The Keynesian Equations and the Balance of Payments Get access M. Bronfenbrenner M. Bronfenbrenner Chicago, Illinois Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 7, Issue 3, June 1940, Pages 180–184, https://doi.org/10.2307/2967405 Published: 01 June 1940

Preliminary definitions, 405. — Liquidity and the monetary concept, 406. — Liquidity preference, 410. — Definition of money, 411. — The utility of money, 414. — Answers to objections, 414. — The specifications of monetary neutrality, 418. — Three model sequences, 420. — Conclusions for policy, 425.

Atomistic competition, 535. — Wage-fixing activity: no employer discrimination. The open shop, 538; the closed shop, 543. — Employer discrimination: quantity discrimination, 545; price discrimination, 548; discrimination of both types, 550. — Recapitulation, 550. — Plural price of labor: demand and supply curves independent, 551; demand curves dependent, 556; demand and supply curves inter-related, 559.

carried out we shall need a very substantial cut in individual income taxes. What that amount should be must be reached by a process of experimentation. I would lean on the side of bold reductions. We must learn to be prepared to reverse any action in such measure as events prove to be necessary. The President's Economic Report wisely counsels the need to be flexible. Unless the government is prepared to reverse itself, we shall never dare to act promptly and effectively. This is a lesson every member of the Congress needs very much to learn. Our experience since I948 gives proof of the fact that we can stoke an immense amount of fuel into the American economy without producing inflation. Since I948 (despite the Korean explosion) wholesale prices have risen less than i per cent per annum. In the peaceful days before the First World War, wholesale prices rose 3 per cent per annum for a period of I5 years. There is a real danger that we shall be too cautious always fearful of inflation and that in consequence we shall fail to reach even approximately our full production potential. There is also a danger that we shall be dragged down by the dogma of the balanced budget. It is generally agreed that the current ratio of money and liquid assets to GNP is favorable. As our GNP rises, our debt may also be permitted to rise, if that proves to be necessary to promote adequate growth and expansion. It is not improbable that the structural adjustment which is needed to offset the structural deflationary changes currently in process will require a cut in taxes substantially in excess of the cut in federal expenditures.

Discussion regarding Professor L. W. Mints' recent monetary policy proposals I has been concentrated on his basic suggestion that contra-cyclical fiscal flexibility be attained primarily from the receipts side, with a substantially fixed budget of total expenditures. The present writer will limit himself to outlining an ancillary proposal that a general sales tax should figure prominently in any plan for contra-cyclical variations in tax receipts, and to a reconsideration of the case for sales taxation in the light of such a receipts policy. Professor Mints' plan includes a special device which suggests with particular force the desirability of a linkage with sales taxation. This is his proposed sales subsidy as a remedial measure for deep depressions. The sales subsidy is proposed despite the admitted administrative difficulty of superposing this negative tax on a Treasury without provision for collecting the corresponding positive levy. This particular feature of Mints' plan may be only an insignificant afterthought, since its author expects slumps to be controlled by less extreme monetary and fiscal measures.2 Yet even though Mints' own sales subsidy be disregarded as a superfluous gadget, definite reasons remain for preferring sales to income taxation as a vehicle for moderate contra-cyclical variation in receipts, just as Mints himself prefers the sales to the income subsidy as a vehicle for deflation control in extremis. In the discussion which follows, the normal (full employment, balanced budget, but nonboom) sales tax rate is envisaged as substantial, perhaps the io or 15 per cent suggested during World War II. Rate variations about the usual American state figures of two and three per cent can hardly be expected to have practical effects.