The author comments on the article by Stiglitz (Am. Econ. Rev.; 66: 655-661(Sep 1976), especially taking issue with the intuitive model used; the model, a two-period model, uses zero extraction costs and a constant elasticity of demand in appraising the OPEC cartel. He also points to another quite unrealistic assumption, namely: That part of the stock which we do not consume in the first period will be consumed in the second. Pointing out that the constant elasticity assumption is usually used for mathematical convenience - never fits any real world situation - Tullock proceeds to show that not only have the oil-producing countries made a great deal of money from their cartel, but that this is what theory indicates should happen.
Laurits Christensen, Dale Jorgenson, and Lawrence Lau (hereafter C-J-L) have introduced translog direct and indirect preferences and the associated systems of demand functions (see also -Jorgenson and Lau). These preferences are of interest for their own sake but are especially significant because of their properties as a flexible functional form. It is argued that they can represent arbitrary wellbehaved preferences in the neighborhood of a given point with an accuracy of the second order. This suggests, as Lau has claimed in his 1974 paper, that concern directed towards precise functional specification may be misplaced since a flexible functional form can always be used. Moreover C-J-L proposed a new methodology for testing the implications of demand theory. They calculate the restrictions on the approximating translog function corresponding to the restrictions that demand theory imposes on unknown true preferences at any given point of approximation. They then proceeded to test these restrictions on the approximating translog demand functions. The purpose of this paper is to examine this proposed methodology and the properties of the indirect translog system. The main results are: (a) With a utility approximation it is not theoretically possible to discriminate between the hypothesis that translog preferences hold globally and the hypothesis that the true (but unspecified) preferences satisfy integrability conditions at the base point of approximation. (b) It is possible to define equally accurate approximations at the level of the demand equations or at the level of the marginal rates of substitution which do permit this distinction and which involve different parameter restrictions within the same estimating form. It is thus not possible to test the restrictions of demand theory on true preferences at a given point independently of the method of approximation selected. (c) These alternative approximations also have the advantage of allowing distinct tests of homogeneity and symmetry. (d) Empirically, homogeneity of degree zero of the budget shares is a more questionable hypothesis than integrability of either the true demand system or the approximate demand system. (e) The proposed methodology has important econometric implications.
Following the pioneering papers by John M. Fleming and Robert Mundell, a substantial literature has accumulated incorporating the Keynesian analysis of the effects of monetary and fiscal policies in the open economy under flexible exchange rates and perfect capital mobility. The general policy result which followed from this line of research has been the verification of the presumption that monetary policy is an effective stabilization tool under flexible exchange rates, while the ability of fiscal policy to affect the level of economic activity varies inversely with the degree of international capital mobility. The key to the results lies in the differential effect of both policies on the direction of the induced capital flows and thus on exchange rate movements. The latter in turn affect the trade balance and aggregate demand. To my knowledge, however, all authors have either been concerned with the derivation of short-run or multipliers describing the effects of monetary and fiscal policy on the level of economic activity or have otherwise ignored the longer-run effects of policy-induced changes in the level of international indebtedness and the service of that debt. Abstracting from growth and persistent shocks, it is reasonable to assume that, given enough time following the policy change, individuals will adjust their international portfolios of assets to the new desired proportions such that capital flows eventually cease. When long-run portfolio equilibrium is thus reached, the service account deficit of the balance of payments must necessarily be equal to the net export surplus (the trade balance), the exchange rate being the natural instrument through which this long-run external balance condition is achieved. It is therefore natural to conceive of the long-run level of the service account as the primary determinant of the long-run trade balance. In view of the above and the fact that in a Keynesian-type economy the trade balance plays a crucial role in the determination of the level of economic activity through its effects on aggregate demand, it follows that a longerrun analysis of the effects of monetary and fiscal policy cannot logically ignore the consequences of those policies for the service account. In this paper I intend to explore the longrun implications of induced changes in the level of the service account for the effects of monetary and fiscal policy; in the process of doing so, I will develop a simple model whose basic structure resembles that of Fleming and Mundell although it is modified to explicitly incorporate the stocks of domestic and foreign securities held. In order to provide the reader with a clearer perspective on the problem at hand, let us first discuss the impact effects of monetary and fiscal policy in the context of the standard short-run model. Given the Keynesian structure of the economy either policy will increase domestic income (and employment) only to the extent that it succeeds in expanding aggregate demand of which the trade balance is one component. At a given exchange rate, expansionary fiscal policy would increase aggregate demand but at the expense of a higher domestic interest rate (the crowding out effect); *Columbia University. I am indebted to G. Borts, L. Girton, and D. Henderson for their comments and suggestions. A preliminary version of this paper was written while I was visiting scholar at the Division of International Finance of the Board of Governors of the Federal Reserve System. The views expressed here should not be interpreted as necessarily those of the Board.
Marx's of the tendency of the rate of profit to has been the subject of much debate, both theoretical and empirical. The states that over time the organic composition of capital will tend to rise, thereby causing the general rate of profit to fall (vol. 3, ch. 13). At issue on the theoretical side are the analytical relations between the organic composition of capital and the general rate of profit and, more broadly, between labor values and prices of production. At issue on the empirical side are the actual movements of the organic composition and the general rate of profit over time. This paper will investigate both sides of this issue. The first part will develop and criticize the of the falling rate of profit. The presentation will rely heavily on the analytical apparatus developed for Marxian analysis over the last twenty years (see particularly Francis Seton, Michio Morishima and Seton, Paul Samuelson, Morishima, William Baumol, and John Roemer), as well as Jens Christiansen's review of the arguments. The major conclusion that will be drawn is that the general rate of profit does not necessarily move inversely to the organic composition of capital and there is thus no necessity for the rate of profit to fall with capitalist development. What remains of the law of the falling rate of profit is then the empirical question of whether in fact the rate of profit had fallen and, if so, what factors have contributed to its decline.' The second part of the paper will present empirical estimates of the general rate of profit, the organic composition of capital, and other key variables in the Marxian system for the 1947-67 period in the United States. The study is confined to this period because the required data (inputoutput tables) are available only for years 1947, 1958, 1963, and 1967. Two questions will be addressed. First, has the rate of profit fallen? Second, what is the observed relation of the rate of profit to the organic composition and other variables in the system? In this regard, particular attention will be paid to relative productivity increases over the period and their impact on the rate of profit, the organic composition, the rate of surplus value and other variables.
Between 1964 and 1974 female-headed families with children under 18 increased as a proportion of all U.S. families by 40 percent. The Aid to Families with Dependent Children (AFDC) caseload more than doubled. Though increased female headship undoubtedly contributed to caseload growth, the AFDC program's structure may have simultaneously encouraged female headship. By focusing payments on families without husbands, the program could conceivably promote marital separations and discourage remarriage, thereby contributing to the growth of femaleheaded families.' The testing of such hypotheses bears on a number of policy issues. We need to understand the degree to which the AFDC program's goal of alleviating the financial problems of female-headed families induces the formation and continuation of such families. In addition, we need to determine the extent to which growth in the AFDC caseload is caused by these separation and remarriage incentives. Finally, we need to know whether alternative support programs could reduce the problem. This paper focuses upon one aspect of this complex issue: the effect of AFDC transfers on the probability of remarriage for female heads with children. In the first section search theory is applied to marriage, establishing hypotheses on the links between remarriage, AFDC transfers, and other observable socioeconomic variables. The second section presents empirical tests of these hypotheses.
The cartelization of world commodity markets is not a new phenomenon. In a historical survey of the experience of some international commodity cartels, Paul L. Eckbo shows that at one time or another there has been an attempt to cartelize the market for most of the major internationally traded commodities. The large majority of these attempts at cartelization, however, were failures-the cartel either dissolved after a short period of time, or in some cases the cartel remained in force officially, but had little or no real impact on price and member revenues. Of the fifty-one formal cartel organizations documented by Eckbo, only nineteen could be considered successful in the sense of being able to maintain a price significantly higher than what it would have been in the absence of agreements. But even the successful cartels were limited in their durability; the average lifetime of the formal agreements was about five years, and only five of the nineteen cartels lasted ten years or longer. What is new is the growing concern that the prospects for successful cartelization have suddenly become greater, and that in the future, world commodity markets are likely to be increasingly dominated by cartels. Much of this concern, of course, has been the result of the Organization of Petroleum Exporting Countries' (OPEC) spectacular success in quadrupling world oil prices, and the International Bauxite Association's (IBA) success in tripling the price of bauxite. Warranted or not, this concern now casts a shadow over predictions, policy prescriptions, and proposals for the international management of commodity markets. Buffer stocks and other instruments for price stabilization, for example, become the vehicles for cartelization and the establishment and maintenance of the monopoly price. And for some, cartelization, or more specifically, an implicit or explicit transfer of monopoly and monopsony power from developed to developing countries, is an essential and justifiable component of the New International Economic Order (NIEO). ' Given the historical success record of international cartels, is there any reason to expect new attempts at cartelization to succeed where similar attempts in the past have failed? Has the structure of world commodity markets-or the environment surrounding them-changed in such a way as to better facilitate the formation and success of cartels, so that over the next decade we are likely to witness a proliferation of international cartels that will succeed in raising the prices of a large number of key commodities? There are no simple answers to these questions. While the interest in cartelization on the part of some LDCs may indeed be greater, there appears to be no clear change in the structure of commodity markets that would facilitate their cartelization. It is difficult to agree with C. Fred Bergsten's assertion, for example, that the environment has shifted to one in which supplies of raw material commodities are shrinking as demand keeps growing, thereby encouraging cartelization. In the past some cartels succeeded while others failed for reasons specific to each market and to each cartel configuration. As a more recent example, IBA succeeded while CIPEC, the copper cartel, did not-and