Knowledge that Transforms

good deal of emphasis has also been placed, however, on the claimed benefits of such a shift to the United States balance-of-payments position. For example, the CED statement goes on to say that, A major advantage of a general excise tax is that it would tend to improve the ability of the United States to compete with others in world markets. This view assumes that the direct tax that is cut is the corporate profits tax and that a cut in it reduces prices of corporate output. The present paper calls to attention some influences that are frequently neglected in appraising the effects of such a shift on the balance of payments when these assumptions are valid. It then considers the effects of a cut in corporate taxes that does not reduce prices. Finally, it considers the balance-of-payments effects of making the cut in direct taxes in the individual income tax.

ECONOMISTS have been interested in the accuracy of anticipations for two reasons. First, effective countercyclical policy depends on accurate forecasts of future investment, inventories, sales, etc. Second, the degree of accuracy of anticipations has implications about the way anticipations are formed. This paper deals with the accuracy of sales anticipations. The source of the data on anticipations is the Annual Survey of Business Anticipations of Sales collected by the Securities and Exchange Commission and the Department of Commerce. The only systematic study of these data has been conducted by Modigliani and Weingartner.2 In the first section, we test whether sales anticipations are more accurate than the forecasts of several naive models and whether anticipations correctly predict the direction of change of sales. Next, we test Theil's hypothesis that predictions refer to a shorter period than they are supposed to. In the last section of the paper, an accuracy measure proposed by Theil is adopted to determine (1) whether an accurate forecaster is less likely to commit systematic forecasting errors and (2) whether anticipations conform to the rational expectations hypothesis. Nature of the Data

T HE determination of interest rates in rural areas throughout the underdeveloped world is best explained in micro-economic terms. The typical village moneylender will either be an outright monopolist, or he will be an imperfect competitor.1 The market for loans will center around the village itself. The farmer will normally only borrow from the one or more moneylenders that the village can support. He will not often have access to a bank or other lending institution. In these circumstances, the moneylender will face a demand curve for his loans which will slope downwards from left to right. The rate of interest will be on the vertical axis and the volume of loans on the horizontal axis.2 He will also have a schedule of costs for lending. This will be compounded of the administration and risk charges on each unit which he lends, together with the opportunity cost of his raw material money. It is this last cost component which corresponds to the pure rate of interest of existing theory. The average cost-of-lending curve will describe the arc familiar to the student of the principles of economics. There will be a certain volume of loans which will maximize the moneylender's net returns. This volume will be at his equilibrium level of lending, and it will determine his most profitable interest charge. It is the opportunity cost of each dollar or rupee which he advances at this equilibrium point which we will analyze here. Questions of average administration and risk charges, as well as of monopoly profit, must be left to other discussions. But it should not be supposed that these are relatively unimportant considerations. Risk and administration costs in particular probably play the major role in forcing high interest rates upon farmers in poor countries.3 If we view the opportunity cost of the lender's money as one of the determinants of his costs, then we could draw a curve representing these charges. It would probably run parallel to the volume of lending axis to begin with and then rise quite sharply as the moneylender adds to his loans. The unit opportunity cost is thus registered on the vertical axis and it forms one of the components of the interest rate which the farmer must ultimately pay. The reasons why the opportunity cost of the money used in a lender's loans will describe such a curve can best be explained under two separate headings. They are: (1) the returns on alternative investments, and (2) liquidity preference.

Introduction JN spite of the voluminous studies that have been made on the theory of the consumption function, one important question remains unanswered. Does the Keynesian theorem of consumer behavior operate in any modern community as Keynes claimed it would? ' The first section of this paper will be devoted to testing the Keynesian hypotheses: (1) the level of current income is the main determinant of the level of current consumption in the short run, and (2) the marginal propensity to consume is less than unity. In the second section, we shall examine factors affecting the differences in aggregate consumption ratios of various nations. While much effort has been spent on study of the aggregate consumption function of the United States, our knowledge of the consumption patterns of countries in the rest of the free world, particularly of less advanced countries, continues to lag.2 The relative scarcity of research in this area has been due primarily to the absence of reliable data. Until the introduction of a uniform national account system by the United Nations in 1947, national income data were virtually non-existent except for the highly developed countries.3 As reports of the member nations have been published for a number of years, sufficient data are now available to calculate and compare the aggregate consumption functions of various nations. The following criteria were used in selecting countries for this study:

CONSIDERATIONS of the impact of changes in the volume and composition of expenditures by the defense and space agencies will be misleading if they ignore the regional component. In considering disarmament, traditional monetary and fiscal policy responses produce an effect which is nationwide in scope. Such policies may not be of much help to states and communities, such as California or Wichita, whose economies are heavily dependent upon defense expenditures. In addition, shifts in the regional pattern of these expenditures can produce similar stresses in local economies. A major problem in this connection has been the measurement of the defense-space expenditure impact in a region. Aside from an induced impact operating through regional consumption and business investment functions, the impact on income and employment can be divided into two components: (1) the direct impact through prime contract awards to firms, and (2) the indirect or inter-industry impact through subcontracts and purchases of supplies by prime contractors. While there have been some attempts to measure the direct impact, little work has been done which also accounts for the indirect impact. This paper reports on an effort to measure both the direct and indirect impact of defense-space expenditures on the manufacturing sector of the Los Angeles-Long Beach Standard Metropolitan Statistical Area (SMSA). The task is an empirical one. Hence, we shall briefly review some of the various techniques of measurement and present the results of a short-cut method to measure the impact on Los Angeles manufacturers. Empirical Difficulties Almost all approaches to the measurement of the regional impact of defense-space expenditure involve variations of an input-output framework.1 Unfortunately, given the present state of data availability, they are not operational, at least without extended research effort. National data from the 1947 table, while useful, are somewhat out of date.2 Regional data are all but nonexistent. Pending the development of more adequate data, some short cuts need to be examined. In the search for short cuts, it is useful to keep in mind what the gross flows data of an interregional input-output table reveal. Row information reflects where sales are made in terms of industries, final demand sectors, and regions. Column information indicates the source of inputs from other industries both inside and outside of the region. Short cuts, essentially, involve something less than the complete cross-check of independent estimates of the row and column entries. Most regional input-output studies, in fact, get these estimates sometimes from row information and sometimes from column information, but rarely from independent estimates of both. A column-oriented approach, which has a good deal of appeal, simply traces down the subcontractors. There is some evidence to suggest, as an order of magnitude, that half of a specific defense or space program prime contract is subcontracted.3 It would seem that tracing down a few layers of subcontractors would account for most of the impact. Unfortunately, this is not the case. When a prime

T HE successful completion of European recovery in the 1950's brought to the western industrial countries the least restricted regime of international trade and payments in many decades. Its very freedom, however, has revealed a number of problems in maintaining consistent domestic and international economic policies, and in keeping the international policies of different countries consistent with each other. Increasingly, these problems have seemed to center on the matter of international reserves and liquidity. Many plans have emerged for changing our reserves and liquidity arrangements. The variety of proposals at hand reflects more than just divergent views on how to handle a given problem. It also stems from differing diagnoses about the exact nature of the liquidity problem, differing prescriptions for related features of international economic policy, and, finally, differing hunches about the political acceptability of the changes proposed. This paper aims not at cluttering the scene with a new proposal, nor even a new summary of existing plans.1 Rather, it turns to the problem of picking among the alternatives. Once the substantive issues are settled regarding the nature of the difficulty and the future network of international monetary arrangements, then assembling the optimal plan becomes a task for the technicians. What follows is an attempt to classify, first, the diagnoses of present ills and, second, the underlying substantive issues. It is an essay, not on the efficient solution, but on the efficient search procedure.

PpT HE purpose of this paper is to appraise the cyclical performance of fiscal policy over two recent cycles ranging from 1957-3 (peak) to 1960-2 (peak), and from 1960-2 to the first quarter of 1963. Also, an attempt is made to appraise the full employment adequacy of fiscal policy over this period. The exercise shows that grading, as always, is a delicate matter and that the results will differ depending on what formula is used. The effectiveness of fiscal policy is not easily measured. Obviously, it cannot be demonstrated by searching for a simple association between budget deficit and prosperity, nor can its ineffectiveness be proven by showing deficits to be associated with declines in GNP.1 What matters, first of all, are changes in budgetary position relative to changes in GNP. Moreover, a distinction must be drawn between the built-in effects of changes in GNP on changes in fiscal position, and the effects of discretionary changes in fiscal parameters on GNP. The former relation, which dominates the picture of the last decade, leads to the observed positive association between change in GNP and the level of budget surplus. This association in no way disproves the proposition that the built-in increase in deficit dampens the decline in GNP, just as the built-in increase in surplus dampens the rise. The effects of discretionary changes in fiscal parameters, in turn, should lead to a negative relation between changes in GNP and budget surplus, but this relationship involves lags and is not easily read from the data. Ultimately, the only satisfactory way of measuring the effects of budget policy on GNP during a past period is in terms of an econometric model which isolates fiscal factors. No such attempt will be made here. Rather, we shall compute various overall indices of fiscal performance, based on a more or less simplified multiplier model of fiscal policy effects, and address ourselves to certain conceptual problems which they pose. Our concern will be first with the contribution of fiscal policy to cylical stability, and then with measures of its full employment adequacy.