Knowledge that Transforms

should be identified with social control of the rate and direction of progress, not with the absence of progress (p. I6o, italics added). Lauterbach himself admits that this cannot mean an absolute individual security. But even so I do not feel that the effects of expansion in causing both unexpected change and personal insecurity are at all adequately appreciated. Nor does Lauterbach relate his emphasis on the non-material drives (p. I63) to the pressure group problems which change involves in any society. Scientific discovery is taken as more or less automatically self-implementing, within the plan, despite pressure groups. Finally, Lauterbach's political analysis seems fundamentally incomplete. It is greatly to his credit that he does not rely on mere elections to maintain freedom. Nevertheless, except for emphasis on elections and on the need for a good moral attitude taken by intelligent and educated voters, there is little of a constructive nature to be found in his treatment. He does not seem to have fully realized that, unless the voters have some economic independence, an election will tend to become a farce. Also, the role of competing employment opportunities in helping to underwrite such independence, and in facilitating the rise of independent leadership and discovery, is largely overlooked. On all these points I would like to refer the reader to my Democracy and Progress. Leaving aside political na-vete, the fundamental defect of the book is the lack of any coherent theory of social growth and economic development. If Lauterbach were advocating a stationary society he would be on much stronger ground economically at least. We could then combine decentralized planning with literal personal (economic) security. But Lauterbach specifically wants a higher standard of living, and it is just here that his analysis is most inadequate. However, not everyone believes in a growing society, and it is worth asking whether, even if we decided on a stationary state, it could be kept politically free. I do not think so. How would people be stopped from trying out new ideas unless there were established drastic social penalties for innovation, or some sort of inquisition for the suppression of dangerous thoughts? In short, the basic problem seems to me to be that if we make men genuinely free they become creative, and that if they become creative they simultaneously create growth and insecurity. No technique of planning can ever wholly overcome this difficulty, and while a workable compromise is certainly possible there is always the danger that as we cut down on the insecurity we may find ourselves cutting down on the growth. One can find these conclusions in Lauterbach, but not entirely with the author's help.

S INCE Professor Leontief presented in I936 his first paper aimed at a purely descriptive analysis of the structure of the American economy, the interest in what was later termed linear economic models has grown steadily among economists.2 Today the linear economic models form the main object of many research groups; witness the meeting organized by the Cowles Commission last June in Chicago and devoted entirely to the different aspects of such models. A statistical tallying of the opinions expressed by the discussants of the paper read by Leontief before the I948 meeting of the American Economic Association, however, may lead to the impression that the interest in his work finds its source in a dissatisfaction rather than in an agreement what Leontief's contribution contains. The present paper aims at considering in a systematic way the main controversial points related to Leontief's model and at showing the bearing upon these controversies of some of the recent results which were not considered by the discussants of Leontief's paper, since they were not available at that time [7]. Three distinct steps can be traced in Leontief's contributions. In his first paper [i], Leontief does not go beyond presenting a new tool, more adequate for describing an economic reality than the classical concept of national income. Although it is stated among the concluding remarks that the Tableau Economique has been constructed with the definite aim of supplying an empirical background for the study of the interdependence between the different parts of our national economy on the basis of the theory of general economic (p. i i6), it seems clear that, at that time, Leontief's aim consisted solely of reviving Quesnay's concept and, taking advantage of the progress of modern statistical information, of applying it to describe the economic structure of the United States. Such an approach aroused no objection. It could hardly be otherwise. The usefulness of the innovation seems to have been generally recognized.3 Later on, Leontief, in order to create a theoretical background for the Tableau Economique and, by doing so, to provide a larger basis for its use, presented his economic model based on the input-output relationship [2 ], [3]. Nobody could easily deny that the Tableau Economique contained the observable coordinates of general economic equilibrium, but the Gordian knot consisted of deciding what theoretical approach would be most appropriate for the purpose of using them for a general equilibrium analysis. Leontief decided to follow the trodden path used by Walras, Wicksteed and many others, by assuming linearity throughout.4 In the two studies just mentioned, Leontief did not attempt to use the model for more than providing the input-coefficients a relevant meaning from the point of view of economic 1 Paper read before the joint session of the American Economic Association and the Econometric Society in New York, December I949. It contains in brief the main results of research by the author while associated the Harvard Economic Research Project and which were presented during three meetings of the Project Staff in March and April I949. 2 Further references to Leontief's works will be made by the following numbering: [i1 Quantitative Input and Output Relations in the Economic System of the United States, this REVIEW, XVIII (1936). [21 Interrelation of Prices, Savings, and Investment, this REVIEW, XIX (I937). [31 The Structure of American Economy, I9I9-I929 (Harvard University Press, I941). [41 Output, Consumption and Investment, The Quarterly Journal of Economics, February I943. [51 Exports, Imports, Domestic Output and Employment, The Quarterly Journal of Economics, Febru-

N his article, Statistics, Mr. Jasny provides a number of examples designed to demonstrate the manifold ways in which official Soviet statistics are manipulated to produce the impression of achievements greater than those actually attained. Most of these examples are not new and have been frequently mentioned in Western economic literature on Soviet Russia. The justification for publishing an article of this sort therefore must lie in its concluding remarks, in which Mr. Jasny attacks Professor Bergson and myself. Through a series of quotations torn out of context, Mr. Jasny tries to create the impression that in the opinion of those he criticizes Soviet statistics are free of manipulation and can be confidently accepted at their face value. This inference is highly misleading. Mr. Jasny neglects entirely to point out that the passages he criticizes are gleaned from articles the very purpose of which was to present critical analyses of the original Soviet data. The meaning of these passages therefore is altogether different from the one imputed to them by Mr. Jasny. Anyone dealing with Soviet statistics must begin by considering the possibility that the figures may represent sheer invention. If this were the case, no analysis would be possible. The purpose of the remarks which have provoked Mr. Jasny's displeasure was to place on record the view that Soviet statistics are not freely invented; that as a rule they have meaning and significance, although the form in which they are presented requires great caution in dealing with them. This and only this was suggested. Mr. Jasny's own extensive use of Soviet statistics shows that he shares this view. No unbiased reader could have missed this point. Nor, I venture to suggest, has Mr. jasny. For after havlng charged Professor Bergson and myself with uncritical acceptance of Soviet data, he continues:

George H. Hildebrand, Arthur Mace, The Employment Multiplier in an Expanding Industrial Market: Los Angeles County, 1940-47, The Review of Economics and Statistics, Vol. 32, No. 3 (Aug., 1950), pp. 241-249

E FFICIENT operation of a free enterprise system requires that consumers look after their own welfare. Persistent failure of consumers to safeguard their own interests can seriously weaken even the richly endowed economy of the United States. Moreover, consumer ignorance could well be a major cause of the economic privations of the poorest third of the nation. It is universally acknowledged that consumers lack knowledge to some degree. However, no systematic effort has been made to probe the size of this deficiency. No one knows whether most consumers intelligently pursue their self-interest most of the time or whether most of them fail to do so most of the time.

THE recent focusing of union demands on noncontributory pension plans raises the question of the possible effects of this newest development in the field of collective bargaining on personal savings. Does the accumulation of huge pension reserves represent merely a rechanneling of savings or does it represent a net addition to the savings stream? The whole magnitude of the problem of the accumulation of private pension reserves can be sized up in making the following rough calculations: The current cost of most pension plans is estimated at around 5 per cent of the payroll. Under the unlikely hypothesis that pension plans of similar scope will ultimately spread through the entire non-agricultural private segment of the economy, their aggregate annual cost (before provision for accumulating reserves for past service pension credits) would amount to about 3 per cent of Gross National Product, while for a number of years benefit payments would remain relatively small. This is clearly an extreme assumption. If, however, the scope of the Federal Old-Age and Survivors Insurance (OASI) Program is broadened in accordance with HR-6ooo, and private pension plans continue to spread, a few years from now funds channeled into both types of penson reserves (plus investment income on such reserves) may very well run at the rate of 2 per cent of GNP. On the other hand, over the long pull, net domestic capital formation (including residential housing) is likely to average less than io per cent of GNP per annum.1 Thus, annual accumulations of pension reserves alone may amount to about one fourth of the average domestic capital formation. A considerable proportion of corporate needs for long-term funds is currently met from internal sources and does not involve any debt instruments. Unless the demand for external financing increases, reserve accumulations in (private and public) pension funds are likely to be equal to considerably more than one fourth of the amount of available investment securities and mortgages. Obviously, the total effect of pension plans on aggregate savings will depend (i) on the effect of the financial cost of these plans on the price level, (2) on the incidence of this cost on particular groups of income receivers whose money income and ability to save may be reduced, (3) on the degree to which dissaving will be reduced, and (4) on the ability and willingness of workers covered by such plans to save more or less than otherwise. The ability of all income receivers to save will depend on the way in which the cost of pension plans will be borne by the economy. To the extent that it will be passed on in increased prices, it will reduce the real income of all consumers (not just of the potential beneficiaries of the pension plans); to the extent that it will reduce dividend disbursements, it will change the income distribution and reduce the ability to save of a large segment of recipients of property income. Moreover, increased security is likely to affect the covered workers' willingness to save. (i) Since old-age pension plans involve postponement of the payment of a part of labor income until retirement age, current consumption of wage earners must be lower than if equivalent increases were granted in current wages. Suppose that, productivity remaining unchanged,2 organized labor is successful in obtaining the N-th round of wage increases. The price level will rise, some redistribution of income will take place, but consumption in real terms is likely 1 The average rate of net domestic capital formation, derived from Kuznets' estimates for I869-i9i8, is IO.9 per cent of GNP. It declined to 8.5 during the prosperous twenties (I9I9-28) and dropped sharply to i.5 per cent during the thirties (I929-38). The postwar (I946-49) average was I4.6 per cent. 2 This assumption is made for illustrative purposes only. The same argument could be developed under a number of alternative assumptions.