Knowledge that Transforms

STATE income payments are the sums of the streams of wages and salaries, of proprietors' income, of property incomes, and of transfer payments flowing to the states' residents. In highly industrialized states the flow of wages and salaries will be relatively larger than in states more sparsely populated and heavily dependent upon farming. In the latter group of states, the flow of proprietors' income will be relatively larger. To some extent, at least, the recipients of property incomes may choose their place of residence without regard to the location of the property or activity giving rise to the income. rules under which persons receive some of the transfer payments, such as unemployment insurance or workmen's compensation, gear these payments closely to industrial activity. Other transfer payments, such as old-age pensions or veterans' benefits, may be distributed under rules which are largely independent of the type or magnitude of the industrial activity near the recipients' residences; these rules, however, may make qualifying for the transfer payments more attractive in some localities than in others. These component payments vary widely by state. It is the purpose of this paper to examine the interstate variability of the income components and their effects on state differences in per capita incomes. basic data are those provided by the National Division relating to I929, I933, and I939-5i, and by King and Leven for I919-2I.1These data are in terms of the aggregate amounts received by the residents of each state. Two series of adjustments are made to compensate for the large differences in state population. first is to reduce the data to a per capita basis.2 second is to express each component as a percentage of the state's total income payments. latter adjustment, while not explicitly taking state population differences into account, renders the data independent of these differences. Unlike national income, state income payments do not measure the returns to the factors of current productive activity during a specified year. Only those payments actually received by persons are included, and these are included whether they arise from current or from past economic activity. Consequently, these data cannot be used to judge whether there have been shifts in factor returns over the period.3 They do show, however, the changes in the forms in which income is made available to the residents of the various states. Some of these changes may have stemmed from changes in the relative importance of factors, such as the relative productivity of labor and capital; others, however, may simply reflect transitory phenomena, such as a short-lived increase in corporate savings. In the next section the relative interstate dispersion of per capita income is studied as a function of the manner in which the four components combine to form state per capita incomes. This is followed by an examination of the composition of state incomes in terms of their components. Finally, the wages and sal*This report was developed as a part of the Study of Differences in State Per Capita Incomes, which is being financed jointly by Duke University and Rockefeller Foundation. Mrs. Rena B. Webster supervised the basic computations for this report. 'Survey of Current Business, August I953, for I950-5I data; August I952, for I948-49 data; August I950, for I942-47 data; and August I945, for I929, I933, and I9394I data. W. I. King and M. Leven, in the Various States, Its Sources and (National Bureau of Economic Research, New York, I925), provide estimates for I9I9-2I. King-Leven estimates include transfer payments in wages and salaries. State income for I9I9-2I iS taken as the sum of the components and omits certain imputed and in-kind incomes separately estimated by King and Leven. District of Columbia is excluded from this analysis. 2 National Division estimates divided by the most recent Census Bureau estimate of state population as of July i of the relevant year. 'For recent discussion of changes in factor returns, see Jesse Burkhead, Changes in the Functional of Income, Journal of the American Statistical Association, 48 (June I953), I92; Edward F. Dennison, Distribution of National Income, Survey of Current Business (June 1952), i6, and Income Types and the Size Distribution, American Economic Review, Papers and Proceedings, xLiv (May I954), 254; and George J. Schuller, The Secular Trend in by Type, I869-I948: A Preliminary Estimate, this REViEW, xxxv (November I953),

Paul G. Darling, Surrogative Measurements of Expectations: An Example in Estimating the Liquidity Influence on Investment, The Review of Economics and Statistics, Vol. 38, No. 4 (Nov., 1956), pp. 413-426

A SHORT-RUN model for the coal industry was formulated and solved in an article in the last issue of this REVIEW.2 The model is composed of two interrelated linear programming problems. Its data are spatially distributed demands for coal, capacities of spatially distributed coal deposits, and the unit costs of all possible deliveries from the deposits to the demand locations. The first programming problem, the delivery system, is to select a set of deliveries which minimizes the cost of meeting the given demands subject to the capacity restrictions; and the second, the price system, is to select a set of delivered prices for the demand locations and unit royalties for the deposits which maximizes total revenue net of royalty payments subject to the condition that every possible delivery must yield a nonpositive profit. The optimum solutions for these two problems were shown to provide a complete description of a perfectly competitive equilibrium. The model is normative in the sense that its solutions are those which would prevail if the assumptions of perfect competition were realized. The prices and royalties determined in the price system are only consistent with perfect competition, but the minimum-cost solution of the delivery system is consistent with monopoly as well as perfect competition. The solution of the delivery system furnishes a numerical description of efficiency in the sense that total cost cannot be reduced by any possible rearrangement of delivery levels, and the solution of the price system furnishes a numerical description of perfectly competitive pricing. The model was implemented with historical figures for the demands, capacities, and unit costs; and numerical solutions were computed for the delivery and price systems for I947, 1949, and I95I.3 The numerical values of the variables given in the normative solutions are in the present paper compared with the corresponding actual values. Actual outputs for the deposits recognized in the applications of the model are compared with efficient outputs derived from the solutions of the delivery system, in order to indicate how closely the coal industry approaches the efficient norm established by the model. The decline in output between I947 and I949 and the conformity of the actual outputs for surface deposits are specifically considered. Actual f.o.b. mine prices are compared with corresponding competitive prices derived from the solutions of the price system, to indicate the extent to which the prices prevailing in the coal industry approximate those established by the model. No industry meets all of the assumptions of perfect competition, and the question to be answered by our analysis is not whether the coal industry meets these assumptions, but rather how closely it meets them. The extent of competition in individual industries has been the subject of a large number of studies. A common procedure in such a study is to examine various factors, for example the number of sellers and buyers, the method of price determination, and the existence of selling costs, and then to judge the competitive structure of the industry on the basis of these f actors.4 These analyses are valuable in describing the niature of competition within an industry, but the extent to which an industry deviates from a perfectly competitive solution may not be directly related to the number of non-competitive practices which can be listed. The effects of one

DURING the late I930'S the between economic concentration and depression price behavior was a matter of considerable controversy. At the heart of the controversy were three elaborate statistical works.' The first, by Gardiner Means, found that a rough relationship existed between economic concentration and price rigidity; the second, by Willard Thorp and Walter Crowder, concluded that there was no such and that indeed price rigidity could be explained by the characteristics of the product (durability, use, etc.); and the third, by Alfred Neal, found that differences in price change are associated with differences in changes of direct costs and are therefore not to be attributed to differences in concentration. This article represents an attempt at a critical evaluation of these studies.

TWO decades of refinement of macroeconomic and econometric analysis have contributed only modest sophistication to the role in which investment is cast.' The nexus of investment interactions with other national income aggregates has long been recognized as considerably more complex than can be faithfully expressed by casting them in a simple exogenous role as in the earliest Keynesian models. Accordingly, Samuelson's expression of the multiplier-accelerator interaction became a classic early step toward endowing investment with a less aloof character.2 But again, as many others have pointed out, Samuelson's simple, dichotomous separation of all investment into exogenous public investment and endogenous private investment added only a modest amount of realism to the role of investment. An analytical structure that ties private investment wholly to the accelerator certainly constitutes only a second approximation at best. The object of this study is not to attempt to rationalize the full role of investment, either theoretically or econometrically. Such a tour de force will have to come from more ambitious undertakings. Rather, in an effort to make some modest contribution toward the eventual resolution of the exogenous-endogenous investment problem, we present an empirical analysis confined to certain segments of construction activity. In the process of establishing some tentative statistical estimates of one facet of the construction-investment nexus, some reflected light of a more generalized nature may be shed on the causal role of investment in macro-economic change.