Knowledge that Transforms

In both the United States and the United Kingdom the economics literature of recent years has been replete with discussions of the compatibility of price level stability and high employment. Interest in this broad subject has in turn stimulated renewed interest in movements of money wage levels, and particularly in the set of relationships between unemployment conditions and money wage levels. The general relevance of this type of empirical research for the "cost inflation" controversy and for the formulation of stabilization policies has been discussed at length elsewhere and so will not be considered in detail here. The main objectives of the present paper are fourfold: (1) to clarify the nature and significance of recurrent procedural problems involved in attempts to relate wage behavior to unemployment conditions, especially when only annual data are available; (2) to set forth statistical results obtained for the United States economy for the period 1900-1958 taken as a whole and for various sub-periods, with the level of unemployment and changes in the level of unemployment used as the main explanatory variables; (3) to consider in some detail the a priori basis for expecting a relationship between the rate of change of money wages and one particular explanatory variablechanges in the level of unemployment; and (4) to make some admittedly rough comparisons between the American results and the British results.

MECHANISM Si commodity, with each market in turn described by (a) supply conditions, (b) demand conditions, and (c) clearing of market or equilibrium conditions, of which one is redundant (Wairas' law).The main advantage of the general equilibrium framework is that it insures a systematic and, at least initially, symmetrical treatment of all markets.'For the commodity market, the demand conditions are described by equations (i) to (i); the supply conditions by (4b) and the clearing conditions by (7).In the labor market the supply is given by ( 6), to be reviewed more closely below; the demand by ( 5); and market clearing by (8).The remaining two markets are described under the next heading, 2.2. Explicit treatment of the bond market and

PpT HE subject assigned for this session covers too broad an area to be given even fairly cursory treatment in single paper. Accordingly, we have chosen to concentrate on the part of it that relates to in fluctuations. We shall still further narrow the scope of the paper by interpreting monetary factors to mean the role of the stock of money and of changes in the stock thereby casting the market as one of the supporting players rather than star performer and by interpreting economic fluctuations to mean business cycles, or even more exactly, the reference cycles studied and chronicled by the National Bureau. The topic so interpreted has been rather out of fashion for the past few decades. Before the Great Depression, it was widely accepted that the business cycle was phenomenon, a dance of the dollar, as Irving Fisher graphically described it in the title of famous article.' Different versions of theories of the business cycle abounded, though some of these were really theories misnamed, since they gave little role to changes in the money stock except as an incident in the alteration of credit conditions; and there was nothing like agreement on the details of any one theory. Yet it is probably true that most economists gave the money stock and changes in it an important, if not central, role in whatever particular theory of the cycle they were inclined to accept. That emphasis was greatly strengthened by the course of events in the twenties. The high degree of stability then achieved was widely regarded as consequence of the effectiveness of the policies followed by the only recently created Federal Reserve System and hence as evidence that were indeed central factor in the cycle. The Great Depression radically changed attitudes. The failure of the Federal Reserve System to stem the depression was widely interpreted-wrongly as we have elsewhere argued 2 and elaborate below to mean that were not critical, that real were the key to fluctuations. Investment which had always had prominent place in business cycle theories received new emphasis as result of the Keynesian revolution, so much so that Paul Samuelson, in the best selling textbook in the country, could assert confidently, All modern economists are agreed that the important factor in causing income and employment to fluctuate is investment. 3 Investment was the motive force, its effects spread through time and amplified by the multiplier, and itself partly or largely result of the accelerator. Money, if it entered at all, played purely passive role. Recently, revival of interest in money has been sparked less by concern with business cycles than with concern about inflation. Easy money policies were accompanied by inflation; and inflation was nowhere stemmed without more or less deliberate limitation of growth of the money stock. But once interest was aroused, it naturally extended to the cycle as well as to inflation. In the United States, indeed, there has been something of repetition of the I920's. A high degree of stability has been accompanied by large measure of talk about an active policy, and the authorities have often been given credit for playing an important role in promoting stability. As the experience of the twenties suggests, this fair-weather source of support for the importance of money is weak reed. Examining the present state of our understanding about the role of money in the business cycle, we shall first present some facts that seem reasonably well established about the cyclical behavior of money and related

Robert Triffin, Herbert Grubel, The Adjustment Mechanism to Differential Rates of Monetary Expansion among the Countries of the European Economic Community, The Review of Economics and Statistics, Vol. 44, No. 4 (Nov., 1962), pp. 486-491

"January, 1961."

In September I958, the Subcommittee on Stabilization of the Joint Committeeof the U.S. Congress distributed an Economic Policy Questionnaire among some I500 college and university economists. The replies on the 65 questionnaires which were returned have been tabulated and appear in a report which has recently become available. It is the purpose of this note to discuss some of the significant aspects of the questionnaire.

IN the continuing debate about the role of money, credit, and monetary policy in our society, one of the major issues centers around the specific incidence of "tight money" on individual business firms. On the one hand, leading proponents of monetary controls as a regulatory device have emphasized the general, impersonal nature of such controls. They have argued that the impact of monetary policy is determined by the reaction of individual borrowers to changed market conditions.

T HIS paper presents estimates derived from federal estate tax data of the numbers of top wealth -holders 1 and of the aggregate amounts of wealth held by them for selected years between I922 and I 956. Changes in the concentration of wealth during that period are delineated by relating the numbers of top wealthholders to the population and the amount of wealth held by the top group to independent estimates of the amount of wealth held by all persons. The discussion is organized under the following headings: (I) History of Wealth Distribution Study; (2) Sources of Data and Methods of Estimation; (3) The Share of Top Wealthholders in I953; (4) A Comparison with Survey of Consumer Finances for I953; (5) Historical Changes in Inequality; (6) Comparison with Wealth Distribution in England and Wales; and (7) Summary.

Recently, in this REVIEW (J. K. Galbraith, "Market Structure and Stabilization Policy,this REVIEW, XXXIX (May 1957) I24-33) Professor Galbraith has asserted that in the case of monetary policy the "inflation can be controlled by denying credit to what are, in a general way, the least powerful firms" (page 132). Elsewhere, these least powerful firms are identified as the smaller firms (pages 131, 132, 133), and evidence concerning the distribution of bank loans by size is presented, to indicate that "while the case cannot be proven, there is a strong probability that in the last couple of years the effect of monetary policy has been to ration credit from all sources away from smaller firms in the competitive sector and to larger firms in the oligopolistic sector" (page 133).