Knowledge that Transforms

In a brilliant and pioneering paper, John Harris and Michael Todaro introduced a model with two sectors, manufacturing (urban) and agriculture (rural), a (sticky) minimum wage in manufacturing and consequent unemployment. They also introduced a labor allocation mechanism under which, instead of the usual equalization of actual wages, the actual rural wage was equated with the expected urban wage; the latter was defined as the (sticky) minimum wage weighted by the rate of employment, so that, unlike in the standard rigid-wage models of trade theory, the unemployment resulting from the minimum wage is to be construed as specific to the urban sector. In the context of this model, Harris and Todaro analyze two policies: a wage subsidy policy in the manufacturing sector and a labor-mobility restriction policy. They argue that the former, as well as the latter, can be used to improve welfare, defined as a function of available goods in the usual way; but that, to attain the optimal first best solution, both policies are necessary.

In the history of science researchers have often borrowed theories, analogies, or metaphors from other fields, usually the better-developed ones; in economic terms, they invested their human capital by acquiring new and presumably more-advanced intellectual tools.The most conspicuous borrowing in nineteenth-century social science was the unfortunately imaginary set of the developmental sequences of societies, worked out by anthropology and sociology on the basis of findings from biological evolution.It is less often that scientists in a relatively developed

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Japan experienced a precipitous decline in fertility during the decade following the postwar baby boom of 1947-49, and then her fertility rates leveled off.The rapid decline in fertility paralleled liberalization of abortion laws and an active campaign to disseminate contraceptive information.Given these developments and the apparent subordination of women in Japanese culture, one might be inclined to ascribe the fertility decline to increased availability of abortions and other means of birth control and to doubt the explanatory relevance of economic theory which emphasizes the effects of rising wages and educational attainment of women on fertility.The conclusion that emerges from this study, however, is that the basic economic forces identified by the new economic theory of household decision making have been operating to produce a considerable part of the observed differentials and trends in Japanese fertility.1Indeed, increased use of abortion and contraceptive devices appears to have been induced to some extent by economic forces.

For an analysis of the three forms of marriage recognized in Brazil, see Kogut (1972).Cheung (1972) has described the structure of property rights within marriage in Chinr. S34-'Note that a gain to marriage is not ruled out by decreasing returns to scale.

It is somewhat unusual to begin the treatment of a subject with a warning against attaching too much importance to it; but in the case of economics, such an injunction is quite as much needed as explanation and emphasis of the importance it really has.It is characteristic of the age in which we live to think too much in terms of economics, to see things too predominantly in their economic aspect... .There is no more important prerequisite to clear thinking in regard to economics itself than is recognition of its limited place among human interests at large.

Studies of the returns to education have generally investigated the relationship between individuals' investments in formal education and on-the-job training and their labor-market productivity. It is well recognized, however, that other factors besides formal education and training contribute to a person's effective stock of human capital (and hence to productivity); these factors include early childhood environment, parents' behavior (see Dugan 1969), and associations with other individuals. There is general agreement, for example, that a child's development is affected by the ability and performance of peers in school. At a later stage, a significant part of an individual's college and graduate education appears to result from association with fellow students, the more able students contributing to the education of all. After formal schooling is completed, close associates are likely to continue to affect an individual's further educational development and to influence the rate of depreciation of the individual's stock of knowledge. One of the more persuasive explanations of the observed strong positive relationship between formal education and labor-market productivity is that, in addition to providing specific skills, formal education improves the individual's ability to acquire and assimilate information, to perceive and understand changing conditions, and to respond effectively.' From

It has long been recognized that consumption behavior represents mainly joint household or family decisions rather than separate decisions of family members. Accordingly, the observational units in consumption surveys are "consumer units," that is, households in which income is largely pooled and consumption largely shared. More recent is the recognition that an individual's use of time, and particularly the allocation of time between market and nonmarket activities, is also best understood within the context of the family as a matter of interdependence with needs, activities, and characteristics of other family members. More generally, the family is viewed as an economic unit which shares consumption and allocates production at home and in the market as well as the investments in physical and human capital of its members. In this view, the behavior of the family unit implies a division of labor within it. Broadly speaking, this division of labor or "differentiation of roles" emerges because the attempts to promote family life are necessarily constrained by complementarity and substitution relations in the household production process and by comparative

Economics has long been plagued with controversies: the Keynesian-monetarist controversy, the investment function controversy (is the elasticity of substitution unity?), the liquidity preference-loanable funds controversy. Geoffrey Harcourt has extended his survey article from the Journal of Economic Literature (1969) into a book dealing with one of the latest of these so-called controversies, that between Cambridge, England, and Cambridge, Massachusetts, concerning capital theory. The book is more balanced and more complete than the original survey article and includes some good pieces of exposition. The problems that I find with the book are basically problems I find with the Cambridge (U.K.) theory of which he is a partisan on one side-as, I suppose, I am on the other--and so, rather than focus on any errors and confusions which are peculiar to Harcourt, I prefer to focus on three of the major issues involved in the dispute and to suggest, in doing so, where Harcourt (and the Cambridge [U.K.] theorists) have gone astray.

This paper extends the theory of optimal taxation and government production to open economies. Appropriate rules for project evaluation and the determination of consumption, production, and trade taxes under a variety of restrictions (e.g., less than 100 percent profit taxes, government budget constraint, foreign exchange constraint) are derived. Among the results are (a) international prices should be used for evaluating public projects, unless there is a government budgetary constraint or there is a quota (this result does not require that tariff rates be optimally chosen); (b) no tariff should be levied on intermediates and only consumption taxes should be employed if there are 100 percent profit taxes. If profits are not taxed at 100 percent, both consumption and trade taxes should be employed.