Knowledge that Transforms

Although Means had compiled concentration and data for 94 industries, he based his conclusions on the chart covering 37 industries reproduced by Blair (page 427). Actually, in the original study,3 price data in relation to Census classification were considered adequate or fair for 7I industries serving national markets and for I3 industries serving other types of markets; data were poor for only 9 industries.4 In his presentation, Dr. Blair omitted Rufus Tucker's classic commentary upon Means's chart: 5

TN recent years engineering data have been increasingly used in studying the input-output relationship in manufacturing industries. Ideally the fundamental mechanical properties underlying a production process are relied on to answer many questions on input-output relationships. This enables the investigator to exclude such variables as management from a production function, and to isolate the effects of other variables by letting them vary one at a time. In actuality, most of the engineering data are compiled by engineers from their experience with actual practices rather than from carefully conducted experiments. But most of the advantages of the engineering approach remain generally present, and its basic usefulness has been repeatedly asserted.' One of the major road blocks in the engineering approach has been the difficulty of estimating the labor-output relationship. Usually one searches in vain for any labor requirement data in engineering literature; and because of the large variation in the workload among plants, reliance on sample observations is apt to be misleading. More fundamentally, because of the heterogeneity in skill and efficiency the quantity of labor input cannot be measured precisely. It is hardly surprising, therefore, that no serious attention has been given to the laboroutput relationships derived with the engineering approach. In this paper we will attempt to demonstrate some of the merits of a special type of engineering data, based on job analysis, which so far has been almost completely ignored by economists. Compiled mainly by time-and-motion study engineers for such industries as the textile, garment, and machine tool industries, these data give the detailed elements of the jobs in a manufacturing process, and the time required to perform them under specified circumstances. This enables the engineer, as well as the economist, to explain the differences in the performance of individual workers. Ideally the elements of efficiency and skill can be isolated, and it becomes possible for the investigator to study the pure effects of technological change on labor-output relationship, or such problems as substitution between labor and other inputs. The rest of this paper will be divided into five sections. In the first section we will describe a method by which the job analysis data may be used, jointly with other engineering data, in computing historical series of certain input-output relationships. In the next the job analysis data are applied to a problem of substitution between labor and machinery, and the results are shown to have justified, on the whole, the method used in the previous section. Next, labor-output series compiled with two alternative methods are given, to be used in the subsequent section for the demonstration of an important implication in the use of job analysis data. Finally, a brief summary is given.

Recently, in this REVIEW (J. K. Galbraith, "Market Structure and Stabilization Policy,this REVIEW, XXXIX (May 1957) I24-33) Professor Galbraith has asserted that in the case of monetary policy the "inflation can be controlled by denying credit to what are, in a general way, the least powerful firms" (page 132). Elsewhere, these least powerful firms are identified as the smaller firms (pages 131, 132, 133), and evidence concerning the distribution of bank loans by size is presented, to indicate that "while the case cannot be proven, there is a strong probability that in the last couple of years the effect of monetary policy has been to ration credit from all sources away from smaller firms in the competitive sector and to larger firms in the oligopolistic sector" (page 133).

IN recent years, the underwriting of residential mortgage loans by the Federal Housing Administration (FHA) and Veterans Administration (VA) has become an increasingly important device for implementing federal housing policy.' The government's assumption of the major risks of mortgage default through FHA insurance and VA guarantee has encouraged private lenders to extend loan terms that have greatly magnified the purchasing power of the house buyer's down-payment and monthlypayment dollars. The resulting ability of the government to augment and channel effective demand has been used in various ways. Aggregative policies have been aimed at improving national housing standards by stimulating a high level of residential construction and widening the private industry's market. Special programs have been designed to place certain groups in preferential market positions. Veterans, owners wishing to rehabilitate deteriorated properties, and low income families displaced by slum clearance projects are examples of such groups. Throughout the postwar period, however, these programs have been hampered by intermittently recurring credit shortages, particularly those programs which depended on the more liberal-term loans. Such shortages were most acute in I948-49, I95I-53, and I956-57, and in areas farthest removed from the money markets of the Northeast. In each instance the credit difficulties have resulted in widespread controversy over the federal government's mortgage interest rate policy. On both insured and guaranteed loans, the government has established the maximum interest rates which may be charged the borrower. The principal aim has been to fix a rate which would reduce as far as possible the costs of home financing and at the same time encourage a satisfactory volume of private lending. Such encouragement is of the utmost importance, since normally both the FHA and VA rely fully upon private lenders for the provision of insured and guaranteed credit. This article undertakes to analyze the relationship between FHA-VA interest rates and the supply of insured and guaranteed mortgage funds. Based on an analysis of the postwar experience we shall attempt to determine the degree to which the government's mortgage interest rate policy can augment the supply of these funds and what constitutes an effective policy for this purpose given the twin objective of reducing home financing costs.

PpTHE effect on national income of a change in government expenditure exactly matched by a change in tax revenue has recently been the subject of discussion in several articles.' Much of this discussion has been prompted by a desire to generalize the result obtained in the paper by Baumol and Peston and to remove certain loose ends which were left hanging in their analysis. That there were such loose ends is beyond doubt. Baumol and Peston did not fully distinguish direct from indirect taxes in their model; they considered only one marginal propensity to consume; and they did not take into account the possible effect on the level of investment of a balanced budget change. The reason for these omissions is, of course, clear. A number of economists had analyzed the balanced budget problem and produced models in which the value of the balanced budget multiplier was unity.2 It was obvious, however, that the number of assumptions which had to be made in order to obtain this conclusion rendered it of little practical value. A need seemed to exist, therefore, for modifying the model in the direction of realism without at the same time making it intractable. This was done by the very simple device of introducing the idea of the marginal propensity of the public sector to spend on currently domestically produced goods and services. Calling this k (o < k < i), and the marginal propensity of the private sector to consume currently domestically produced goods and services c, a balanced budget change equal to A T would cause

r H ERE seems to be increasing acceptance of the notion that business outlays for fixed capital have gained a new stability. The focus on growth is now so widespread, according to this argument, that American management will press ahead in the very teeth of incipient recession, so long as there is no clear evidence pointing to a major economic collapse. Put in other language, this is an argument for giving the acceleration principle a much reduced role in the analysis of business cycles. One of the more prominent champions of this thesis has been Neil H. Jacoby, former member of the President's Council of Economic Advisers. He has put the matter as follows:

G. A. Elliott, Factor Proportions and the Structure of American Trade: Further Theoretical and Empirical Analysis: Comment, The Review of Economics and Statistics, Vol. 40, No. 1, Part 2. Problems in International Economics (Feb., 1958), pp. 116-117