Knowledge that Transforms

It is high praise when so expert a * scholar as Samuel Hollander (1980) hails my canonical classical model (1978) as likely to become locus classicus for the next generation of textbook writers. Like Fletcher I care not who makes a nation's laws if I can shape its textbook writers' songs. But with power comes responsibility. I must weigh and respond to the doubts Dr. Hollander raises about some positions I took in the three-seventeenths of my positivistic text that digresses to interpret particular historical controversies. I shall be brief and deal only with most essential points.

A DAM SMITH'S use of the manufacture of pins to illustrate the benefits to efficiency of the division of labor (1776, Book 1, chap. 1) is famous, but there are few references to the subsequent development of the pin trade in the literature. The purpose of this note is to outline the development of the pin trade since Adam smith's reference to it and to place his comments in a new perspective. Pins have changed very little during the two hundred years since Adam Smith wrote about the trade. This makes possible meaningful measurement of long-term changes in labor productivity, which are described later. First, the structure of the trade, which has changed, is outlined. In an appendix the techniques of production, which have also changed, are described.

PHE PERSISTENT presence of inflationary problems in most industrialized countries has lead to a renewed interest in the relationships between inflation and the tax system.' There exists a vast literature on the microeconomic aspects of this problem and especially on various accounting procedures used to compensate for distorting inflationary effects. These aspects of inflacounting will not be dealt with in this paper, at least not directly.2 This paper will begin with a typology of the effects of inflation on the tax system; next it will concentrate on some macroeconomic aspects of the impact of inflation on the tax system on the one hand and the impact of the tax system on inflation on the other. On a more general level this problem leads to the question of how far inflation-intentionally or unintentionally-acts as a means of taxation, i.e., as an alternative way to transfer resources from the private to the public sector of an economy.

We are indebted to many people for their encouragement and advice in undertaking this project. Above all, however, we must thank the editor of this journal, whose practical and scientifc judgment kept us on track through what turned out to be a long and at times difficult task. In addition, we must thank William Baumol, Gerald Faulhaber, Michael Intriligator, George Lee, Stephen Littlechild, Fritz Machlup, Thomas Marschak, Herve Moulin, Andrew Postlewaite, Juan Eugenio de la Rama, Robert Rosenthal, David Schmeidler, Anne Schotter, and Martin Shubik, all of whom have read the manuscript either in part or in whole and have given us extremely useful scientific and editorial advice. Professor Schotter's participation in the project was made possible by a grant from the Office of Naval Research Contract No. N00014-78-C-0598, whose support is gratefully acknowledged. All errors in the work that follows are those of the authors alone.