GDP, the most fundamental concept of aggregate economics, is often misunderstood and misused. In a brief book, Diane Coyle attempts to demystify and clarify the concept by providing what she calls “an affectionate history.” The product is a lucid and clear presentation that however must come with a caution sign. The story is often incomplete, and what it does contain is not always accurate. Among the salient and controversial topics discussed are the adequacy of GDP for the twenty-first century, the deficiencies of GDP as a measure of welfare, and the strange way in which banking services are calculated. (JEL B22, E01, E23)
NANCY STOKEY AND ROBERT LUCAS, JR., and Ed Prescott have produced an exceptionally useful, thorough, and timely introduction to stochastic economic dynamics. Dynamic optimization techniques developed in Operations Research, formulated initially by Richard Bellman (1957), have been used extensively in economics, particularly in macroeconomics, finance, and public finance. Economic theorists have extended dynamic programming theory in several valuable directions. Of particular note for this book is the concept of recursive equilibrium introduced in Edward Prescott and Rajnish Mehra (1980). While these techniques have been used extensively, there has been no broad, unified, and comprehensive presentation of the concepts, tools, and applications of recursive dynamic techniques that is written for economists and demands no more mathematics than a typical student is exposed to in a good graduate program. This book succeeds marvelously in filling this need. Furthermore, given the depth of development, it is also a valuable reference for researchers. Before describing the book's contents in detail, we should discuss what is distinctive and important about the recursive approach to dynamic economic problems. To do this, let's examine a simple problem and an alternative approach to its solution. The canonical problem for economic dynamics is the infinite horizon deterministic growth problem. Let k, be the capital stock at the beginning of period t, f(kt) a neoclassical production function expressing period t production as a function of kt, ct consumption in period t chosen at the end of the period, u(c) a concave utility function, and I the discount factor. Then a social planner for this infinitely lived economy will solve the problem
pUBLIC FINANCE iS treated in the new International Encyclopedia of the Social Sciences (IESS) in 14 articles totaling some 74,000 words, exclusive of bibliographies (see the accompanying tabulation). In addition, several biographical articles deal with contributions to public finance made by their subjects. The authors are all scholars of standing, and readers can be confident that the treatment meets accepted standards of professional competence. Rather than commenting systematically on the individual articles, I propose to try to characterize the scope and nature of the coverage of the field, illustrating points by reference to particular articles, and to compare the treatment of public finance in the new encyclopedia (IESS) with that in the Encyclopaedia of the Social Sciences (ESS) which was published in 1930-35. The biographical articles are mentioned but not examined. Finally, I shall venture some remarks on the editorial emphasis of the IESS and the state of the discipline of public finance.
The New Palgrave Dictionary of Money and Finance is a successor to the 1987 work The New Palgrave: A Dictionary of Economics. Both dictionaries claim descent from Palgrave's Dictionary of Political Economy, published as a summary of the state of economics during the 1890s. The same team of three editors is responsible for both New Palgrave dictionaries,1 and there are many similarities in approach. Indeed, about 20 percent of the essays in the New Palgrave Money and Finance are reprinted from the New Palgrave Economics (and ten essays are reprinted from the original Palgrave). There are also some obvious differences between the two New Palgrave dictionaries. The New Palgrave Economics had a much broader scope, aiming to cover all of modern economics. It was considerably larger than the New Palgrave Money and Finance, with four volumes rather than three, 3500 pages rather than 2500, and almost 2000 essays rather than 1000 or so. The New Palgrave Economics included biographical essays, which took up about a third of the work; the New Palgrave Money and Finance has no biography but includes many short definitions of technical terms. Last but not least, the New Palgrave Economics omitted empirical topics to concentrate on economic theory and history of economic thought, while the New Palgrave Money and Finance covers much empirical material.
I have benefited from comments and criticisms of an earlier draft by Irma Adelman, Peter Balacs, Ronald Dore, Edgar Edwards, Unni Eradi, Michael Faber, Anne Gordon, Keith Griffin, Jill Rubery, Seev Hirsch, Ernest Stern, Frances Stewart, Hugh Stretton, B. R. Virmani, Gordon Winston and Howard Wriggins. To these, and to a research seminar at Queen Elizabeth House, I am very grateful. I am also grateful to the Economic Development Institute of the World Bank and its Director, Mr. Andrew Kamarck, for having provided the facilities and stimulating atmosphere for the early stages of a considerably larger paper, commissioned by Mr. Ernest Stern, of which this paper forms a part. I am grateful to Mr. Stern and the World Bank for permitting me to use the material here.
G ERMANY iS in the headlines, not because of super performance but rather because it seems to be on the ropes. Inflation fighting, once again, is taking its toll on growth in Germany and in all of Europe; the instant integration project for East Germany has translated into massive unemployment there and an extraordinary financial cost to come for a decade or more in the West. Prospects for an integrated Europe, with a common money and fully integrated markets and joint policies are moving off the screen. If there ever was a miracle, today one is badly needed. The complacent, self-satisfied, overweight, and overpaid Germany is not coping well with the challenges. The timely and important book by Giersch, Paque, and Schmieding fills a gap in the economic history of West Germany (at least in the English language) and it does so in a thoroughly professional and substantial way.' The authors have set for themselves two tasks, to provide an account of events and to lay out a set of explanatory economic hypotheses in the tradition of free market economics. They provide an almost blow-by-blow account of events and trends, and a record of opinions to document where Germany came from and where it went. The book is fully successful in this objective and thus deserves attention from students of German economic history. Curiously the authors explicitly exclude economic historians from their readership and invite the interest of applied economists; let no student of economic history be put off by this unjustified exclusion. The book comments on German postwar economic events in a chronological fashion. A rundown of the chapter titles will give an immediate impression of postwar history, the issues, and the authors' angst: stylized facts 1945-90; 1945-48: establishing a liberal order; 1948-60: spontaneous growth; 1960-73: toward managed growth; 1973-90: facing the slowdown; two cheers for German unification; a new miracle? No question, as a record this book is superb. The most interesting part is the account of the immediate postwar reconstruction, including monetary reform and decontrol. This is where the miracle happened most conspicuously as Henry Wallich (1955) described so well. The bold write-down of the monetary overhang is just one of the reforms of the time that would have been instructive for the Soviet Union in the past few years. In this context one cannot pass up recounting the Allied reaction to price liberalization in Germany. The turnaround of Germany in 1948 was nothing short of a miracle. From one day to the next, productive forces were unleashed to let recovery and growth proceed at breakneck speed. The move from a socialist control economy to the free market was bold. One Sunday in 1948, while the Allied supervisors were not watching, Economics minister Erhard lifted summarily all price controls. Jossleyn Hennessy (1964, p. 5) reports how it all started:
T HIS BOOK is a big, ambitious undertaking, organized in 31 long chapters covering subjects which range from religion and civilization in economic life to money, banking, wages, and incentives. But, as the title suggests, it is essentially a research tool. It is meant not so much to be and reviewed as to be The test is whether people end up coming back to it more and more or less and less as time goes on. Judging from those areas of economics and sociology in which I have worked, I would predict people will return to The Handbook of Economic Sociology more and more. The chapter by Chris Tilly and Charles Tilly on labor market structures, the area I know best, is the most comprehensive review of the subject; it handles with rare sophistication, material drawn from across the social sciences. The essay by Alejandro Portes on the informal sector and that by Ivan Light and Stavros Karageorgis on the ethnic economy also consolidate areas of study dispersed over the literature of a variety of different disciplines. But I doubt that any single person is in a well-informed position to pass judgment on all of the essays in the volume. Nonetheless, the publication of a book like this provides an occasion to reflect upon the field of scholarly endeavor, to consider what it represents as a complement to conventional economics and, possibly, as an alternative. For this, it seems reasonable to the text, or at least peruse it, chapter by chapter. The first thing to be said about approaching The Handbook of Economic Sociology in that way is that it is a true handbook: The editors, Neil J. Smelser and Richard Swedberg, provide very little guidance on how it might be read as opposed to referred to. It has no real introduction. It invites readers to pick out chapters at random, following their own inclinations. This, moreover, turns out to be a very frustrating experience. It leaves one wondering what economic sociology is, or even, what economics is that economic sociology is not. Absent some other guide, one seems forced back to basic definitions. In introductory economics-at least when I teach it-we offer two of these. One defines economics broadly as the study of how people employ scarce resources and distribute them over time and among competing demands (Paul Samuelson 1961). The other is much narrower and more focused:
T WO HUNDRED and seventeen years after Adam Smith's publication, An Inquiry Into Wealth of Nations, comes Partha Dasgupta's An Inquiry into Well-Being and Destitution, which apparently is intended to be equally broad-ranging. Smith identified two forces that regulated level of per caput consumption in any nation, first being the skill, dexterity and judgment with which its labor is generally applied, and second being the proportion between number of those who employed in useful labour and that of those who not so employed. He distinguished sharply between savage nations of hunters and fishers from civilized and thriving nations. Although in former every individual who is able to work is more or less employed in useful labour, most are so miserably poor, that from mere want, they frequently reduced, or, at least, think themselves reduced, to necessity of sometimes destroying and sometimes of abandoning their infants, their old people, and those afflicted with lingering diseases, to perish with hunger or to be devoured by wild beasts (Smith 1937, pp. lviilviii). In contrast, in latter nations,
THIRTY YEARS AGO, when Koopmans began to be well known as an economist, he seemed to be a foreigner in a field where his approach to problems was often so different from the prevailing ones. Today a large group of young economists follows his path to scientific discovery. In this respect the book under review is particularly interesting. Not only does it serve as an easy access to articles that appeared in a large number of journals, but it also gives to the careful reader an opportunity to understand the true personality of Tjalling Koopmans, the scientist, and, beyond him, the methodology of modern economics.