Early in 1940, Secretary of Commerce Harry Hopkins showed Franklin Roosevelt a brief outline of fiscal policies for defense as seen by economists on his staff. The first step was prompt expansion to the level of full by means of federal deficits. Then, once full employment is attained, the task of fiscal policy is twofold: (1) to maintain full employment; (2) to secure as rapidly as possible that orientation of production which our defense demands. Leon Henderson, Richard V. Gilbert, and other liberal Keynesian advisers were proceeding with the 1930's agenda of recovery. They viewed expenditures for national defense, together with exports of military goods, as

In a 1966 article in this Review, Maurice Allais presented a sophisticated and very successful method for estimating the demand for money. It departed from the usual investigations in (i) using the expected rate of change of outlays, which were assumed to be in fixed proportion to nominal output, rather than the expected rate of change of prices; and in (ii) using a time-variable distributed lag in the estimation of the expected rate of change of outlays.' This note concentrates on analyzing that distributed lag and its use in specifying the demand for money. However, the results of the analysis suggest that the question of what is the correct argument in the demand function for money, expected rates of change of prices or outlays, is not independent of the specification of how they are estimated. As Phillip Cagan has noted (1969, p. 428), the crucial feature of Allais' distributed lag is that the weighting pattern rises and falls with velocity. The danger in this is that the expected rate of change of outlays computed from that distributed lag is used to estimate velocity.2 The Allais procedure, therefore, may come down to regressing velocitv on its past values. But if this is the case, whether rates of change of prices or of outlays is used is relatively unimportant; either washes out in the estimation process. Hence it would not be true as Allais claims that . it is possible to choose between two different approaches only by confronting them with reality (1969b, p. 444). The fact that extrapolations of timeseries often give good predictions may be enough to explain the good results that Allais obtains. The remainder of this note is taken up with showing how Allais' formulation of the distributed lag, and the definitions of the variables in it, lead to a method of predicting velocity which is essentially an extrapolation of velocitv, and its derivatives, appropriately smoothed. The notation used is that in the original Allais piece (1966); numbered references in parentheses are to equation numbers in that work. We denote the demand for nominal money balances per dollar of transactions as Od. Transactions are assumed to be in fixed proportion to nominal output so that we identify 4d with the inverse of income velocity, V. Velocity is assumed to vary directly with z, the expected rate of change of outlays or nominal output. All of this is summarized by:

In a recent article in this Review, Martin Weitzman argued that the observable slowdown in the of output (gy) of the Soviet economy in the 1960's need not be associated with a fall in the of total factor productivity (ga), as is usually suggested, but rather can be better shown to be a manifestation of diminishing returns to capital. By directly estimating a Constant Elasticity of Substitution (CES) production function' for the two decades following World War II, he found an elasticity of substitution of capital for labor (o-) significantly less than one. From this he concluded that the slowdown in the of that economy could largely be explained in terms of the diminishing returns to capital which resulted from the small substitutability between capital and labor and rapidly increasing overall capital deepening in the economy. Weitzman concluded that Instead of capital, labor and technical change will have to be increasingly relied upon as alternative sources of future economic growth (p. 685); and [that due to demographic trends] This rests the spotlight finally on technical change .. the way of raising g, is now to increase ga because gL iS more or less fixed .. . (p. 686). We should like to advance the proposition that the record of of the Soviet economy during the 1950's and 1960's (as presented in Weitzman's Table 1, p. 677) points to aspects of the underlying Soviet macro-production process other than the small elasticity of substitution as possibly the kev culprits effecting the noted slowdown in g,. Furthermore it is suggested that perhaps the most appealing way of raising g, may after all be not through the overall productivity relationship A (or ga), but rather through the term slighted by Weitzmanthe rate of the labor force gL. We fit the data in Weitzman's Table 1 to a maximum likelihood, non-linear regression program,2 similar to that used by Weitzman. A more general model was employed which imposed neither a geometric time trend, nor unitary returns to scale on the data. The specification used was: