Knowledge that Transforms

A recent article in this Review by Joan Haworth, James Gwartney, and Charles Haworth (hereafter H-G-H) presented some significant findings on the source and structure of improvements in the relative economic status of nonwhite males during the 1960's. Specifically, H-G-H concluded that approximately one-half of the increase in the nonwhite/white earnings ratio (NWER) during the 1960's was simply . . attributable to the exiting of older nonwhite workers with low relative earnings combined with the entry of younger, better-prepared nonwhites who have high relative earnings' (p. 167). The balance of the gain in relative nonwhite earnings was the result of a decline in employment discrimination against nonwhites and improvements in the relative productivity of nonwhites. If correct, these findings have several important implications for the prospect of black and white earnings equality. First, they suggest that the effects of past discriminatory practices in both employment and the acquisition of human capital continue to reduce the earnings power of older black males still in the labor force. These past practices are an important source of current differences in the average earnings of blacks and whites in aggregate. Hence, they constrain the success of policies to achieve racial earnings equality. This brief note presents some additional evidence consistent with the H-G-H conclusions. We are mainly concerned with their data in Table 3 (p. 164) on changes in the NWER within age cohorts between 1959 and 1969. The H-G-H hypothetical identical productivity' ' NWER measures the nonwhite-white earnings gap caused by factors other than measured productivity variables, such as racial differences in occupational structure which are unrelated to productivity differences. Since the relative occupational distributions indirectly revealed by these hypothetical NWER underlie some of the major H-G-H conclusions, a more direct examination of changes in the occupational distribution of blacks and whites during the 1960's may prove a useful check on their findings. A group's index of occupational status can be calculated by weighting the proportion of the group employed in an occupation by the mean earnings for the occupation and summing across major occupational categories.' The higher (lower) a group's index, the greater the proportion of the group in higher (lower) paying occupations. Therefore, the ratio of nonwhite to white occupational status (NWOS) will measure solely racial differences in the distribution of workers among occupations. The higher (lower) the NWOS, the more (less) favorable the occupational structure of blacks relative to whites, ceteris paribus. Estimates of the male NWOS for age cohorts in 1959 and 1969 are presented in Table 1, along with the corresponding NWER.2 In aggregate, the NWOS increased by 10.2 percent during the

A subject as complex as this is best begun as simply as possible. Would we be as we are with other beginnings? Obviously not. Those countries started as European colonial enterprises that had different beginnings are now Canada, Mexico, Brazil, Cuba, etc. We are as we are largely because of the materials from which our society was initially formed. All were transmuted with time, but despite that the original ingredients would remain in the mixture and influence the long-term results. We are still identifiably similar to our colonial ancestors in our institutional structure and behavior regarding economic life. The colonists, in turn, had transplanted their own laws and practices from England. Intellectual and institutional continuity is thus a reality. It is also interesting and sometimes surprising.

To imperial enthusiasts, Empire connoted the triumph of British principles over the powers of darkness and was a source of incalculable psychic and financial reward. The critics, however, saw an increasing burden on the British domestic taxpayer, while British subjects in the colonies contributed virtually nothing. Any analysis of the cost of empire in the context of nineteenth-century Britain must in large part rest on an understanding of the institutional mechanism that might have provided the base either for exploitation or selfless regeneration of barbarous places. In an earlier period, monopolies enforced by the military power of the state provided one such institutional structure. Later similar transfers might have been effected through the assertion of ownership over valuable resources in relatively fixed supply. However, even if British entrepreneurs had been omniscient enough to recognize such resources before their competitors, the profit opportunities must have been relatively limited. By 1860 Britain was committed to free trade and the Empire was as a consequence theoretically open to all. Thus, possibilities for direct monopolistic profits were very small; and similar competitive forces acted to reduce monopsonistic rents. Given such an environment, any exploitation must have rested on a set of government policies that thwarted competition and gave some shadowy imperialist an edge over his colonial, foreign and even domestic rivals. Thus the degree to which empire was exploitative as opposed to burdensome cannot be determined without reference to the government sector-and that appraisal is the focus of this paper. Every government policy involves a budgetary dual. Wars cannot be fought without armies being paid; tariffs can't protect local enterprise without some expenditure on enforcement, and even property rights cannot be guaranteed unless funds are devoted to legal and judicial needs. Of course, budgets are not always what they seem, but in the nineteenth and early twentieth centuries they did in large measure reflect the policies of government.

In the theory of exhaustible resources, the classical result, originally derived by Harold Hotelling (J. Polit. Econ., 39: 137-75 (1931)) is that the scarcity rent of the resource must increase at the rate of interest. The scarcity rent is the market price of the resource less extraction costs. At the depletion time, the market price must be equal either to the zero demand price or the cost of a perfect substitute, assuming no adjustment costs in switching to the substitute. The substitute may be either a natural resource with a higher extraction cost or a backstop technology. The Hotelling result is a price equilibrium condition in a competitive asset market (Solow, Amer. Econ. Rev. Proc., 64: 1-14 (1974)). It is also an efficiency condition for allocating the resource over time in a first best world. However, Solow raises the possibility that constraints creating a wedge between interest rates may be important considerations in the resource allocation problem. In a second-best world it is not at all clear how fast the scarcity rent of the resource should increase from a social viewpoint. However, for one simple case the analysis of this problem is straightforward. Suppose consumption is determined by a Keynesianmore » consumption function with marginal propensity to consume (1 - s); s is marginal propensity to save. With consumption determined in this behavioral manner, savings may be inadequate to reduce the market interest rate to the point where it is equal to the social rate of time preference. It is argued here that for this case the scarcity rent of the resource should increase at a rate equal to a weighted combination of these two interest rates.« less