WE owe to Dr. Hicks the extremely interesting proposition that an increase in the supply of any factor will increase its relative share (i.e. its proportion of the National Dividend) if its ' elasticity of substitution ' is greater than unity,' and will diminish its relative share if the elasticity of substitution is less than unity. For much the most satisfactory way of proving the validity of this rule, Dr. Hicks refers the reader to his mathematical Appendix. Here is to be found2 a symbolic definition of elasticity of substitution which gives the appearance of having been dictated by the requirements of algebra rather than of economics, and Dr. Hicks fails to tell us what it really means, while in the text we have to be content with the admission that the case where the elasticity of substitution is unity can only be defined in words by saying that in this case (initially, before any consequential changes in the supply of other factors takes place) the increase in one factor will raise the marginal product of all other factors taken together in the same proportion as the total product is raised.' The purpose of this note is to point out that Dr. Hicks' elasticity of substitution has a very simple meaning and to show how his proposition can be deduced by a very simple line of thought.' For, by a curious coincidence, Dr. Hicks' elasticity of substitution is exactly the same as Mrs. Robinson's elasticity of substitution.' Though Dr. Hicks was apparently unaware that his new conception was capable of so simple an interpretation, it is in fact the proportionate change in the ratio of the amounts of the factors divided by the proportionate change in the ratio of their marginal physical productivities.' Let us now imagine a curve relating the ratio of the amounts of the factors (measured along the x axis) to the ratio of the marginal productivities (measured along the y axis).' Then it follows from the above definition that the elasticity of substitution is equal to the elasticity of this curve. By a well-known proposition the area xy subtended by a point on a curve increases as x increases if the curve has an elasticity greater than unity, and

I. The incidence of contributions from employers, 313.— Qualifications: unemployment benefits may modify competition for employment, 314; strengthening unionism introduces additional uncertainty, 315; the outcome affected by rigidity of money wage rates, 316.—Shifting forward to consumers, 316.— The assumption that employment is a function of labor costs, 317.— The incidence of a limited system of reserves, 318.— The possibility that there is no net cost, 319.— II. Employers' contributions as incentives to stabilize employment, 320.— The argument obscure and weak, 321.— The necessary conditions of additional financial incentives, 322.— Effects would be largely on casual employment, 324.— III. The form of the reserves: insurance or pooling vs. deposit or savings, 325.— Pooled reserves not true insurance, 326.— Contributions to pooled reserves akin to taxes, 330.— Pooled reserves a mixture of relief and insurance, 330, and are as unstable as industry itself, 332.— The ethics and economics of the deposit or savings basis, 333.— Conclusions, 335.

I. Suffocation by analytical definition, 377. — II. Rationality and the Individualist Exchange Economy, 387. — III. Scientific Precision and "the" Stationary State, 391. — IV. Pseudo-Positivism and the doctrine of "the logical gap, " 401. — V. The Mecca of twentieth century economics, 408. "… One day in looking over his books he discovered a remarkable law. For every item on the credit side an equal item appeared somewhere else on the debit side. ‘Ha!’ said the Bursar, ‘I have discovered one of the great laws controlling the college. It is a perfect and exact law of the real world. Credit must be called plus and debit minus; and so we have the law of conservation of £.s.d. This is the true way to find out things, and there is no limit to what may ultimately be discovered by this scientific method. I will pay no more heed to the superstitions held by some of the Fellows as to a beneficent spirit called the King or evil spirits called the University Commissioners. I have only to go on in this way and I shall succeed in understanding why prices are always going up.’" The Nature of the Physical World.

S HORT term interest rates usually depend upon the ability of commercial banks to lend money; the position of banks, in turn, depends largely upon the gold stock of the country. Therefore, in the last analysis, the supply of gold in relation tocredit liabilities governs interest rates. It is illuminating to analyze the changes which have taken place from time to time in the gold stock, and in the credit structure erected upon the gold stock, in an effort to relate these two important forces to each other. This -relationship is ascertained through the gold percentage, arrived at by dividing the total stock of gold in the country by the sum of bank deposits plus money in circulation. Fluctuations in the gold percentage may-be caused by changes in either or both of these factors, depending upon the degree to which central bank credit policies or other artificial influences are operative at the moment. In the absence of such outside influences the volume of both credit liabilities and gold tends to move in the same direction. Sometimes there may be some delay before movements in one respond to movements in the other; and sometimes one may fluctuate less than the other. These irregularities produce the fluctuations which occur from time to time in the gold percentage. It is such changes in the gold percentage which, in the last analysis and after allowing for other lesser influences, ultimately control interest rates. Of course, there frequently is an interval of time between a reversal in the direction of movement in the gold percentage and its resulting reaction on interest rates. This is because interest rates follow more closely the position of the banks. Banks can readjust their position to changes in the stock of gold only slowly. It is one of the functions of central banks to smooth out such readjustments in the commercial banks by temporarily counterbalancing gold movements. In this manner seasonal or emergency fluctuations in the volume and cost of credit are reduced to a minimum, while cyclical and major changes are accomplished gradually and in an orderly manner. It is doubtful if any credit structure cou'ld have survived a' 20 per cent reduction in gold stock within a sDan of nine months, such as occurred in the United States between September I931 and June I932, without the assistance of a central banking system. The gold percentage is a tool with which to measure the strength or weakness of the credit structure at any given time. It also affords a check on the validity of interest rates, indicating whether or not, and to what extent, the money market is being influenced for the moment by outside forces. The gold percentage is the fundamental factor which must sooner or later be reflected in credit conditions and interest rates. These can only temporarily disregard the gold percentage, and changes in it should always be considered of the utmost significance. Gold percentages are more useful for visualizing the changes which occur in the credit structure of a given country over a period of time than they are for comparing credit conditions in one country with those in other countries at any given time. The customary or average level around which the gold percentage of any given country tends to fluctuate depends to a large extent upon banking practices and national characteristics. For example, countries like the United States and Canada, where deposit banking has been developed to a high degree, can apparently operate safely on a lower percentage of gold than can countries like France and Argentina where bank notes represent relatively a much larger proportion of total credit liabilities (Charts i and 3). Gold functions much more efficiently in the former type of credit structure than in the latter; it does more work, supports a greater volume of transactions, and is more sensitive to control. In this country there are ordinarily about eleven dollars of deposits to each dollar of nioney in circulation, and in Canada, ten to one; in France, at the other extreme, the ratio is less than two to one. In order to maintain confidence in the credit structure of a country, it appears to be necessary to keep much larger gold reserves against currency than against deposits. If the customs and habits of a country are such that the people prefer and demand bank notes, in preference to deposits, as the medium of exchange in transacting

IV.—A Note on Mr. Kahn's Paper Get access J. R. Hicks J. R. Hicks London School of Economics Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 1, Issue 1, October 1933, Pages 78–80, https://doi.org/10.2307/2967442 Published: 01 October 1933

Reviews the book "The Abolition of Unemployment," by Frank D. Graham.

The article focuses on the cost approach in accounting. The use of the cost approach was not an attempt to teach cost finding but rather to introduce the students to the subject through the use of simple logic of the interrelation of the main accounts of factory bookkeeping. In other methods of approach the student is too often told to do it this way, if the student can only be taught to understand as he goes along the advanced work in the subject will be more easily grasped. After the student thoroughly understood the elementary definitions, work was started on actual manufacturing. In presenting the books of original entry, no new problems were used. The class it worked the old problems which eliminated the need for analysis of transactions and still give them a review of all that had been covered before. The reasoning back of such a plan is ideal, but in actual practice it was not as successful as had been anticipated. Selling and administrative expenses were presented alter the books of original entry.

The last two decades have witnessed an enormous increase in the use of the holding company as a device for financing and welding together hitherto independent units of business operation, as of March 1933. In no field of business endeavor has the growth of holding companies been so pronounced as in the field of public utilities. The motives prompting its use have often been of questionable character. Financial history is replete with instances in which the purpose apparently has been to achieve individual objectives at the expense of the balance of society. Even a superficial study of the economic losses resulting from holding company collapses raises a serious question as to their social desirability. Some students of business insist that the holding company is a by-product of a period of stable price levels when increased outputs with declining costs were the order of the day. They insist that during trying times disintegration will take place and that the successful business of the immediate future will be the small business unit which has shaken itself free from expenses entailed by heavy overheads and idle plants found in the larger organizations.

Reviews the book "Wages and Wealth," by Roy Dickinson.