Knowledge that Transforms

W l THAT have we learned from ComIV Vmission on Money and Credit about processes and responses in monetary policy? So far as I can see, from Report itself, very little but perhaps experts in monetary economics were not a significant part of audience at whom Report was aimed. So most fruitful course may be to turn primarily to staff papers. Here there is substantial evidence of quantity theory reborn at least in sense that money matters a good deal in determining aggregate spending on current output and of an important postwar change in monetary theory. As noted in my introduction to this volume, this postwar shift in theory is centered in approach to demand for money and other assets. In this theory, channels through which variations in money supply affect levels of income and employment include not only a change in the interest but also changes in relative prices of all assets-real and financialwhich in turn lead to shifts in spending on existing assets and currently produced goods and services. Thus in its extreme form approach suggests that we need to look not at one interest rate but at an extremely large number, including implied interest rates on all real assets and including consumer goods of any degree of durability. In logical terms, this approach offers an elegant rapprochement for devotees of and quantity-theory approaches to role of money, and for monetary-versus-fiscal policy disputes since I930's. If look prevails, we may look back at much of this controversy as a good deal less significant than it has seemed en route. The great controversy over Is savings really equal to investment? of late I930's and early I940's springs to mind. But agreement on this mechanism doesn't necessarily tell us how important money is quantitatively. If we look at staff papers (or at least, at sample I managed), what does professional support for renaissance of money and monetary policy amount to? Friedman and Meiselman, as might be expected, plump for money as a prime determinant of level of spending on current output, and show convincingly that a simple, traditional monetary model versus a simple traditional Keynesian model test gives verdict clearly to stability for velocity over stability for ratio of autonomous to income, including cases where reasonable lags are introduced. Moreover, they go on to spell out portfolio balancing mechanism as at least a plausible mechanism through which this monetary effect may be exerted. If we take Section VI of their paper as a statement of new monetary orthodoxy, on intellectual grounds at least a good deal of basis for long quarrel between monetary and Keynesian economists has been reasoned (or compromised) away. Few, even most ardent neo-Keynesians, would disagree that impact of open market operations may be through spreading net which Friedman and Meiselman spell outnot merely through one (bond) interest rate alone acting on investment decisions. The major challenge to now generally accepted fiscal policy position as our really powerful stabilization tool becomes a strong one if a reasonably stable demand for money is added to mechanism as at least Friedman and Meiselman argue. The C.M.C. staff papers contain no empirical answer to Friedman and Meiselman challenge to show better results with another model. Tobin, in his paper on debt policy, provides an elegant statement of a very similar mechanism through which changes in money stock and liquidity may influence spending decisions on current output through rebalancing of asset portfolios. But I hope it will not be too dissident a note to suggest that we really know very little empirically about validity of this description of channels of monetary policy; and that elaborate portfolio-balancing general equilibrium approach lacks intuitive appeal

F what I have seen of the work of the Commission on Money and Credit, one thing stands out.It is a part of one question addressed by one task force to the Federal Reserve Board, and it reads as follows: "Given the customary credit control instruments and the ultimate objectives of price stability, highlevel employment, and economic growthhow is monetary policy formulated in the short run?For instance, what sort of factors are weighed in determining current policy, what guides are utilized and what are the immediate objectives of policy?"The merits of the Board's reply, the many contributed papers, the Commission's Report, and recent monetary policy itself, are all certainly debatablebut I submit, if you will pardon the use of strong language, that this is a damned good question.It asks, politely but firmly, that we omit the usual garbage about opposition to sin and advocacy of motherhood, and just say what it is we are trying to increase, decrease, or hold still.The Board's reply ran to some 35 doublespaced pages.The burden of drafting was carried by my colleague, Woody Thomas,

T HIS paper examines the effects of debt management on aggregate expenditure during I9 53-58. The Treasury in this period lengthened the debt in recession and allowed it to shorten somewhat in prosperity (Table i), the opposite of the anti-cyclical policy advocated by some economists. Treasury policy was defended on the grounds that it did not unduly intensify recessions and that offerings of longterm securities in prosperity provided undesirable competition with new issues of private, state, and local government securities and increased interest costs.1 Debt management for purposes of this paper

tives of policy. The main staff papers relevant to that chapter are those by Chandler [i], Klein [a], and the Scitovskys [6]. The same chapter deals in a general way with potentiali-ties — the extent to which the goals are likely to be achieved in future. A full assessment of the potentialities, however, requires evaluation of the effectiveness of the instruments of policy and the efficiency with which they can be or are likely to be used, and raises in particular the questions concerning recognition, adminis-tration, and operation lags to which this morn-ing's panel was devoted. The report does not face these issues squarely: Chapter 9, on "The Choice and Combination of Policy Instru-

PLANNING for the construction of a new town is in many ways similar to planning the development of an emerging national economy. Both processes may be framed within the context of growth, susceptible to an econometric treatment. The models of Klein and Goldberger, Tinbergen, Koyck and Bos, Harrod, Domar, and others, are well known; but the time seems distant when such sophisticated analyses of national economies can be applied to a local economy. Our paper modestly seeks to narrow this distance by developing and testing an urban growth model. Although the model was conceived for a particular growth problem and for one city, it is no less applicable to more general local development problems such as the construction of new towns. The process of building a new town may be conceptualized in a dynamic programming model which seeks to optimally schedule the allocation of budgeted funds among competing investment needs in such a fashion that the needs, or targets, are satisfied in minimum time. As a corollary, since the capital appropriation is exogenously given to the new town as a continuous increasing single-valued function of time, the targets are attained at minimum cost. The targets are defined as units of physical capacity, which in turn are dichotomized as industrial and service. Finally, because the capital appropriation equates costs, with minimum cost, as well as minimum time, the amount appropriated is also minimized.