Knowledge that Transforms

Electricity accounts for about 25 percent of the total energy consumed in the United States and its share of total consumption has been increasing slowly. In an effort to decrease the vulnerability of the United States to foreign energy price increases and embargoes, Federal energy policy, particularly as formulated in the Federal Energy Administration Report for Project Independence, would accelerate this trend towards electricity. These policies call for the mandatory conversion of household and commercial heating to electricity and the conversion of oiland gas-burning plants to domestically available coal and uranium. Even without such mandatory controls, consumers may choose more electricity as a result of increases in fuel oil prices relative to electricity prices, or as a result of the shortage of natural gas, or because electricity supply seems more secure. Although Federal policies and consumer choice may shift demands towards electricity, there is no assurance that the additional quantities and mix of generating capacity desired will in fact be forthcoming. The nation's investor-owned utilities (providing over 90 percent of generating capacity) are not likely to be able to raise the required amounts of capital. Increases in construction costs, fuel costs, and interest charges have recently outstripped revenue growth, and expectations that this trend will continue have made utility investments unattractive. The suspicion is that regulatory procedures have recently caused price increases to lag behind cost increases, resulting in earned rates of return below the cost of capital. If this continues, capacity to meet increased demands-and Project Independence, in whatever form-will not be achieved. The purpose of this paper is to assess the financial prospects of the nation's electric utility industry, given existing regulatory institutions and continued high rates of growth of demand in the late 1970's. Shortages from regulation would indeed be a turn of events. Economists' analyses of regulatory effects in the 1960's deplored the behavior of commissions on the grounds that they did nothing to control prices (see G. J. Stigler and C. Friedland and R. Jackson). However, the turn of events would not be entirely surprising; using the behavioral approach in analyzing regulation leads one to suspect that commissions operate relatively independent of economic conditions (see Joskow, 1972). The well-established operating rules of the bureaucracies change only when the results of such procedures under inflation or depression become intolerable (see Joskow, 1974). What may have been ineffective regulation in the 1960's may be overzealous regulation for the late 1970's.

In a recent issue of this Review, Hayne Leland concludes that the risk-averse quantity setting firm will produce less under uncertainty conditions than it would under certainty, a finding that is consistent with that of other authors including John Lintner (1970). This conclusion is based in part on his assumed property of the stochastic demand curve, called the principle of increasing uncertainty (PIU).1 This paper suggests that the intuitively supported PIU (increases in expected total revenue are accompanied by increasing risk) is a special and unusual case. In what follows I adopt one of the behavioral modes specified by Leland and make the same equilibrium assumptions. It is demonstrated that the principle of increasing uncertainty does not hold for one of the most widely employed measures of risk in the economic and financial literature. Leland introduces uncertainty through the implicit demand relation

Monetary economics conveys the impression of great disagreement within the economics profession, and indeed the professional debates have often been heated. But behind the debates over policy there is a great deal of consensus on the importance of monetary variables for the working of national economies and on the mechanisms through which they exert their influence. title of this session reminds us that twenty-five years ago this was not so. When Howard Ellis wrote The Rediscovery of Money, the postwar revival had just begun. There was general skepticism about the ability of monetary policy to influence the economy, and the Oxford surveys were widely cited as the empirical basis for disbelief in the effect of monetary policy on investment. Despite the emergence in the intervening years of wide agreement about the importance of monetary policy, the empirical basis for many of our beliefs, and a fortiori for distinguishing among our differences, has remained weak. In casually accepting our present assignment, failed to appreciate just how complex the question posed in the title is. This is true even when the subject is confined, as here, to the monetary economics of the business cycle, leaving aside both microeconomic and steady-state growth considerations. What does it mean to say have learned something? And to whom does the we refer?

The cliometric investigation of slavery and its aftermath is now nearly two decades old. Initiated by the path-breaking paper presented by Alfred H. Conrad and John R. Meyer in 1957, it has been carried forward in more than 100 subsequent papers, doctoral dissertations, and books.1 This extensive scholarly effort has contributecl not only to the reshaping of the discipline of economic history but has greatly altered our understanding of the nature of slave society and, most important, has helped to reveal the remarkable record of black achievement in the protracted and difficult struggle to overcome racist oppression. It is not possible in this brief paper to review adequately the many contributions to the reinterpretation of the slave economy. I would, however, like to outline what I believe to be the three main phases of cliometric research on the subject and to suggest some priorities for future research. During the first phase, which extended roughly from 1957 to 1969, cliometric research was focused on three issues: the profitability of an investment in slaves to slaveholders; the economic viability of the slave economy; and the effect of slavery on southern economic growth. All three of these issues were, of course, raised in the original Conrad and Meyer paper, but not all of them were explored to the same extent by either Conrad and Meyer or by their successors. Much of the initial work focused on the issues of profitability and viability, partly, perhaps, because these seemed to be more tractable than the question of growth, partly because the evidence bearing on profitability appeared to be more readily available. The debates on profitability have involved both theoretical and empirical issues. Much of the discussion has turned on the equation originally employed by Conrad and Meyer to estimate the rate of return on male slaves. They became involved in the difficult task of estimating the average amount of land and capital employed per slave, although this issue could have been finessed by employing a slightly different variant of their basic equation.2 More vexing were the implicit assumptions that all twenty-year-old slaves lived for exactly thirty additional years (the approximate life expectation of male slaves at age twenty) and that between ages twenty and fifty average annual earnings * Professor of economics and history at the Universities of Chicago and Rochester. Research on the paper was supported by a grant from the National Science loundation. I See, in addition to the references at the end of this paper, those in F'ogel and S. L. Engerman 1974a. Convenient collections of cliometric papers on slavery are H. G. J. Aitken, Engerman and E. D. Genovese, and Genovese and R. N. Rosett. 2 See E. Saraydar, R. Sutch, and J. I). Foust and I). E. Swan. Also, see Fogel and Engerman 1974a, vol. 2, p. 66.