UNDER the new statute, the Bretton Woods Agreement, which defines obligations of countries regarding international financial policies, exchange depreciation has been accepted as the correct and suitable policy to correct a 2 There is no agreed definition as to what constitutes a fundamental disequilibrium.3 But it would seem without question that the definition comprises a position of disequilibrium in the balance of payments of a country lasting over a certain period of time and resulting in a persistent decrease of that country's liquid assets.4 object of the present paper is to draw attention to the existence of two different types of each of which has the following characteristics: (a) it will lead to a persistent balance of payments deficit, and (b) for the country concerned, this deficit can be eliminated by an alteration of the rate of exchange. But while for one of these two types of disequilibrium the alteration of the rate of exchange of one country has an equilibrating effect on the economies of all countries, such an alteration creates serious new disequilibria if the original disequilibrium is of the other type. main part of this paper will be devoted to an analysis of the international effects of exchange adjustment in this second case. Failure to make adequate distinction between these two types of disequilibrium may have been caused by a lack of adequate terminology and by the consequent over-extensive reliance on the terms and undervaluation. Overvaluation is being used to describe two different things. In the first place it refers to a cause of a balance of payments disequilibrium, namely a relative rise in prices in a country (after allowing for changes in the rate of exchange) compared with the world. It is in this sense that one would state that the I945 rate of 50 French francs to the dollar constituted an overvaluation of the franc. In the second place the term indicates the existence of a balance of payments disequilibrium, without reference to any particular cause. In this sense it was said that sterling was overvalued in I945 and I946, although the point was made at the same time that comparing relative prices or relative price increases in the United Kingdom and the United States, sterling was undervalued compared with the dollar. Since a country's balance of payments depends not only on relative prices, these two situations may, but need not at all, coincide. It would seem to contribute to clarity on 1The author is an official of the International Monetary Fund. This paper was written prior to his employment by the Fund and should not be considered as an expression of the views of that organization. 2 Articles of Agreement of the International Monetary Fund, Article IV, Section 5. Recent experience shows interesting cases of appreciation to correct a favorable disequilibrium (Canada, Sweden). This paper deals with the unfavorable type of disequilibrium only. 'For a discussion of the difficulties of defining this term, see Ragnar Nurske, Conditions of International Monetary Equilibrium, Essays on International Finance, No. 4, Princeton, N. J. 'A recent interpretation of the Articles of Agreement of the Fund, recognizing in principle chronic unemployment as a legitimate cause for depreciation, does not go far toward providing a general definition of the term interpretation made by the Executive Directors of the Fund on September 26, I946, was as follows: The Government of the United Kingdom has stated its intention to maintain full employment and has requested an interpretation of the Articles of Agreement as to whether steps necessary to protect a member from unemployment of a chronic or persistent character, arising from pressure on its balance of payments, shall be measures necessary to correct a fundamental disequilibrium. The Executive Directors interpret the Articles of Agreement to mean that steps which are necessary to protect a member from unemployment of a chronic or persistent character, arising from pressure on its balance of payments, are among the measures necessary to correct a fundamental disequilibrium; and that in each instance in which a member proposes a change in the par value of its currency to correct a fundamental disequilibrium the Fund will be required to determine, in the light of all relevant circumstances, whether in its opinion the proposed change is necessary to correct the fundamental

THE object of this paper is to consider, from a theoretical point of view, the price development in a wartime economy with price control short of a general price ceiling. If there is an absolutely complete and universal price ceiling, changes in prices are automatically ruled out. But in hardly any war economy are price increases so completely absent as to make superfluous a study of the development of prices and the factors affecting this development. In no modern war economy, on the other hand, are prices so free to move as to make an equilibrium analysis, based on a continuous and immediate adjustment of supply and demand through changes in prices, a fully adequate approximation of actual developments. A highly instructive model of the behavior of prices in a free-price economy under the stimulus of wartime inflation has been developed by Dr. Koopmans.' Such a model can be considered only as a limiting case which actual developments would approach if there were no control over prices. The present paper starts from the reverse point of view, though it is realized that such treatment assumes great strength in the price control mechanism if it is operating as it is likely to be in a milieu of greatly excessive demand. Price formation will be studied from the supply rather than from the demand side. Wage increases, for instance, will be considered as a price raising factor because they raise costs, not because they swell the public's purchasing power. There seems to be some justification in taking this extreme point of view. Excessive purchasing power does not in itself exercise a price-raising influence. Taxation and compulsory savings may take away a large part of this purchasing power, and the rest may be absorbed by various kinds of voluntary savings. Or, if consumers are left with the money, it may be directed away from the scarce commodities, and thus be prevented from exercising a priceraising influence, by an extensive rationing system. Or finally, if the stream of money is neither absorbed by the government nor canalized into safe regions by rationing, it may simply beat, but not break, the dams erected by the pricecontrolling authorities, in which case excessive demand will result in shop shortages, not in rising prices. In fact, with a high rate of excess profits taxation, entrepreneurs have little stimulus to raise their prices to the point of equilibrium unless costs go up.2

V faL-e + [p(L1 K) -e]K-e} -l/e (1) where 4 is an arbitrary function. In the particular case where 4' 4 (L11K) is constant and e--O, the production function becomes V = r1 KA L1(L1/L)X. (2) While testing the ability of the production function (2) to explain the international pattern of labor productivity and wages, Mitchell does not present all properties of that function. Indeed, one special feature of the function (2) is to be easily workable for empirical purposes, if we have statistical data on physical quantities of the inputs and output, or on relative shares. Another main feature lies in the properties of that function, concerning the partial elasticities of substitution between pairs of inputs. This note considers those two points, with emphasis laid on the second one. We show that some of these partial elasticities of substitution are not constant. Uzawa [6] has characterized the class of constant Allen elasticity of substitution production functions (CAES), and McFadden [3] the class of constant direct partial elasticity of substitution production functions (CDES) as well as the class of constant shadow partial elasticity of substitution production functions. The function (2) is neither of the CAES class, nor of the CDES class. Hence, we must calculate the partial elasticities of substitution, according to each of the two conventional definitions. We begin with the Allen partial elasticity of substitution, as reformulated by Uzawa [6, p. 293] c a2 C

A major goal of social programs in a time of fiscal austerity is to focus available assistance on those households in the greatest need. This seemingly simple dictum has become increasingly difficult to follow as the dynamics of poverty have been clarified through analysis of longitudinal panel data in recent years. We can illustrate the importance of these dynamics using the following findings about the future incomes of the 22 million people in poverty in 1967.