IN AN earlier article in this Journal and in several other places, evidence has been presented supporting a theory of the demand for money that is a part of the "wealth adjustment process." The posited demand function has successfully passed a large number of tests in competition with more than a dozen alternatives, representing the bulk of substantive work on the demand for money in the past thirty years. Though no series of tests is "definitive," the evidence from tests against alternatives is of crucial importance in establishing the economic relevance of the particular demand function. I regard such tests as preliminary to —and far more important than—"Chow tests," "Theil-Nagar tests," "Durbin-Watson tests," and other sophisticated statistical procedures for establishing the relevance of particular hypotheses.4 However, the accumulating evidence suggests that the use of refined statistical procedures may now be desirable. I welcome the opportunity presented by the comments of Courchene and Shapiro to present some of the available evidence on the points that they raised.

C ONTROLLING inflation in any underdeveloped economy where the emphasis is on rapid economic growth is never easy. Policies for controlling price increases almost invariably affect a country's rate of growth-a fact no less true for Mainland China than for any other developing country. The particular interest of the Chinese Communist experience arises from the high degree of direct control exercised over most aspects of the Chinese economy. This high degree of control has often forced the regime to face the relationship between inflation and growth in areas where the connection between the two is commonly ignored. Until 1958 or 1959 the Communists in China had managed not only to achieve a high rate of growth, but to keep price increases at a moderate level. They accomplished this in the face of a development strategy that gave overwhelming priority to the industrial producers' goods sector and a technique of planning that relied on overfull utilization of resources. In addition, during the first three years of the regime's existence, China was involved in a major war effort. Under similar, but probably less severe, handicaps the Soviet Union in