Knowledge that Transforms

Tp wo forces, relatively unimportant several decades ago, have influenced the destiny of the consumer dollar in the years following the Second World War. The first of those forces is the growth of installment and mortgage credit relative to disposable income, and the second is the growth of contractual savings relative to the total amount of personal saving. It is argued in this paper that these two forces, even though stabilizing contractual savings and payments, have altered the pattern of nondurable goods consumption in certain undesirable ways. Since the end of World War II, the phenomenal rise in installment and mortgage credit and its possible de-stabilizing effect on the economy has been a subject of much discussion among economists. But in this paper, our attention is mainly directed to the neglected aspect of how durable goods financing has affected, surreptitiously, the consumption expenditures for nondurable goods and services and how the change may adversely affect the stability of the economy. The change is measured in this paper by comparing two periods the most recent decade, that is, the fifties, and the twenties, a decade selected for statistical convenience as well as for cyclical comparability. The relative importance of these two forces in the two periods and appropriate analytical framework are presented in Section I; the results of empirical investigations and tests are summarized in Section II; and policy implications are examined in Section III.

IT is a well-known fact that a high priority has been placed by the Chinese Communist government on the development of industry in their national economic plans. This extensive industrialization is clearly evidenced by the large share of total investment funds that was devoted to industry in their First and Second Five-Year Plans.1 In order to show the achievements, Peking has published, among other economic indicators, gross values of industrial production for the past years and the corresponding indices under various designations.2 However, there are at least two good reasons for an independent estimate of Communist China's industrial growth. First, it may serve as a check on the official claims by the Chinese Communists. Second, no meaningful comparison of the rate of industrial growth in Communist China with that of other non-communist countries can be made unless an industrial output index is recomputed for Communist China on the conventional methodological basis as employed by most non-communist countries. This paper is a preliminary report of a research project aiming to bridge this gap. Presented here are some highlights of the nature and implications of the industrial output indices we have computed for Mainland China. Owing to the limited space, the vast variety of sources of the official data and the detailed explanations on some estimates we have used in this study in order to remedy certain data deficiencies will not appear here, but they may be available on request. This paper contains two sections. Section I describes the nature of the indices and the underlying data. Section II is devoted to a discussion of some implications drawn from these indices. The indices cover a period from I949 to I959, that is, the first eleven years of the Chinese Communist regime. It was originally intended to bring the indices up to date to cover the actual production of I960. However, this was not possible due to the fact that the government in Communist China failed, by the end of I96I, to publish their economic achievements in ig60.

SINCE the end of World XVar II the Norwegian government has published forecasts of next year's values of several macroeconomic variables. These projections, mixed sometimes with plans and targets, are published in January or February of the year to which they refer in an official document called the National Budget. It is the purpose of this paper to evaluate the administrative system that sets up the National Budgets by comparing its forecasting ability with that of other simpler forecasting methods. In order to evaluate a forecasting system some criteria of success must be developed. Such criteria can be derived from the goals which the system has set for it, from comparisons with the results obtained from other countries using different methods or from comparisons with results obtained by different methods applied in the same country. The first method was used by the author and more comprehensively by P. J. Bjerve to study the Norwegian budgeting system.1 The second has been used by the United Nations Economic Commission for Europe and more systematically by H. Theil.' The third method is utilized in this paper. Each method has its advantages and drawbacks. An evaluation based upon absolute rather than comparative standards can locate sources of error and suggest improvements, but it cannot determine whether the whole effort was worth the cost, given what might have been done by other methods. A comparison of the results obtained by different countries is inconclusive unless it can be shown that the difficulty of forecasting and the seriousness of a given error does not vary greatly among the countries comnared. A comnarison of the results of applying different forecasting methods to data obtained from the same country represents an improvement, so long as no more information is utilized than was available to the policy makers at the time they made their forecasts. The conclusions reached by this study suggest that fairly simple, naive methods of forecasting would have done just as well, if not better in some cases, than the National Budgeting system. This conclusion must be modified to recognize that forecasting was only one of the tasks which the budgeting system was meant to accomplish. But it is of significance because this system is in common use as a forecasting tool by governmental organs and businesses throughout the world and because, in Norway, circumstances were particularly favorable for its use.

N O general agreement has been reached about principles that should govern cost sharing in international alliances. Burden sharing problems have been discussed in the literature, and I will attempt no review here.1 This paper is addressed to one modest aspect of burden sharing: what is the real cost to the donor of foreign economic aid? It may be useful after all, in discussing each country's aid contributions, to establish an economically meaningful definition of what constitutes aid. The paper discusses briefly the present definitions used by donor nations for valuing economic aid; it then goes on to consider how more appropriate valuation criteria might be established. On the basis of these criteria, I have first computed, within limitations set by existing data, the real cost of U.S. bilateral aid to underdeveloped countries in 1961. By these standards, U.S. foreign aid efforts involved considerably less resource sacrifice than the officially reported totals imply. Second, to illustrate the effect of this definition on the aid figures of other countries, I have computed the real cost of official bilateral and multilateral aid offered in 1962 by seven Western European countries, the United States, and Canada. The results indicate, on the basis of incomplete data, that other countries also tend to overstate the cost of their foreign aid; their relative overstatement frequently exceeds that of the United States. In 1961, the principal donors of aid to underdeveloped countries agreed to hold annual reviews of each other's aid efforts on the basis of an agreed aid definition; these reviews are conducted by the Development Assistance Committee (DAC) of The Organization for Economic Cooperation and Development (OECD). The present DAC system for analyzing members' aid flows defines total official aid as the sum of six elements: (1) contributions to international organizations for development purposes; (2) bilateral grants; (3) bilateral loans repayable in lenders' currency; (4) bilateral loans repayable in borrowers' currency; (5) consolidation credits; (6) transfer of resources through sales for recipients' currency (this consists almost exclusively of U.S. contributions of surplus agricultural commodities under Public Law 480). This classification indicates both an awareness of the fact that various types of aid have different impact on donor and recipient, and an inability to devise a system that could deal systematically with these differences. Thus, for example, DAC realizes that a loan repayable in soft currency is different in effect from one repayable in hard currency, and separate categories are therefore established. However, these and other subtotals are then added together to form a single aid total. Table 1 shows U.S. 1961 aid commitments as computed by this method.

In Professor Rosenstein-Rodan's seminal article on international aid,' one aspect is not fully developed. The capacity to absorb aid during I96I-76 by underdeveloped countries is calculated with full reference to expected rates of growth, but the capacity to pay of developed countries pays no attention to their growth. A capacity to pay criterion is evidently in use, since Rosenstein-Rodan bases the distribution of contributions on a progressive principle. Furthermore, growth rate projections are likely to be just as sound (or unsound) for the developed as the underdeveloped nations, especially now that the Twentieth Century Fund estimates are available.2

P HE controversy over stability or lack of stability of relative shares continues unresolved. Good men and true among our colleagues, such as G. J. Schuller (io), D. G. Johnson (5), E. H. Phelps-Brown and M. H. Browne (8), R. M. Solow (i i), and I. B. Kravis (6), take a hard look at pretty much same data, allocate a few accounts differently, and come up with widely diverging answers. Johnson and Phelps-Brown and Browne see stability, rigidity, fixity. Solow and Kravis, however, take issue with those who, in Solow's spritely phrase hold view that, the share of national income accruing to labor one of great constants of nature, like velocity of light or incest taboo. (ii) New interest and significance has been injected into this controversy of late by S. Weintraub (I4), (I6) who forcefully restates contention that labor's share analogous to a natural constant like law of gravity or Senator Goldwater's views on taxation. On this fixity he erects a wage cost mark-up equation to replace venerable equation of exchange and a law of price level with strong wage push inflation implications. Weintraub shifts discussion from labor's share of National Income to labor's share of Business Gross Product, or rather its reciprocal which he dubs k, and concludes that the practical constancy of k an empirical fact, [(I4), 39] and further holds that k's constancy is probably most important law, in true sense, that economists have to work with. [(I4), 33] A. P. Lerner's review article (7) concedes this constancy, but deplores Weintraub's excitement over this near fixity and his building a Law of Price Level on it. I cannot decide for others such a question as how big a fluctuation a small fluctuation, but if Solow, Kravis and others, like Lerner, will accept k as practically constant, it would appear that rest of what Weintraub has done, including getting excited, follows logically. Acceptance of a truly constant wage share as fact calls for much recasting of distribution and price theory and a basic policy change. Some sort of wage control machinery would become our chief weapon to fight inflation rather than our present reliance on monetary policy. As indicated by its title, this paper a study of statistics on labor's share in Canada. I hope that similarities and contrasts developed between Canadian and United States experience will resolve some of points at issue in this controversy. Since it Weintraub's formulation which has given fresh interest to topic I shall follow his lead in concepts and presentation. Because it somewhat easier to think in terms of percentages than of mark-ups, however, I shall include percentages also. Weintraub defines k as ratio of gross product (Z) to employee compensation (W) and takes as empirical measures of them U.S. Department of Commerce series Business Gross Product (BGP) and Compensation of Business Employees (Wb). Thus symbolically;