A recent line of research has exposed some technological determinants of the structure of industries that produce more than one good. The analyses of both multiproduct perfect competition and natural monopoly require a generalized notion of average cost and, in addition, several newly identified technological characteristics pertinent only to joint production. This paper provides an overview of these new results, and suggests a unifying framework in which the theory can be further developed.

I began my article Consumer's Surplus Without Apology (henceforth, CSWA) with the words The purpose of this paper is to settle the controversy surrounding consumer's surplus... (p. 589). That is my purpose here, as well. However, George McKenzie's published comments have taught me that if articles and careful analyses settle controversies, they only do so very slowly. McKenzie makes sweeping and attacking statements about CSWA but fails to substantiate them. He scatters birdshot criticisms at CSWA that are based on misreadings of rather clear material. He offers an example in which he miscalculates multiproduct consumer's surplus. Finally, he contends that his own (with Ivor F. Pearce) approach to welfare analysis is preferable to the consumer's surplus approach. In this reply, to keep the record straight, I show in Section I that each of McKenzie's strongly worded attacks is unsubstantiated and invalid, and that each of his more technical sounding criticisms rests only on misreadings of CSWA. More interestingly, in Section II, I summarize some of the theory of multiproduct consumer's surplus that is needed to understand the calculatiop error in and proper interpretation of the example that McKenzie proffers. In Section III, I argue that the approach to welfare analysis advocated by McKenzie and Pearce is far less useful than the consumer's surplus methodology.

In an important article in this Review, William Brainard and James Tobin have emphasized the role played by the wealth constraint in systems of asset demand equations. The wealth constraint gives rise to consistency conditions which must be satisfied by the demand functions when such a system is specified and estimated. As Brainard and Tobin caution, care must be taken to ensure that unrealistic coefficients are not inadvertently imposed on omitted equations by failure to recognize the consistency conditions.' Noting that the wealth constraint applies out of, as well as in, portfolio equilibrium, Brainard and Tobin focus attention on systems in which actual and desired stocks of assets differ. They specify a multivariate stock adjustment model wherein the desired change in holdings of any asset depends in general upon all asset stock disequilibria; the existence of such stock disequilibria can be implicitly rationalized on the basis of costs of adjustment which impinge on the rate of change of at least some assets. In this framework they show that the stock adjustment coefficients must also satisfy certain consistency conditions to ensure that the wealth constraint is satisfied. An important feature of their analysis is that the total change in wealth (savings plus capital gains) is treated as exogenous to the financial sector, and the asset flow demands described above are conditional upon the exogenously given change in wealth. This strategy of separating the portfolio balance decision from the consumption-saving decision is one that Tobin has explicitly used and justified in his 1969 article (especially pp. 15-16), and is one that has been widely and effectively used in modern macroeconometric models. The central argument of the present paper is that this of flow-allocation and stock-allocation decisions is not legitimate in the presence of adjustment costs attached to changing the level of individual asset holdings. The existence of adjustment costs means that there is no portfolio balance problem per se (in the sense of allocation of a given level of wealth), but rather a (longer run) problem of determining an optimal time path for each asset and for the level of consumption. Thus a natural extension of the Brainard-Tobin model is to treat saving and portfolio decisions in an integrated fashion.2 Note that the Brainard-Tobin model is perfectly consistent with any model of savings behavior and hence no logical con*Queen's University, and Cowles Foundation for Research in Economics, Yale University. I am grateful to Adrian Pagan, Gordon Sparks, and James Tobin for helpful discussions, and especially to Gary Smith who, as well as patiently discussing many of the issues, provided detailed comments on earlier drafts of this paper. This research was partially supported by a National Science Foundation grant to the Cowles Foundation and by a Canada Council grant to the author. Remaining mistakes and opinions are my own. I This also has implications for the common practice in macro-economic models of leaving the bond market as implicit. Care must be taken to ensure that silly behavior is not inadvertently attributed to bondholders. William Silber, Tobin, and Alan Blinder and Robert Solow have initiated research which reintroduces the bond market into macroeconomic models. 21t appears to be a fairly general result that the existence of adjustment costs leads to integrated behavior. M. Ishaq Nadiri and Sherwin Rosen have established a similar result for the theory of the firm, and Robin Mukherjee and Edward Zabel have recently shown that the separation theorem prominent in the finance literature on the mean-variance approach to optimal consumption-portfolio behavior fails to hold when transactions costs are introduced. In my 1975 paper (Appendix), I have argued that the integration of saving and portfolio balance decisions also applies in continuous-time models, even though such models are characterized by separate stock and flow budget constraints.

sex-typing should be ended, women should receive equal pay for equal work, and women should do less unpaid work at home and men should do more.' This paper offers a theory of household formation which makes it possible to predict the impact of changes in economic conditions, including those proposed by the Women's Liberation Movement, on household behavior. The ideas presented in this paper grew from my attempt to explain why a wife chooses to work in the market economy, in the home and/or in community service

The European centrally planned economies (CPEs) have sustained chronic hard currency deficits since East-West trade began to expand in earnest about fifteen years ago. While their outstanding hard currency debts almost doubled over 1975-76 as a result of an inability to adjust quickly to the Western recession-a previously unsuspected vulnerability-other systemic factors rooted in Stalinist central as practiced in the CPEs, have been responsible for the more secular balance-of-payments problems.' I refer to the wide use of direct controls to allocate intermediate products, the prevalence of or over full-employment planning, and irrational domestic pricing. These have several implications for economic performance which are relevant to the CPEs hard currency balances of payments. First, the CPEs tend to produce relatively low quality manufactured products and have a marked inability to sell their products in Western markets. Inability to compete successfully is not due to price, but, to quote a Hungarian economist, Imre Vajda, to deficiencies in performance, reliability, appearance, packing, delivery and credit terms, assembling facilities, after-sale services, advertising, selling itself , primarily factors other than price . (p. 53). This ineptness results largely from lack of competition-the fact that domestic products are distributed by the plan rather than sold and that quantitative goals take precedence over qualitative goals. Further, taut planning results in sellers' markets, additionally weakening managerial incentives to improve quality. Nor does play a significant role in intrabloc foreign trade. This trade is characterized by large state trading agreements, protected markets, and little or no direct contact between the producing enterprise in one nation and consuming enterprise in the other. Second (and related) is the well-known relative weakness of socialist nations in innovation and technological change. This is due to the absence of competition just noted, to rewards for innovation which are inadequate to offset the risks or overcome inertia, and to the dysfunctional organization of R&D establishments and their relations to operating enterprises. Third, the CPEs trade with each other and with the West at roughly world prices, even though these prices usually have no organic or consistent relationship to domestic prices. Their exchange rates serve as units of account but not as real prices. Their currencies are not only totally inconvertible into each other, they are also largely inconvertible into goodsso-called commodity inconvertibility (see the author, 1978). That is to say, foreign importers (exporters) are not allowed to compete freely with local enterprises for products (markets) because this would disrupt the plan. This significantly reduces short-run ad hoc exports-most exports have to be planned long in advance. These factors lead to at least three causes of persistent hard currency shortages: 1) the *Professor of economics, Tufts University and associate, Harvard Russian Research Center. Some of the ideas in this paper appeared earlier in my 1973 article. A much longer current version is available on request. I am indebted to Abram Bergson for incisive criticisms of two earlier drafts. 'Other than systemic factors may also be responsible. For example, the current availability of Western investments and credits on reasonable terms and the present willingness of the CPEs to entertain such relations with the West is one such factor. It should also be noted that the LDCs and some advanced industrial nations also have chronic balance of payments problems. However, I argue that the factors to be mentioned below are unique to the CPEs.

In a recent article in this Review (1984), Samuel Hollander suggests that the secular path of real wages in the Marxian model tends toward a subsistence wage at which population growth ceases. He attributes this decline to a higher growth rate in population relative to a positive but decreasing rate of growth in the demand for labor power. From this he contends that, in contrast to the Malthusian prescription, Marx . . is open to the objection that, with no check at all to the population growth rate, the deterioration would have been sharper still (p. 148). The implication of Hollander's argument is clear enough, for if accepted, it would necessarily lead one to dismiss Marx's claim that: ....every special historic mode of production has its own special laws of population, historically valid within its limits alone. An abstract law of population exists for plants and animals only, and only in so far as man has not interfered with them (Capital, I, 1967, p. 632). This comment takes issue with the thesis advanced by Hollander on two major points. First, the secular decline in the value of labor power is a result of the increasing productivity of labor rather than the divergence between the respective growth rates in population and the demand for labor power. Second, this is perfectly consistent with constant or even rising absolute real wages (price of labor power) for the active part of the working class.1 Thus, population control is neither a necessary nor a sufficient condition in assuring against falling real wages for a changing social productivity of labor. Put differently, the supply of labor power to the advanced capitalist sector is the crucial supply variable -not the rate of population growth. I begin by reviewing Hollander's useful distinction between Marx's value of labor power and the classical school's minimum subsistence wage. Next, it is shown that the value of labor power is determined by the social productivity of labor rather than factors exogenous to the system (population). The discussion is brought to a close by focusing on the prime mover of the path of relative real wages in the Marxian model: the endogenously determined supply of labor power (surplus population) to the advanced capital sector.