Knowledge that Transforms

This is a review article based on W. O. Henderson's two-volume Life of Friedrich Engels. After a brief biographical summary, Engels's contributions to political economy are examined, and it is suggested that these are much more important than has so far been recognized (e.g., by Schumpeter). In particular, Engels's paper "Outlines of a Critique of Political Economy" announced several of the basic and least invalid themes of Marxist political economy. Later Engels, when criticizing Utopian socialism, contributed a very remarkable account of the essential functions of the competitive price mechanism.

Using a two-sector growth model, this paper examines the incidence of a corporation income tax. While the two-sector static model has provided a fairly precise conclusion as to the incidence of that tax, no such clear conclusion emerges from the growth model. This is because the results are quite sensitive to the precise value of the elasticity of savings with respect to the interest rate. However, one point is clear: Because a tax increase raises the price of investment goods, if savings rates are constant, capitalists must bear a smaller burden than that predicted by the static model.

This paper presents a simple analytical model of optimum pension size and funding practices for a local government. The criterion used is that the attainable frontier of labor-service purchases, for two periods, should be pushed out as far as possible given that there is a fixed endowment of tax revenues in each period. After the characteristics of the frontier are developed, the relationship between optimizing decisions and pension-funding practices is examined. Comparative-static results which may be fruitful for future empirical work are then derived.

A much smaller fraction of professional men live in two-career families than do professional women. The restriction that couples accept jobs in the same geographic location thus weighs more heavily against professional women than against professional men. A probabilistic model of the placement process is developed that predicts the geographic distribution of female professionals that would be observed in the absence of employer discrimination. This distribution is much more than proportionally concentrated in large urban markets. It is concluded that the proportional guidelines employed in the Affirmative Action program discriminate against employers located in small labor markets.

Recent changes in campaign finance legislation (passed by a heavily Democratic Congress) are considered within the context of the two competing theories of regulation, the "public-interest" theory and the economic theory of regulation. Empirical evidence is presented in support of the economic theory's explanation for these major regulatory changes in the political process. The evidence suggests that these changes were highly beneficial to the Democratic party and that they were instrumental in Jimmy Carter's defeat of Gerald Ford in the 1976 presidential election.

This paper criticizes Temin's hypothesis that the Great Depression was caused by an exogenous decline in consumption in 1930. Using Temin's own consumption function, as well as two other ones on the levels of the data, there is little support for Temin's hypothesis. First difference regressions support Temin's hypothesis if one uses a dummy variable for 1930. But if one looks instead at the residuals from the regressions, then the data provide only very limited support for it.

The excess burden of a tax is the diminution of utility above that which would have occurred had the tax been collected as a lump sum. Usually, excess burden is measured by a method which relies on a second-order approximation to an arbitrary utility function. In this paper, excess burdens are computed using explicit utility functions and the results compared with those obtained from the second-order approximation.

When the quality of a good varies, quantity in physical units may be a very misleading measure of total consumption. In this paper it is argued that differences in quality are a distinguishing feature of the market for physicians' services. We develop a model to analyze properties of demand functions for the quantity and quality of physicians' services and apply the model to study the demand for pediatric care--physicians' services rendered to children. The theoretical model of quantity-quality substitution provides a framework for demand analysis whenever the market for a good is distinguished by a quality component.

The study analyzes the wage and price adjustment process in open economies in response to changes in exchange rates and import price. It distinguishes between the impact or cost-push effect, in which the system may exhibit temporary nonneutrality, and the lagged response of excess demand in labor and home-goods markets, which determines the stability of neutrality of long-run equilibria. An empirical illustration is given of the importance of the cost-push effect in explaining differential price behavior of OECD countries during 1972-76.

The paper addresses the problem of deriving shadow prices for use in project evaluation when the existing allocation is characterized by ad valorem trade distortions. The analysis is used to clarify and resolve the long-standing debate among effective-rate-of-protection and domestic-resource-cost proponents as to the respective merits of their measures as methods of project evaluation. The derivation of shadow factor prices is then extended to three major factor market imperfections familiar from extensive trade-theoretic analysis.