Knowledge that Transforms

It has long been recognized that consumption behavior represents mainly joint household or family decisions rather than separate decisions of family members. Accordingly, the observational units in consumption surveys are "consumer units," that is, households in which income is largely pooled and consumption largely shared. More recent is the recognition that an individual's use of time, and particularly the allocation of time between market and nonmarket activities, is also best understood within the context of the family as a matter of interdependence with needs, activities, and characteristics of other family members. More generally, the family is viewed as an economic unit which shares consumption and allocates production at home and in the market as well as the investments in physical and human capital of its members. In this view, the behavior of the family unit implies a division of labor within it. Broadly speaking, this division of labor or "differentiation of roles" emerges because the attempts to promote family life are necessarily constrained by complementarity and substitution relations in the household production process and by comparative

Economics has long been plagued with controversies: the Keynesian-monetarist controversy, the investment function controversy (is the elasticity of substitution unity?), the liquidity preference-loanable funds controversy. Geoffrey Harcourt has extended his survey article from the Journal of Economic Literature (1969) into a book dealing with one of the latest of these so-called controversies, that between Cambridge, England, and Cambridge, Massachusetts, concerning capital theory. The book is more balanced and more complete than the original survey article and includes some good pieces of exposition. The problems that I find with the book are basically problems I find with the Cambridge (U.K.) theory of which he is a partisan on one side-as, I suppose, I am on the other--and so, rather than focus on any errors and confusions which are peculiar to Harcourt, I prefer to focus on three of the major issues involved in the dispute and to suggest, in doing so, where Harcourt (and the Cambridge [U.K.] theorists) have gone astray.

This paper extends the theory of optimal taxation and government production to open economies. Appropriate rules for project evaluation and the determination of consumption, production, and trade taxes under a variety of restrictions (e.g., less than 100 percent profit taxes, government budget constraint, foreign exchange constraint) are derived. Among the results are (a) international prices should be used for evaluating public projects, unless there is a government budgetary constraint or there is a quota (this result does not require that tariff rates be optimally chosen); (b) no tariff should be levied on intermediates and only consumption taxes should be employed if there are 100 percent profit taxes. If profits are not taxed at 100 percent, both consumption and trade taxes should be employed.