Also published in: Joseph Berechman et al. (Eds), Transport and Land Use, Elgar Reference Collection Modern Classics in Regional Science Vol.2, Edward Elgar, Cheltenham, 1996, pp. 524-532. Also: Reprint No.5, Netherlands Economic Institute, Rotterdam, 1957

It is certainly true to say that the present situation is unfortunate -the situation with respect to the use of mathematics in economic science -and improvement may be obtained as a consequence of a clearer understanding of the functions of mathematics. I very much welcome the attempt made by Dr. Novick, although I am inclined to put things somewhat differently. To what extent there is between us only a difference in wording and to what extent one of substance, I do not quite see. Therefore let me give my own view in my own words. The functions of mathematical treatment in economic research may perhaps best be discussed on the basis of a breakdown into various elements of a complete piece of econometric research. Not all pieces of important economic analysis are by necessity also complete: sometimes certain elements are absent, as a consequence of the special features of the problem handled. I do not want to say therefore that every contribution to economic science should show all the elements to be enumerated; but the function of mathematics becomes clearer if we consider this complete set of elements.

textabstractAlso in: Horst Hanusch (Ed.), The Legacy of Joseph Schumpeter, Vol. 1: Intellectual Legacies in Modern Economics, Edward Elgar, Aldershot, 1999, pp. 23-25

For descriptions of curves, see footnote to Chart 7. Equation found:

CONSURlPTIONT H E fact that consumption outlay of indi- viduals as well as of groups of individuals depends on their income is well known.Although this statement will hardly be doubted, it may be tested statistically from family budget statistics, as has been done by various investigators.These statistics can show only that consumption outlay by different people, having different incomes a t the same moment, depends on income.Consumption outlay by the same family in different years, showing varying income, will not necessarily depend on income in the same way that is shown-by family budget statistics.This latter relation plays a highly important r61e in the causation of business cycles, a fact perhaps most stressed by Rlr.Keynes, who created the term "propensity to consume" and who used this notion in various deductions.The importance of the propensity to consume for the quantitative approximation of some business-cycle problems has led a number of authors to measurements of that coefficient.How large the propensity to consume may be is not the only important question.Another question is "What lag exists between income changes and changes in consumption outlay?"Tke longer this lag, the more slowly will the economic system react to changes in income and the longer, other things being equal, will be the process of adjustment (e.g., a business cycle).The answer to this question -put by Mrs. Gilboy in this REVIEW -cannot be given by family budyet data, as already stated.The only pos~ible method of securing an answer is by use of t i ~n e series.The use of time series, however, a1wzj.simplies the difficulty that a number of cctcris pasibus clauses are no longer fulfilled.S o t only changes in income are the causes of any given changes in consumption outlay; other

In a recent investigation which the author has made for the League of Nations Secretariat, it was found that share prices seem to have exerted a considerable influence on the course of the American cycle beginning in 1924 and having its boom year in 1929. The chief reason for this influence may be summarized briefly as follows: (a) Share prices have an influence on the ease with which capital issues may be floated and therefore on investment activity in general; (b) the rate of increase in share prices seems to have an influence on consumption, especially by those making capital gains. These influences have been investigated in the forthcoming League of Nations publication and will not be treated in detail now, but it may be seen from this brief indication that the formation of share prices seems to be important in the explanation of some business-cycle phenomena. This is the justification for the present paper, which deals only with that price formation.