Knowledge that Transforms

R EAL disposable income is the measure generally accepted by economists as an indicator of the welfare of a household. Were we living in a world in which each individual formed a household and in which everyone required exactly the same goods to maintain himself, real disposable income might be an adequate measure. However, households are generally complex, and the income of a household must support a number of individuals whose daily requirements range from the nominal demands of a young child to the ample needs of an adolescent. Thus the welfare of a household must be measured not only by its income but also by the size of the household and the variety of needs of its members. This paper discusses a measure of welfare which relates the resources of a household to its needs. Estimates of welfare levels in the United States population based on this measure show that disposable income and per capita disposable income are extremely crude measures of welfare. Both overstate or understate the standard of living of an appreciable fraction of the United States population. The paper concludes with a few notes on the need for more accurate measures of welfare.

less advantageous than elsewhere in the state and followed from purely personal reasons (e.g., their parents had retired to this place). It is in this sense, or the sense that business advantage exists but that the respondent would have located in Florida anyway, that the factor appears often in the table in its secondary or later role. The factors of location that draw the different firms in the different industries to Florida therefore mirror the maximum profit location theory (i.e., the market area framework) as distinct from Weber's cost theory of location. That this connection is vital and necessary should be clear to all. We have mentioned that the survey based on this theory was extended to determine reasons for specific locations in communities. We record below without comment these community findings for those who are interested. TABLE 2.THE PRIMARY COMMUNITY FACTORS OF LOCATION MENTIONED

D URING the past decade, a considerable amount of information has become available about share ownership among various population groups. Following the first collection of data on this subject in the I947 Survey of Consumer Finances,' additional information was gathered in subsequent Surveys, in the I952 study of the Brookings Institution,2 and in the I956 Census of Shareowners conducted by the New York Stock Exchange.3 These studies were primarily concerned with the frequency of stock ownership. They showed that only one tenth of the nation's families own publicly-traded common and preferred stocks, and demonstrated considerable variability in ownership among different population groups. Some of the studies, notably the recent Surveys of Consumer Finances, also collected data about the approximate size of stockholdings, and these shed light on the concentration of stocks among different groups of stockholders. Finally, a recently completed reinterview study, conducted by the Survey Research Center, contained attitudinal information related to stock ownership. In the present paper, data from the Surveys of Consumer Finances will be used to investigate the economic and demographic factors associated with the frequency of stock ownership and with the amount of stocks owned. Subsequently, data from the Survey Research Center reinterview study will be used to study the association of stock ownership with some more dynamic attitudinal and expectational variables. In selecting the independent variables to be used in the investigation, primary attention was given to factors which are presumed to explain stock ownership by an individual. These are: his knowledge of the stock market and his familiarity with stocks as an investment outlet; his income and wealth, which reflect his financial ability to enter the stock market; his general personality, which may indicate his attitude toward entering the stock market; and his price expectations, as well as other economic and financial expectations. On the operational level, many of these considerations cannot be tested directly. They can only be approximated by variables about which information is easily gathered and is readily available. It is to be remembered, how, ever, that the surveys used here were not uniquely designed to study stock ownership. Therefore, they do not contain all of the variables which should, ideally, be used in the present analysis. The selection of variables was thus constrained by the availability of data. Following are the operational variables which were selected for the present analysis: A. Socio-Economic Variables: (i) income, (2 ) education, (3) liquid asset holdings, (4) age, (5) occupation, (6) region, and (7) size of place of residence. B. Attitudinal and Expectational Variables: ( i ) price expectations, (2 ) job preference, taken as an indication of security mindedness, (3) investment preference, (4) personal financial expectations, and (5) general economic expectations. Of the socio-economic variables, education, age, occupation, liquid assets, and income were found significantly related to the frequency of stock ownership. Only income and liquid assets, however, seem to be directly related to the amount of stocks owned. Education and age are perhaps associated with it indirectly, through their effect on income and liquid assets. With regard to the attitudinal variables, * The author gratefully acknowledges the help of Professors Katona, Morgan, Lansing, and Mueller of the Survey Research Center, University of Michigan, in the preparation of this study. 'The Survey of Consumer Finances is conducted annually by the Survey Research Center, University of Michigan, for the Board of Governors of the Federal Reserve System. The results of the survey are published in the Federal Reserve Bulletin. I am grateful to the Board of Governors for permission to use these data in this study. 2Lewis H. Kimmel, Share Ownership in the United States (Brookings Institution, Washington, I952). The study was sponsored by the New York Stock Exchange. Who Owns American Business?, I956 Census of Shareowners, prepared by the Department of Public Relations and Market Development, New York Stock Exchange.

OR purposes of economic analysis, two important characteristics of agricultural land are its heterogeneity and the possibility of its use for the production of alternative outputs. One or both of these characteristics are frequently recognized in theoretical studies of land utilization. David Ricardo and his followers used the heterogeneity of land as a cornerstone in their theoretical analysis, but ignored the possibility of alternative uses. Later, Jevons and other economists extended the theory to encompass both characteristics. With the increasing application of linear programming methods, alternative land uses, and occasionally land heterogeneity, are being emphasized in empirical studies of land utilization for individual farms and small groups of farms. However, empirical studies of land utilization for the economy as a whole are seldom, if ever, constructed with an explicit recognition of these two important characteristics of agricultural land. These studies are either formulated without an explicit theoretical framework, or built around a statistical version of the neo-classical demand and supply analysis. This paper is aimed at the development of a theoretical analysis based upon maximizing behavior which can be empirically implemented and will generate numerical predictions of shortrun land utilization patterns for the economy as a whole. Particular emphasis is placed upon land heterogeneity and alternative uses. New methods are developed for the study of agricultural supply relations. Factors such as technological change and input substitution, which are of great importance for a long-run analysis, are largely ignored in the present short-run formulation. The analysis is developed within the institutional framework of agriculture as practiced in the United States. Land utilization decisions are made by a large number of farmers, each of whom possesses a relatively small parcel of land. Generally, we may assume that farmers act independently, i.e., the decisions of each are unaffected by those of the others. The decisions of different farmers are similar only insofar as the factors conditioning their decisions are similar. The dissimilarity of conditioning factors, however, is of particular importance. National land utilization patterns are the result of decisions made by individual farmers who possess different types of land and are subject to a diversity of other conditioning factors. A mass of existing data has been brought together for the purpose of using the theoretical analysis to make predictions of the land utilization patterns of individual decision-making units for the I955 crop year. Each decision-making unit is assumed to allocate its land among alternative uses in such a way as to maximize its expected return, subject to a number of technical and institutional constraints. Limited linearity assumptions are postulated, and the decision problem of each unit is expressed as a linear programming problem. Predictions of national and state allocation patterns are obtained by aggregating the patterns predicted for individual decision-making units. The present analysis is both descriptive and recursive. It is descriptive rather than normative in that the question asked is what will be done rather than what should be done. In this respect it differs from other current applications of linear programming to agriculture, which are intended to determine how individual farmers should allocate their land. It is recursive in that the values of the variables for a particular crop *This paper contains some of the results of a general study of natural resource utilization being undertaken as a part of the research program of the Harvard Economic Research Project. The author is indebted to the members of the staff of the project for aid in the preparation of this paper. He owes a particular debt of gratitude to the staff members who aided in the arduous task of gathering and rectifying the data. Mrs. Virginia McK. Nail provided expert help in all phases of this task. Jan Basch, Richard H. Day, Barbara King, and Ronald J. Wonnacott each made substantial contributions in one or more of its phases. An earlier version of the theoretical part of this paper was presented at a joint meeting of the Econometric Society and the Regional Science Association in Cleveland in December I956, and was reproduced in Papers and Proceedings of the Regional Science Associaotion, Vol. m.

HE personal income tax has risen in imT portance in many state and local tax systems over the past two decades and has become the mainstay of the American federal tax structure. The shape of the present federal structure effected through the revolutionary modifications of World War II contrasts sharply with that of state structures, which arose in response primarily to depression fiscal problems. This sharp increase in relative and absolute size of yield fromn the personal income tax coupled with the current collection of a substantial fraction of it through withholding has endowed it with major significance as an automatic fiscal stabilizer. Such a position warrants a more precise appraisal of its automatic contribution to economic stability. The automatic contribution to stability of even a fairly simple personal income tax rests in the first instance on the way tax liabilities respond to income changes a function of the tax base and the rate structure. The income sensitivity of the tax base depends on the distribution of income changes, on the manner in which gross taxable income is defined, on the kind and amount of deductions that are permitted in arriving at net taxable income, and on the system of exemptions for the income earner and his dependents. Tax liabilities are then determined by applying to this base either a single bracket or multiple bracket rate structure. Consumer spending decisions as based on disposable income may, however, be more responsive to tax yields than to tax liabilities, and it is obvious that it is consumer reaction to the tax that determines ultimately its automatic effects. Tax yields may, of course, differ markedly from tax liabilities. Their sensitivity to income changes will be determined by payment requirements by the speed with which liabilities are liquidated. We restrict ourselves in this paper to the measurement of the liability response of a simple personal income tax to changes in personal income. The simple tax considered is one imposed at a proportional rate on income after exemptions (similar to the first bracket of the federal income tax). While a major portion of the agrgregate response of the existing multiple bracket personal income tax is contained in this first bracket,2 a complete picture of the tax must include an analysis of the higher brackets as well.3 Moreover, while we here relate tax liabilities to personal income, ultimately they must be related to changes in national income or product. We are simply developing here one of the several building blocks needed to get a complete picture. In the next section we consider the conclusions of existing studies; in the subsequent section we present our data and findings; in the last section some of their implications.