Knowledge that Transforms

D URING the past twenty years a great deal of econometric research has been directed toward the study of the saving behavior of economic units. Thus, personal saving has been explored quite intensively through (personal) consumption studies, especially so in the post-war period. The question of corporate saving, however, has in large measure been neglected, although a casual look at the data would disclose that it has ranged in magnitude from about 300 per cent of personal saving in 1947 to just under 50 per cent in recent years. Undeniably, this is a very significant component of total savings. By corporate saving we mean, of course, undistributed profits; hence, this question could be studied equivalently by studying the dividend policies of firms. On the latter topic some studies have been made and some tentative hypotheses have been formulated. The most widely held view in the recent literature is that propounded by Lintner in his pioneering contribution, [2] and [3]. Lintner's hypothesis states that corporations are conservative in their financial policy, and, consequently, their dividend disbursement activity is characterized by a considerable degree of inertia, and more precisely, that there exists some optimal or target dividend payment (per share) to which corporations adhere. Departures from this level are made only reluctantly, following a change in the level of profits which is deemed to be more or less permanent. Lintner's statistical analysis is based on time series data pertaining to aggregate corporate dividend disbursements and profits. His model has dividends at time t, explained by dividends at time t 1, and profits at time t. This is not a very satisfactory approach, except for shortrun prediction (of aggregate dividends), since it fails to account for apparently wide (intertemporal) variations in the dividend policy of various corporations, and does not go sufficiently far in elucidating the motives and factors involved in deciding the amount of corporate profits to be retained.

PROFESSORS Friedman and Meiselman' recently have reported that a simple theory model describes aggregate consumption more accurately than a simple autonomous expenditure model. They believe this result is evidence that the quantity theory is a better description of the American economy than the autonomous expenditure or Keynesian theory.2 If their interpretation were correct, the Friedman-Meiselman paper would be one of the most significant economic studies in many years. But it is not correct. Friedman and Meiselman have represented the autonomous expenditure theory in a very unorthodox form. Their statistical comparisons are extremely sensitive to how the autonomous expenditure theory is represented. Below, I employ a more conventional representation of the autonomous expenditure theory and demonstrate why Friedman and Meiselman's tests are misleading. Further, using this conventional model and some of their data, little empirical evidence is found which favors the theory. Finally some other conceptual weaknesses of the Friedman-Meiselman tests are illustrated. Briefly, Friedman and Meiselman compare simple, partial, and multiple correlation coefficients obtained from the following equations, estimated from annual (1897-1958) and quarterly (1945-1958) data for the United States: C=al+8(A (1) C=a2 +82M (2) C = a3+/33A +13P (3) C = a4 +84M+y4P (4) C = a5 + 35A + 85M (5) C = a6 + 86A + 86M + Y6P (6)

John F. Kain, A Contribution to the Urban Transportation Debate: An Econometric Model of Urban Residential and Travel Behavior, The Review of Economics and Statistics, Vol. 46, No. 1 (Feb., 1964), pp. 55-64

N recent years, we have seen a renewed interest in the problem of competition among banks. An increasing number of bank mergers has brought forth new legislation, such as the Bank Holding Company Act (1956) and the Bank Merger Act (1960), which directs regulatory agencies to preserve competition in banking. At the same time, it has become apparent that there is little or no empirical evidence on the relationship between bank performance and market structure. This paper aims chiefly at determining whether or not market structure or concentration has any effect on commercial bank performance. It is considered to be the groundwork from which it is hoped will spring more sophisticated techniques for handling the conceptual difficulties here encountered. It seems reasonable to begin an analysis of bank competition with what is undoubtedly the most delimited borrower market, the market for small business loans. There are fewer borrower alternatives for small business loans than for almost all other bank services. Business loans are also, of course, the most important component of commercial banks' loan portfolios. An investigation of this market provides an estimate of the upper bound of departures from competitive conditions. If no evidence of market power can be found in markets for business loans, other bank services for which there are more substitutes are not likely to display monopolistic practices. This paper attempts to test two hypotheses: (1) that, ceteris paribus, the level of business loan rates is higher in markets having relatively high concentration; and (2) that, ceteris paribus, business loan rates are less flexible in markets having relatively high concentration. In testing these hypotheses, an attempt is made to distinguish the effect of market structure from other regional differences, such as those of loan demand, bank costs, type of banking, etc. This paper seeks to probe the following questions: (1) What is a competitive market structure? (2) What is the quantitative effect of a given change in concentration, such as might result from a bank merger? (3) What determines the spatial market for bank loans? (4) Does branch banking have an effect on market performance different from that of unit banking? (5) How should market structure be measured? (6) Do banks which possess market power behave differently than competitive banks over the business cycle?

Lester D. Taylor, Thomas A. Wilson, Three-Pass Least Squares: A Method for Estimating Models with a Lagged Dependent Variable, The Review of Economics and Statistics, Vol. 46, No. 4 (Nov., 1964), pp. 329-346

A LONG standing issue in labor market analysis is the question of the relationship between cyclical variations in economic activity and labor force participation. There are three main hypotheses that have vied for attention. hypothesis holds that when economic activity declines, workers become discouraged and leave the labor force. hypothesis maintains that labor force participation increases at low levels of economic activity when workers enter the labor force under the pressure of the loss of work by the primary worker.' hypothesis maintains that any inflow of additional workers is offset by an outflow of discouraged workers so that, on balance, the over-all participation rate remains virtually constant, or that at least there is no clearly discernible cyclical relationship.2 In this paper, we present evidence that lends clear cut support to both the discouraged worker and the additional worker hypotheses. An initial decline in from a cyclical peak results in large-scale discouragement and withdrawal from the labor force. Subsequent declines in are met by a smaller decline in labor force participation. As the period of economic slack grows longer, pressure on additional workers to enter the labor force builds up and this tends partially to offset the discouragement effect. Statistical isolation of these effects has resulted in our ability to explain 88 per cent of the variation, after allowance for seasonal change, in labor force participation over the last decade. Our method takes into account the duration of unemployment and explains why a given change in produces different quantitative changes in participation at different times, and thereby, shows why univariate tests of the hypotheses have been inconclusive. discouraged worker effect is, in general, the dominant effect. Thus, for the period 19531962, the rule of thumb that emerges is that the loss of 100 jobs is roughly associated with a reduction in the size of the measured labor force of 50 persons. Because the dominant effect is withdrawal from the labor force, the official unemployment statistics understate the magnitude of unemployment during periods of economic slack. In order to provide a more accurate guide for short-run policies, we utilize our results to construct or full employment labor force series. By labor force we mean that size labor force that would have been recorded had the economy been at employment. These labor force series are then utilized to recalculate the level of unemployment and the unemployment rate. These calculations provide us with measures of the gap, defined as measured unemployment plus net cyclical withdrawal from the labor force. For November 1962, the official seasonally adjusted unemployment rate was 5.8 per cent. manpower gap unemployment rate, however, stood at between 9.45 and 10.30 per cent; the difference between the two gap rates being dependent upon the criterion of that was used in the calculations. One of our findings is that there has been a rising secular trend in the labor force participation ratio. Forecasts based on these findings suggest that the potential labor force in 1975 will be at least four million more than is currently projected by the Bureau * authors are members of the Department of Economics at Oberlin College. Professors George Andrews, Samuel Goldberg, Robert Solow, James Tobin, Robert Tufts, and Dr. Richard Nelson provided valuable comments on various parts of the study, as did the participants of the Ford Foundation Workshops on Unemployment and Economic Growth. 'The phrase has also been used to describe the hypothesis that favorable economic conditions attract secondary workers into the labor force. In this paper the phrase is used to denote the presumption that adverse economic conditions induce secondary workers to enter the labor force. 2For a survey of the literature, see Herbert S. Parnes, The Labor Force and Labor Markets, in Heneman et al. eds., Employment Relations Research (New York, 1960), 1-42.

T HE secular decline in the number of banks and the associated increase in the size of the average bank have raised serious questions about the viability of a banking structure which contains the vast extremes of bank size which are found in the United States. In spite of the widespread interest in this matter, very little statistical evidence has been available to gauge the success with which different size banks have met the challenge of their environments. We have attempted to fill part of this gap in the literature by investigating the performance of large banks during the years 1930 to 1960. In this study, we measured a bank's success in meeting the challenge of its environment by the growth of its assets. This is not the only measure of success but, unlike some other measures (e.g., profits), asset figures are available in published sources and are comparable for all banks. Although we recognize that all banks neither operated in an identical environment nor faced an equal challenge from their environments, we did not attempt in this paper to assess the nature or sources of the comparative growth record of large banks. Our more limited goal was to determine, as a matter of historical fact, whether large banks grew more or less than the banking system as a whole during those years. This analysis of the growth of large banks is based on the performance of the 200 largest banks in the system on particular dates. The 200 largest banks were only .84 per cent of the bank population in 1930 and 1.48 per cent in 1960, but they accounted for more than half of all the commercial banking resources in the country on both dates.' We identified by name each of the 200 largest banks in the country on three different dates, 1930, 1940, and 1950,2 and traced the growth of each bank in each of these top groups (i.e., the 1930 top group, the 1940 top group, and the 1950 top group) for different periods of time up to 1960. A word about some limitations of these basic bank figures is in order.3 First, only three groups of large banks were included in this study. Second, the periods covered for these groups, ranging from ten years for the 1950 top group to thirty years for the 1930 top group, provided three observations on the effects of a ten-year period, two observations on the effects of a twenty-year period, and one observation on the effects of a thirty-year period. Third, the composition of these bank groups overlaps because some of the leading banks on one date were also the leading banks on another date.

SINCE Professor Triffin launched his plan five years ago, the international liquidity problem has been the subject of vigorous discussion. The debate will probably reach a climax this year and next when the IMF and the Group of Ten complete their studies of the subject. Some proposals for international monetary reform would retain the role of the dollar as the principal reserve currency, perhaps strengthening it by further building up what Under Secretary Roosa has called its perimeter defenses. Others envisage that the dollar would share that role with other currencies, as in the Posthuma and Lutz plans, or with a new international unit which would represent a claim against the International Monetary Fund, as in the proposals advanced by Chancellor of the Exchequer Alaudling in 1962 and by E. M. Bernstein in 1963. Finally, Triffin's original plan would transfer the reserve currency function outright from national currencies to an international unit.' Miost of the discussion has centered around the relative merits of the different plans in providing adequate, effective, and stable arrangements for supplying international reserves and settling international balances and rightly so, since this is clearly the crucial issue. A subsidiary question, which has recently received some attention in the United States and has been discussed for some time in the United Kingdom, is whether a country gains or loses by having its currency used as an international reserve by other countries. This question is closely related to the central issue, and is also of particular interest to the reserve currency countries. It is the subject of the present paper. Space limitations make it necessary to confine the discussion to one aspect of the question.2

IN recent years the behavior of productivity has received increasing theoretical and empirical attention. Two basic approaches have been developed. The first focuses upon the long-run trend in output per man-hour and examines the sources of that trend. The second focuses upon the short-run or cyclical behavior of productivity. The purpose of this paper is to explain the characteristic behavior of output per man-hour over the business cycle and to identify changes in the cyclical response mechanism. An explanation of cyclical changes in productivity is essential for an analysis of unit labor costs, and is therefore a necessary ingredient in an explanation of the price level and its movements. It is also a necessary precondition to understanding the longer-run trends; cyclical fluctuations in output per man-hour are large, and the trends based on capital and technology cannot be seen until the short-run variations have been removed.