Knowledge that Transforms

T HE I953-54 contraction in United States economic activity was brief and mild. According to the business cycle chronology of the National Bureau of Economic Research it lasted I3 months, extending from a peak in July I953 to a trough in August of the following year. Measured in constant dollars, gross national product declined I.5 per cent from I953 to I954. This decline in aggregate production reflected principally a 20 per cent reduction in the real volume of federal expenditures for final goods and services. The annual flow of consumer expenditures in I947 prices increased nearly two per cent. Residential construction was up I4 per cent, while other private construction rose 3 per cent and expenditures of state and local governments 9 per cent. In fact, the only major component of final expenditure which declined along with federal spending was private purchases of producers' durable equipment, which dropped 8 per cent. These figures suggest a somewhat cut-anddried picture of a strongly buoyant economy depressed briefly by an autonomous reduction in government expenditures. There is a great deal of truth in this impression, for the cutback in federal spending was the major deflationary force acting throughout the contraction, and the private economy quickly absorbed the impact of this and other depressing influences and began an early and vigorous recovery, though not without the assistance of contra-cyclical actions in the tax and monetary fields. The experience merits closer examination, however, for a number of reasons. To begin with, the processes by which the economy responds to external disturbances are an important part of the subject matter of cyclical analysis. The part played in the decline and recovery by induced changes in consumption and inventory investment will accordingly receive a good deal of attention below. But as soon as the subject is approached in this manner, it becomes apparent that the contraction was more than a passive response to the decline in government demand. For example, the rate of growth of consumer spending diminished

bank sector has involved an increase in velocity.19 Nor do we today have any real means for guarding against such increases in the effective money supply. Depending on just how large is the group of borrowers that has access to funds through loans, it may be advisable to make provision for the direct control of bank lending. But it is unlikely, in any event, that funding would be an acceptable solution here. A successful funding would necessarily involve greater pressure on the longterm market in succeeding periods of credit restraint, and this may be undesirable from other viewpoints. More importantly, when could a funding operation be undertaken? Admittedly, it could not be attempted in boom periods; but to undertake such a move in slack periods would mean doing away with any interest-incentive to invest in the very market (long-term) in which one might reasonably expect some interest elasticity. Finally, there may well be an inconsistency between the bills only doctrine and funding, since many supporters of the former including, apparently, the Federal Reserve argue that the bill supply must be increased in the interest of a broad and active money market. 20 It would seem therefore that the British controversy is of interest, not because it has given us any solutions, but because it has helped to focus issues in this country.

JUST as some economists are accustomed to examine the operations of business and agriculture, a few have, for some years now, been scrutinizing the operations of the military services. In this work many of the attitudes and techniques of economists have proved to be most valuable. The application of some of these techniques in the analysis of some aspects of the logistics support of the United States Air Force may be of interest to economists.

BETWEEN the middle of I956 and the end of I957, a revolutionary change occurred in the public availability of statistical and related information on the Soviet economy. As recently as the beginning of I956, such a basic datum as the total population of the Soviet Union was unavailable from any official Soviet source and had to be estimated by foreign students. The situation was similar with respect to many other fundamental data which are normally freely and easily available for other highly developed modern industrial societies. Over the past decade and a half, uncounted manyears of hard and frustrating labor have had to be devoted by students of the Soviet economy to the difficult task of trying to estimate the basic parameters of that economy as the prerequisite for intelligent analysis. Now the situation has changed dramatically for the better, though it would be premature to say that all problems in this field have been or soon will be ended. As for so many other recent changes in the Soviet Union, the signal for the shift away from a policy of nearly complete statistical secrecy was given at the 2oth Congress of the Communist party of the Soviet Union in February I956. The signal was given in the speech of Communist party leader Anastas I. Mikoyan who declared: 1

QUESTIONS of manpower requirements and economies in labor use have long been close to the heart of economic theory and national policy. The evidence lies in a large and increasing number of productivity studies, ranging from an over-all view of the economy, its total output, and capacity to the most detailed, operational time-and-motion studies. Writers to date have ranged mainly over the fields of manufacturing and extractive industries, where a relative ease of quantification and measurement has facilitated the obtaining of fruitful results. Until recently, however, little work has been done in the service industries because the unit of output is conceptually as well as practically difficult to define and standardize.' The present inquiry will attempt to fill part of this gap for the economy's financial sector, focusing in detail on commercial banking which accounts for roughly one-fifth of the labor force of the financial sector. How great have been the manpower requirements of banking over recent decades? Have they changed for any reason? How is the use of labor in banking related to changes in banking services rendered to the economy? How do employment trends in banking compare with those in the economy as a whole? Inquiries into the use of manpower in commercial banks share not only the usual difficulties in studies of this kind, such as measuring properly, but raise even more difficult questions concerning concepts of output. In deference to the paucity of precedents and the tentative character of many definitions here adopted, this paper will deliberately avoid the use of such normative terms as efficiency or productivity, except in the broadest sense and with possibly a few exceptions where important banking operations can be identified and measured with some accuracy.2 The main purpose of this study is to throw some light on the nature of labor-using bank operations and the response of labor input to growth and technical changes in the industry.