of wage rates by personal characteristics in each of the years is studied. We found that average wage rates of blacks increased considerably more than those of whites between 1959 and 1967. Part of the increase of blacks' wages can be attributed to changes in the composition of the labor force, (mainly to an increase in average education). Even when the 1959 composition is used to calculate 1967 wages, so that changes in the level of education are eliminated, blacks had substantially greater increases in wages than whites. The average wage of blacks was still much lower than that of whites in 1967. Wages differentials by education were almost the same in both years, especially for whites. Wages of older workers declined relative to those of prime-aged workers. There was no consistent pattern in the changes of wages of young workers relative to wages of 35-44-yearold workers: young white females had higher relative wages; young white males had almost the same relative wages; young black females had generally higher relative wages; wages of black males aged 18-24 increased but wages of black males aged 16-17 decreased relative to wages of prime-aged black males. In both periods wages were, in general, lower in the South and higher in the West than in the rest of the country. Relative wages in the South and West increased during the period, so that by 1967 wages in the West were substantially higher than the average nationwide wage rates.