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

FOREIGN economic assistance in the form of commodities and the sale proceeds in domestic currency of those commodities have assisted post-war recovery of West European countries and economic development of many under-developed countries like India. The real significance of the accrual and disbursement of these funds, perhaps, lies in their impact on money supply. Despite its obvious importance, however, the problem of the money supply impact of counterpart funds did not receive as much attention as it deserved, although whether use of such funds is inflationary or not was discussed to some extent.1 India, which has been receiving a large and increasing commodity assistance from the United States in recent years under P.L. 480, provides an interesting example of how variations in money supply are influenced by the accrual and disbursement of counterpart funds and how they tend to influence monetary and debt management policies. The main purpose of this article is to spell out the money supply impact of accumulation and disbursement of the counterpart funds and to indicate broadly its significance for monetary and fiscal policies pursued in India.2 The practice adopted in India for holding counterpart funds has not remained uniform. Between I956, when the foreign assistance in the form of commodities from the United States under P.L. 480 first started coming in, and the middle of I960, the counterpart funds have been held with one of the commercial banks. Since then, however, they have been held with the Reserve Bank of India, which is the central bank of the country. While discussing the Indian experience, we first concentrate mainly on the money supply impact of the accumulation of counterpart funds with a commercial bank as it has acquired greater importance and raised considerable debate.3 The latter practice has been adopted only recently; the likely consequences of the changed procedure are analyzed separately in the latter part of this paper

FEDERAL spending to maintain defense establishments and personnel is an important segment of the Hawaiian economy. Some idea of the magnitude and relative importance of this can be seen if we look at a breakdown of Hawaii's income from the mainland.' In I959, Hawaii earned $953 million in mainland dollars. Of this amount, $338 million, or 35 per cent, was in military expenditures.2 The importance of defense spending is also reflected in the data on employment shown in Table i. This table shows that the defense sector accounted for i8.i and 32.8 per cent of total employment in Hawaii in I939 and I955.3 This study was conducted to obtain a quantitative measure of the economic impact of changes in military spending on the Hawaiian economy. Findings as a result of this research and detailed support of them are presented below. The measure derived is the employment multiplier. This shows the change in the total employment of an economy which results from a change in the number employed in one sector of the economyin our case, changes in the defense sector. The employment multiplier was computed rather than the related and more commonly used measure, the income multiplier. The latter, which describes the change in income due to changes in expenditures in one sector of the economy, was not computed because certain data necessary to derive the income multiplier were not available in Hawaii. It will be shown that an increase in the number employed in the defense sector of IOO employees will lead to a further increase in total employment in Hawaii of 28 employees. That is, the employment multiplier for Hawaii is I.28. One can only conclude from this that the total level of employment in Hawaii is significantly affected by changes in the level of employment in the defense sector. We also find that there is little time lag between changes in military expenditures and induced changes in total employment. This is to say that the effect of an increase or decrease in defense spending on the over-all economy is mostly felt within one year from the time the initial change occurs.

Hyman P. Minsky, Arthur M. Okun, Clark Warburton, Comments on Friedman's and Schwartz' Money and the Business Cycles, The Review of Economics and Statistics, Vol. 45, No. 1, Part 2, Supplement (Feb., 1963), pp. 64-78

The theories of saving presented by Keynes, Duesenberry, and Friedman use three different measures of income to explain saving, and each theory has been supported by empirical evidence. The evidence consists of tests of a wide variety of hypotheses contained within or derived from the theories. The tests use many different kinds of data. The objective of this paper is to submit the basic behavioral hypotheses of each theory to a common test on constant data. The results show that the theories are equally acceptable on empirical grounds

T HE basic idea of consistent forecasting is very simple: make forecasts of the output of each industry, the wage rate, and perhaps other variables in such a way that, if business acts on the basis of the forecasts, they will come true and full employment will be obtained. The idea is not new, but the possibilities of putting it to work in the American economy have not been developed. I believe that these possibilities are considerable and hope that this paper can be a first step in making from them an effective tool for assisting a free economy to maintain steady growth and full employment. The forecasts yielded by a model like the present one would be intended to guide capital investment planning by business. Short-term movements will be given scant attention here. Section I explains the theory of the model. Since the version presented here is only a first step toward consistent forecasting of practical use for business planning, it seemed advisable to keep it as simple as possible and then, by numerical work, compare its functioning with the actual performance of the American economy. In this way, its greatest needs for extension and refinement can be brought to light and used as guides for future work. The model becomes the Leontief open dynamic system if it is known that full employment can be maintained with a of a constant wage rate. A method of getting the economically relevant solution to this special case is developed and then extended to the variable wage rate case. The last paragraph of the section discusses how consistent forecasting could fit into a free economy. In Section II, a ten-sector model of the American economy is used to forecast from I953 to I960, with only the course of the total labor force and the exogenous final demandsexports, government, and capital replacement known in advance. A comparison of the results with the actual course of events indicates that increasing productivity of new capital and a limited amount of variation of input coefficients must be included before practical forecasting can be done. At the same time, however, the comparison suggests that even the simple model is getting at something very relevant to the economy and that, after taking account of the suggested improvements, a useful tool can be obtained. The comparison also offers, as a sort of by-product, a surprisingly clear-cut explanation of the I954 and I958 recessions. But the result of the comparison which I would like for the reader to bear in mind, particularly when considering business acceptance of the forecasts, is that they are quite sensible looking and businesslike

T HE Commission on Money and Credit has laid its 285-page egg 1 and gone over like a lead balloon -choose your own metaphor with both the economists and the general public. Certain of its administrative suggestions, notably those involving reconstitution of the Federal Reserve System's Board of Governors, have attracted a significant modicum of attention.2 On the substantive side, however, the Commission's main body of work appears already spurlos versen,kt, in unhappy contrast with both the National Monetary Commission of fifty years past, whose influence it was intended to rival, and the Radcliffe Report of I959,3 its closest contemporary transatlantic equivalent. This unhappy fate rather befits a series of attempted least common denominators between unreconciled and possibly unreconcilable special interests, which turned out to be meaningless verbal compromises as often as anything more. Indeed, the least uninteresting feature of the report to this reader was the triangular running battle between the predominantly sound don't rock the boat position of its text and the two accompanying sets of mutually contradictory footnote dissents. Set i, contributed primarily by the labor bloc (Lubin, Nathan, Rieve, Ruttenberg, and Thorp, with Ruttenberg the principal spokesman), stands for guaranteed full employment and a 5 per cent annual growth rate, at any cost in direct controls over everyone but organized labor, and over everything but wages. Set 2, contributed by a mixed bag of business, finance, and agricultural4 spokesmen (Black, Lazarus, Miller, Schwulst, Shuman, Thomson, and Yntema) stands for Free Enterprise in the economic aggregates -McKinley minus the gold standard.5 Rather than aim a supernumerary nail at the Commission's coffin, I propose to examine a biased sample of the professional papers submitted for the Commission's use, and to all appearances neglected by the Commission in favor of cliches and weasel words masquerading as common sense.6 The papers are to an econo

N O general agreement has been reached about principles that should govern cost sharing in international alliances. Burden sharing problems have been discussed in the literature, and I will attempt no review here.1 This paper is addressed to one modest aspect of burden sharing: what is the real cost to the donor of foreign economic aid? It may be useful after all, in discussing each country's aid contributions, to establish an economically meaningful definition of what constitutes aid. The paper discusses briefly the present definitions used by donor nations for valuing economic aid; it then goes on to consider how more appropriate valuation criteria might be established. On the basis of these criteria, I have first computed, within limitations set by existing data, the real cost of U.S. bilateral aid to underdeveloped countries in 1961. By these standards, U.S. foreign aid efforts involved considerably less resource sacrifice than the officially reported totals imply. Second, to illustrate the effect of this definition on the aid figures of other countries, I have computed the real cost of official bilateral and multilateral aid offered in 1962 by seven Western European countries, the United States, and Canada. The results indicate, on the basis of incomplete data, that other countries also tend to overstate the cost of their foreign aid; their relative overstatement frequently exceeds that of the United States. In 1961, the principal donors of aid to underdeveloped countries agreed to hold annual reviews of each other's aid efforts on the basis of an agreed aid definition; these reviews are conducted by the Development Assistance Committee (DAC) of The Organization for Economic Cooperation and Development (OECD). The present DAC system for analyzing members' aid flows defines total official aid as the sum of six elements: (1) contributions to international organizations for development purposes; (2) bilateral grants; (3) bilateral loans repayable in lenders' currency; (4) bilateral loans repayable in borrowers' currency; (5) consolidation credits; (6) transfer of resources through sales for recipients' currency (this consists almost exclusively of U.S. contributions of surplus agricultural commodities under Public Law 480). This classification indicates both an awareness of the fact that various types of aid have different impact on donor and recipient, and an inability to devise a system that could deal systematically with these differences. Thus, for example, DAC realizes that a loan repayable in soft currency is different in effect from one repayable in hard currency, and separate categories are therefore established. However, these and other subtotals are then added together to form a single aid total. Table 1 shows U.S. 1961 aid commitments as computed by this method