Knowledge that Transforms

dominate modern economic history, taking that phrase to refer to the 50-year period from 1939 to 1989. One is the increasing strain on, and eventual structural failure of, centralized planning in virtually all of the self-styled socialist world. The other, less dramatic, but of no less historical significance, is the continued success of capitalism in its major strongholds. In both cases, I use as the crucial but not sole indicator of success or failure the political fortunes of the two social orders. There have been economic successes for socialism-above all, the initial industrialization of the USSR and the early modernization of China; there have been economic failures of capitalisminstability, uneven growth, unsatisfactory income distributions, dangerous international imbalances. From the perspective of the present, however, the half century is remarkable for the political verdict that has finally been passed on the two systems. With few exceptions, socialism has experienced a public delegitimization without precedent in modern, perhaps in all, history; whereas despite its failures, capitalism has enjoyed an uncontestable, and probably rising degree of internal political support. In this paper I shall be concerned only indirectly with these historical developments, for my purpose is neither to describe nor to explain the contrasting fates of the two great social orders. Rather, I wish to review and interpret the manner in which modern developments have been perceived by economists. Thus, as my title indicates, this is an essay in the history of economic thought, not in economic history. But it would be disingenuous not to admit to a more pointed purpose of my investigation. It is to inquire into the successes and failures of economic thought in anticipating the march of actual events. It will come as no surprise that failures have considerably outweighed successes in this endeavor, even excluding the momentous, and utterly unforeseen happenings at the conclusion of the period in 1989. A few observers have offered prognoses of history's long line that were subsequently vindi-

IN 1975 THE NOBEL PRIZE for economics was awarded to Tjalling C. Koopmans and Leonid V. Kantorovich for their contributions to the theory of the optimal allocation of resources. Koopmans' work in activity analysis, linear programming, and optimal growth, together with his influential doctrine of the price implications of optimality, is central to neoclassical economics. By contrast, Kantorovich's work in these areas remains poorly understood in the West. Many economists would have a hard time describing his contribution, much less justifying the award of a Nobel Prize to it. This paper aims at redressing this regrettable situation. Earlier assessments of Kantorovich's work have been made by Leif Johannsen (1976) and Aron Katsenelinboigen (1978-79). The brief entry in the New Palgrave by Kantorovich's coauthor V. Makarov (1987) as well as Kantorovich's Nobel autobiography and acceptance speech (Kantorovich 1976a, 1976b) should also be mentioned. However, the appearance of new material, most notably Kantorovich's own glasnost-era memoir (1987), as well as work on the nature and computation of his resolving multipliers by Roy Gardner (1988), justifies a new assessment. The argument proceeds by stages: (1) Kantorovich's life, in many ways remarkably similar to that of John von Neumann, (2) the discovery of optimal planning, the basis of the work for which he won Nobel Prize, (3) the computation of an optimal plan, in which his resolving multipliers play a crucial role, and (4) his indirect influence on the current restructuring of the Soviet economy, perestroika. In this way, the reader should come to a clearer understanding of the man and his economics.

This survey reviews the growing use of patent data in economic analysis. After describing some of the main characteristics of patents and patent data, it focuses on the use of patents as an indicator of technological change. Cross-sectional and time-series studies of the relationship of patents to R&D expenditures are reviewed, as well as scattered estimates of the distribution of patent values and the value of patent rights, the latter being based on recent analyses of European patent renewal data. Time-series trends of patents granted in the U.S. are examined and their decline in the 1970s is found to be an artifact of the budget stringencies at the Patent Office. The longer run downward trend in patents per R&D dollar is interpreted not as an indication of diminishing returns but rather as a reflection of the changing meaning of such data over time. The conclusion is reached that, in spite of many difficulties and reservations, patent data remain a unique resource for the study of technical change.

The results of this analysis suggest that employment in service industries acts as a double-edged sword on earnings inequality. On the one hand, we find that as the percentage of total civilian employment in service industries rises, the inequality in earnings among individuals increases. On the other hand, as the concentration of employment in service industries rises, the inequality in earnings among individuals intact husband-wife families is found to decrease. The results of this analysis suggests that the latter is largely the result of service industries providing jobs that enable both husband and wife to work outside the home. Copyright 1990 by MIT Press.

This paper develops a time-series model for continuous time asset prices and then uses tick-by-tick data from Treasury bill futures to develop both a definition and test for efficiency in the continuous time case. The results suggest that intra-day data on futures prices do not behave like a Markov Renewal process; rather, lagged values of futures prices do have some predictive power. In addition, trading times are not useful in predicting futures prices. Finally, we estimate the bid-ask spread and show that even after adjusting for this spread, the serial dependence between current and lagged returns remains. The multitude of studies concerning efficiency in futures markets support the proposition that a Martingale approximation is reasonable for most commodity and capital asset markets, while the same data reject Gaussian processes as an appropriate model.1 All of these studies, however, use either close to close prices or open to open prices in the estimation process. The choice of daily data is arbitrary; a natural question concerns whether, based on continuous time data, futures prices can be shown to be realizations of continuous time Markov processes and whether they can be represented as stochastically linear processes. In this paper, we use intra-day, tick-by-tick, data on Treasury bills futures and develop both a definition and a test for efficiency in the continuous time case. Observations on continuous time prices yield two separate time series: the trading prices and times. As a result, we claim that the standard procedures for tests of market efficiency must be replaced by two separate necessary conditions; the first is the usual condition that successive price changes are independent; the second requires that the recurrence times between trades obey a Poisson process. We apply the above definitions to intra-day futures prices for Treasury bills for a 57 day period in 1983. The results indicate that the Markov model does not hold for intra-day futures prices but the trading times do seem to behave approximately as a Poisson process. Received for publication January 29, 1988. Revision accepted for publication July 19, 1989. * City University of New York and State University of New York at Stony Brook, respectively. We gratefully acknowledge financial support for this research from the Center for the Study of Futures Markets at Columbia University. Stephanie Dieringer provided invaluable help as a research assistant for this project. 1 Several studies have examined the martingale property. For a summary of these results see, for example, Kamara (1982). 2 See, for example, Fama (1965), Mandlebrot (1963), Stevenson and Bear (1970), and Neftci and Policano (1984). Some studies that do analyze intraday data include Feinstone (1985) and Hinich and Patterson (1985).

James Levinsohn, Jeffrey K. MacKie-Mason, A Simple, Consistent Estimator for Disturbance Components in Financial Models, The Review of Economics and Statistics, Vol. 72, No. 3 (Aug., 1990), pp. 516-520

A dynamic quarterly model for both first and second class U.K. inland letter traffic is estimated over the period 1976-88. The demand for first class letters is strongly influenced by aggregate expenditure, but for second class letters this linkage is much weaker. Both letter streams respond to changes in the price of first and second class letters, the price of telephone services, and "other prices" as measured by an aggregate price index. Copyright 1990 by MIT Press.