Knowledge that Transforms

OINCE 1970, Chinese sources have ended a decade of silence on quantitative developments in the economy by releasing statistical information which illuminates economic trends during the 1960's as well as after the Cultural Revolution (1966-1968). The purpose of this article is to combine this new material with previously available data to construct a series of industrial gross ou;tput value for most years of the period 1952-1971.' The years for which data gaps prevent us from offering output estimates include two periods of cyclical fluctuation: the Great Leap Forward and its aftermath (1958-1962), during which output spurted and then declined; and the Cultural Revolution, which saw a pause or temporary drop in industrial output. The principal result of this study is the annual output series for 1952-1971 shown in table 1. Our findings indicate that China has experienced substantial industrial growth during the past two decades, -and suggest an upward revision Of previous Western es!timates of her industrial progress, especially for the period since 1957.

Hiroki Tsurumi, A Comparison of Alternative Optimal Models of Advertising Expenditures: Stock Adjustment Vs. Control Theoretic Approaches, The Review of Economics and Statistics, Vol. 55, No. 2 (May, 1973), pp. 156-168

R ECENT attempts to measure changes in the quality of labor inputs in production have been based either on changes in years of schooling and other quality determining factors (Denison (1967) and Jorgenson and Griliches (1967)) or on changes in occupational mix (Griliches (1967) and Raimon and Stoikov (1967)).' Both measures raise serious problems. The first, because of lack of data, has not been able to adjust for differences in ability, on-the-job training or a number of other quality determining factors so that they do not even purport to have exhausted all significant quality differences.2 On the other hand, studies using occupational data have been based essentially on Bureau of Census major occupational groups i.e., eleven groups -and as the authors themselves were aware, these are uncomfortably broad. The purpose of this paper is to discuss still another (albeit related) approach to measuring changes in the quality of labor in production and to present the results for manufacturing industries. The approach is to first develop a wage rate index which measures changes in prices of a homogeneous bundle of labor services over time. The wage rate index is then used to deflate a time series of average hourly earnings (i.e., the cost of a changing bundle of labor services per man-hour) in order to obtain the desired index of quality per manhour. This index, in effect, measures changes in labor quality by changes in occupational mix -i.e., increases in quality per man-hour are measured by shifts from lower to higher paid occupations. The major difference between the approach used here and that in the previously cited studies is that my results are based on very detailed occupational data by sex and industry. Because of limited coverage, the indexes of quality per man-hour are for production (blue collar) workers in 25 selected manufacturing industries. On the basis of these series and some additional assumptions, I also attempt to expand the results to all employees in manufacturing in order to estimate the contribution of changes in labor quality to the growth in output and output per man-hour in this sector. In particular, changes in quality per manhour are divided between those resulting from shifts among production and nonproduction (white collar) workers and those resulting from changes in quality per man-hour within these two groups.

CONTROVERSIES involving inflation, particularly inflation in developing countries, have usually focused on Latin America.1 One major point which emerges from these controversies is the distinction between a fully anticipated, fully adjusted inflation and an inflation which proceeds with such irregularity that economic agents are able neither to anticipate nor to adjust completely. To the extent that individuals can anticipate and adjust to inflation, a higher rate of inflation will cause the income velocity of money to rise, as attempts are made to exchange money for hedges against inflation.' The influence of inflation on monetary velocity is less clear, however, under the conditions of imperfect anticipation and adjustment which prevail in Latin America. Not only are the rates of inflation in most Latin American countries high, but they also tend to be highly variable. In addition, most Latin American countries have less than perfect markets for hedging against inflation, and these are further restricted by the regulations often imposed on interest rates, prices and international trade in the wake of inflationary conditions.' The present paper examines the impact of inflation on the income velocity of money for sixteen Latin American countries over the period 1950-1969. Such an examination not only indicates the sensitivity of demand for real cash balances to changes in the price level, but also reflects the extent to which economic agents under conditions prevailing in Latin America can anticipate inflation and adjust by hedging. Aside from Cagan's well-known work on hyperinflation (Friedman, 1956, pp. 25117), most empirical studies of the demand for money in individual countries conclude that inflation does not have a significant impact on velocity.4 These studies generally argue that the small changes in the price level usually observed cannot be adequately anticipated or are not large enough to cover the costs of adjustment. A recent article by Melitz and Correa (1970) on international differences in income velocity, like most studies of individual countries (but contrary to theoretical expectations), also concludes that inflation does not influence velocity. This article, like the present study, uses international comparisons, but the findings differ substantially. Melitz and Correa find that the coefficient for the impact of inflation on velocity does not have the expected sign and therefore omit the inflation variable from further consideration. They argue that price changes are important only in cases of hyperinflation and that adjusting to mild inflation is too costly and difficult to be worthwhile. Having excluded inflation as an explanatory variable, Melitz and Received for publication May 24, 1972. Revision accepted for publication January 30, 1973. * The authors wish to thank Michael C. Lovell for many helpful comments and suggestions, Francisco Chaves for assistance with data collection and computational work, and the Wesleyan Computer Center for generous use of its facilities. ' Best known is the monetarist-structuralist controversy over the causes of inflation and the impact of inflation on economic development. See, for example, Baer and Kerstenetzky (1964), Johnson (1967, pp. 281-291) and Baer (1967). 2-Johnson (1967, pp. 104-142) identifies the tax on real cash balances as the essence of the quantity theory approach to inflation, and it is the efforts to escape this tax which cause monetary velocity to rise with inflation. 'In discussions of inflation and economic growth, more costs and benefits of inflation are attributed to structural imperfections rather than to the tax on real cash balances. Structuralists emphasize the benefits of inflation in circumventing market imperfections, while monetarists focus on the costs of inflation in conjunction with inappropriate government regulations. See Johnson (1967, pp. 281-291) and Baer (1967). 4 However, some studies in a collection edited by Meiselman (1970) provide limited support for a positive influence of inflation on velocity in several less-developed countries. Deaver (Meiselman, 1970, pp. 7-67), finds the rate of inflation to be a significant variable in explaining velocity changes in Chile during the period 1932-1955, while Campbell (Meiselman, 1970, pp. 339-386) finds a positive correlation between velocity and changes in the rate of inflation in a comparative study of South Korea and Brazil. In a cross-country study Perlman (Meiselman, 1970, pp. 297337) finds nominal interest rates or inflation rates (as proxies for the opportunity cost of holding money) to be significant in explaining international differences in liquid asset portfolios.

EVER since the publication of Rachel Carson's famous book, Silent Spring (1962), insecticide pollution has been an important public issue. As well as naturalists and medical researchers, economists have joined the discussion. They have rightly claimed that insecticide usage is an economic phenomenon, and they have proceeded to estimate the costs and production losses from total or partial bans.' In this paper, we consider the possibility of reducing United States insecticide usage through an efficient relocation of agricultural activities. We find that if agricultural activities were located so as to minimize the production and transportation costs to satisfy the demand for agricultural products, there would be a substantial reduction in insecticide requirements. Our argument is organized as follows. In section II, we describe United States insecticide usage, emphasizing regional differences. Section III is a discussion of studies of efficient crop relocation, i.e., studies concerned with the location of crops under cost minimizing conditions and without the influence of government price support and land retirement schemes. In section IV, we estimate the insecticide requirements for an efficient agricultural sector. The estimates are repeated in section V with alternative measures of insecticide usage, and our conclusions are summarized in section VI.

T HE traditional aid-and-development literature assumes that, under most relevant circumstances, aid and other capital flows to developing countries induce an expansion of economic activity and output in these countries. In the underlying models such capital finances an equivalent amount of net imports of either (a) capital goods of an unspecified nature (thereby relaxing the saving constraint) or (b) specific required inputs obtainable only from abroad (thereby relaxing the foreign-exchange constraint).' A number of writers have estimated the effects of past capital inflows and capital requirements on the basis of 'this assumption, without seriously questioning its validity (Rosenstein-Rodan 1961; Chenery and Bruno 1962; Manne 1963). Several recent writers, however, have criticized this view, both because of its formal incompatibility with other aspects of the theoretical models employed and because of its inconsistency with empirical observation (Rahman 1968, Areskoug 1969, Chenery and Eckstein 1970, Griffin 1970, Griffin and Enos 1970, Weisskopf 1972).2 It seems that a considerable portion of these capital inflows have in fact been allocated to consumption and that ties and other creditor (donor) restrictions designed to channel them into investment have been largely ineffective. The traditional aid-and-development models must therefore be deficient.