The production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong. Yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework, but actually to argue that the basic idea of production smoothing is all wrong. Most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales. This paper first documents the stylized facts. Then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts. Finally, it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions.

I. Introduction, 608. — II. Elements of a model of inheritance, 610. — III. Primogeniture, 612. — IV. The mating function, 614. — V. Random mating, 616. — VI. Class mating, 620. — VII. Assortative mating, 623. Every generation regards as natural the institutions to which it is accustomed. — R. H. Tawney

A small interview survey was undertaken to see how actual wage-setters would react to the central ideas of several economic theories of wage stickiness. Wage cuts were surprisingly prevalent in recent years, despite the booming economy. The strongest finding was that managers believe that perceptions of fairness play a major motivational role in labor markets and that a “fair” wage policy is a good deal more complicated than simply not cutting wages. We also found substantial evidence for money illusion and against the adverse-selection version of the efficiency wage model.