Knowledge that Transforms

Brazil emerged from World War II with a single exchange rate, applicable to all transactions.' This rate was equal to the prewar effective export rate and was very slightly 2 relative to the prewar import rate. During and after the war, however, Brazil experienced substantial inflation so that the postwar par value of the cruzeiro has been at all times, despite a considerable improvement in the terms of trade. Thus, Brazil's large exchange reserves fell rapidly as soon as imports became readily available, and her industries, which had greatly expanded during the war, were threatened by foreign competition.3 Exchange control alone was unable to restrain imports sufficiently, and Brazil contracted substantial foreign debts. Beginning in 1947, therefore, increasingly comprehensive direct import controls were introduced -controls which nonetheless proved an inefficient means of limiting and selecting imports. Rising domestic prices also impaired Brazil's ability to acquire foreign exchange; with the notable exceptions of coffee and cocoa, her exports were being priced out of world markets. A first attempt to promote foreign sales was made through the permission of private barter deals,4 a second attempt through mixing the parity in various proportions with the free market rate of exchange after a legal free market in foreign exchange for financial transactions had been established early in I953. But neither of these attempts was successful. Brazil's international accounts were thus subjected to increasing pressure on both the import and export sides. This pressure led to the introduction of the exchange reform of which the auction system is the outstanding feature. This system had been successfully employed by Raul Prebisch in Argentina during the I930's. It was subsequently incorporated into the exchange laws of Paraguay and Guatemala when those laws were revised under the influence of Federal Reserve System missions headed by Robert Triffin, and auctions were conducted sporadically by the Paraguayan authorities. Never before, however, had the echange auction system been applied to the bulk of a country's general imports. The exchange reform of 1953 should be judged against the conditions which have characterized the Brazilian economy in the postwar period. The persistent and substantial inflation reflects a high propensity to invest on the part of government and private entrepreneurs as well as an increasingly important tendency to wage inflation. A further outstanding feature of Brazil's postwar economy has been the rapid growth of real income, based on a high rate of domestic investment and substantial improvement in the terms of trade. It is significant that domestic investment was as* I am indebted to Professor Gottfried Haberler fcr suggesting that I write this article. I should also like to thank him and Professor Seymour E. Harris and Mr. Peter B. Kenen for their very great help in revising the first draft of this paper. My gratitude is also due to Professors Eugenio Gudin and Ota'vio Bulhoes and Drs. Jayme Bastian Pinto, E. M. Bernstein, Herculano Borges da Fonseca, Roberto de Oliveira Campos, and Sidney A. Latini, all of whom read the first draft and made many helpful suggestions. 'For a short time after the war, a three per cent surcharge on imports was maintained. This premium was abolished but was reintroduced at five per cent in I947 and was later raised to eight, then ten, per cent. 2 The terms appreciated and depreciated will be used throughout this paper to signify changes in the value of the Brazilian currency, the cruzeiro, in terms of foreign currencies. The words overvalued and undervalued will be used in the same manner. The par value of the cruzeiro is Cr$i8.5o per U.S. dollar. ' Brazil's system of specific duties, dating back to 1934, was rendered obsolete by rising world prices and affords very little protection to industry in general. 4 Under this system, licenses for certain profitable imports were issued provided only that equivalent exports of certain slow-moving Brazilian products. were undertaken simultaneously; the profit on imports subsidized the export, i.e., there was a disguised devaluation.

T HE whole problem of capital requirements in economic growth has received increasing attention in recent years under double impetus of post-Keynesian preoccupation with full employment in more highly developed countries and new interest in theory and strategy of economic development for underdeveloped areas. Growth models such as those of Harrod, Domar, and Fellner explicitly focus on productivity of investment, i.e., productivity of incremental additions to capital stock, as a determinant conditioning full-employment rate of growth.' At same time, most of projections for underdeveloped areas are based on models in which capital-output ratio figures as one of principal growth variables.2 In this context, there have been two schools of thought as to comparative levels of marginal capital-output ratios in developed versus underdeveloped economies. The first school, following good classical doctrine, maintains that on an a priori basis one would expect a comparatively low marginal ratio in underdeveloped countries, where capital is relatively much scarcer than labor. On other hand, second school argues that in early stages of development a large share of investment resources will need to be allocated to social overhead capital, productivity of which is low. Therefore on this account, as well as owing to shifts in industrial structure, while initial marginal capital-output ratio tends to be high, it will decline at more advanced stages of economic growth. For instance, Colin Clark maintains that the figure of capital requirements per unit of output rises . . . in early stages of industrialization, but that later effect of modern technology is to bring this figure down. I With this background in mind, it seemed to us that an investigation of incremental capital-output ratio in Soviet Union might throw some additional light on factors impinging upon problem of capital requirements during periods of rapid growth in early stages of development. The Soviet process of economic growth with its marked emphasis upon development of producers' goods and defense industries has been generally considered a highly capital-intensive one. However, as we will attempt to show, this conclusion seems to be belied by realities of Soviet development experience for economy as a whole, although it does have some validity for industrial sector alone. Specificially, in this paper we propose (i) to develop measurements of aggregate and industrial incremental capital-output ratios in Soviet Union, (2) to indicate some of factors which may account for comparatively low ratios observed, and (3) to point to some of implications of our results for measurements in general.

YOU are familiar with those huge ant-heaps that one finds occasionally in the woods: myriads of tiny particles collected and put together with patience and perseverance by a legion of methodic small creatures. Whenever I think of the statistical aspects of the gross product in a detached fashion this image comes to my mind, and the analogy brings out the difficulties which I face in this talk: While the complete ant-heap is truly imposing, it is not easy to say anything of a general nature about the individual particles. Nor do the techniques employed by the builders appear to lend themselves to significant summarization. However, to talk in detail about the particles and the work by which they are put together would not only be an endless affair; it would also be endlessly boring. I shall deal as well as I can with these difficulties, and hope that I shall be able to further your understanding of gross product statistics.

S. E. Harris, S. H. Slichter, P. A. Samuelson, W. Fellner, E. S. Shaw, H. M. Groves, H. C. Wallich, A. C. Harberger, N. Goldfinger, The Economics of Eisenhower: A Symposium, The Review of Economics and Statistics, Vol. 38, No. 4 (Nov., 1956), pp. 357-385

THIS study attempts to evaluate the importance of some influences on inter-industry changes in average hourly earnings for the period I939 to I947 in manufacturing. We consider the relationships between earnings changes and the original earnings level, changes in production, employment, productivity, the importance of wages in total costs, and the extent of unionization. Our statistical investigation covers 57 manufacturing industries, including all those industries for which Census Bureau output indexes, or combinations of them, comparable to B. L. S. data on hours and earnings were available.'