Knowledge that Transforms

If monetary policy works exclusively through the cost of borrowing and many borrowers are insensitive to higher rates of interest, how is a debacle in the government securities market to be avoided in the process of restraining a boom? This problem had its genesis in the union of the Keynesian stress on the interest rate as the sole channel for monetary policy with the phenomenon of the apparent indifference of business borrowers to interest charges reported in the Oxford surveys of 1938 and I940. The growth of government debt during the war, followed by strong inflationary pressures, has made this the central issue for postwar monetary policy. While the monetary authorities have been feeling their way gingerly forward on the practical level, the availability doctrine has been evolving to rationalize their experience (and perhaps hopes) on the theoretical level. It is important to realize that the dilemma which the availability doctrine seeks to solve arises because the relative insensitivity of borrowers to rate increases on private securities is assumed to extend above pursuit levels available to government yields as limited by considerations of government debt policy. Presumably no one denies the power of the monetary authority to check an inflationary boom if it wishes to force the general level of interest rates high enough. But can monetary policy be made effective without raising yields on government securities to levels which are excessive in terms of the burden of interest charges on the national debt and of reasonable stability in the market for government securities? It is within this more restricted elbow room left to monetary policy by the assumptions of inelastic demand from private borrowers and ceiling yields on government securities that the availability doctrine advances its solution. It is not surprising, therefore, that the availability doctrine should stress lenders' behavior on the one hand and variables other than the interest rate on the other. The availability doctrine or, more broadly, the new theory of credit is subjected to a trenchant restatement and critique in formal terms by Professor John H. Kareken in the August I957 issue of this REvIEW.1 Kareken finds small comfort for monetary policy in the availability doctrine. If credit rationing is absent and the doctrine strictly interpreted, monetary policy will be either ineffective or too effective, depending on the interest elasticity of lenders' supply in the private market (assuming quite inelastic demand). On the other hand, if lenders do ration credit, the availability doctrine suffers from internal inconsistencies and requires modifications in ways which Kareken is unwilling or unable to suggest. In either instance little encouragement is offered to monetary policy. My purpose is to defend the availability doctrine against these views and to argue for the effectiveness of monetary policy. To contribute to the control of inflation, monetary policy must be able to restrict the flow of funds to private borrowers. Whether borrowers are deterred from borrowing by the high interest costs incurred or fail to receive accommodation from lenders at any interest rate because of non-price rationing is a matter of indifference to monetary policy so long as the desired restraint is effective. It is a matter of indifference, that is, unless important side effects attend either the price or nonprice rationing of funds. The availability doctrine has been fashioned to meet a specific objection to the use of rate increases to restrain borrowing,

T HIS paper is concerned with factors associated with the purchases of used automobiles. In addition to reporting the results of an empirical investigation, the paper demonstrates a particularly useful method for analyzing survey data when information from more than one independent cross-sectional survey is utilized. The approach consists first of testing the relationship between used car purchases and socioeconomic variables, and second, of relating the residual variability in used car purchases to attitudinal and expectational variables. In the first stage, data from the I955, I956, and I957 Surveys of Consumer Finances (combined) are used, while the second stage makes use of the reinterview part of the I953 Survey.' Table i provides general background information about used car purchases by car owners, and about the frequency of multiple car ownership among used car purchasers (namely, of spending units who bought their used car as a second car). Almost a quarter of all car owners buy a used car in any one year, and about one fifth of the purchasers buy their used car as a second car. In examining the variations of these proportions among population sub-groups (with proper account given to sampling variations), an important pattern emerges. It shows a decline in the frequency of used car purchases and an increase in the frequency of multiple ownership among purchasers, with a rise in the socio-economic status of the group. This pattern is maintained within occupation, education, liquid asset (bank accounts and government bonds), and income groups. In addition, it appears that home owners are more frequent used car buyers (and multiple owners) than non-owners, and the proportion of multiple car owners among used car buyers rises with the increase in the number of income receivers in the spending unit. Individually, all these and other independent variables manifest a relationship to used car purchases. However, since they are not independent of each other, a multivariate analysis is required before significant relationships can be established.

R EAL disposable income is the measure generally accepted by economists as an indicator of the welfare of a household. Were we living in a world in which each individual formed a household and in which everyone required exactly the same goods to maintain himself, real disposable income might be an adequate measure. However, households are generally complex, and the income of a household must support a number of individuals whose daily requirements range from the nominal demands of a young child to the ample needs of an adolescent. Thus the welfare of a household must be measured not only by its income but also by the size of the household and the variety of needs of its members. This paper discusses a measure of welfare which relates the resources of a household to its needs. Estimates of welfare levels in the United States population based on this measure show that disposable income and per capita disposable income are extremely crude measures of welfare. Both overstate or understate the standard of living of an appreciable fraction of the United States population. The paper concludes with a few notes on the need for more accurate measures of welfare.

less advantageous than elsewhere in the state and followed from purely personal reasons (e.g., their parents had retired to this place). It is in this sense, or the sense that business advantage exists but that the respondent would have located in Florida anyway, that the factor appears often in the table in its secondary or later role. The factors of location that draw the different firms in the different industries to Florida therefore mirror the maximum profit location theory (i.e., the market area framework) as distinct from Weber's cost theory of location. That this connection is vital and necessary should be clear to all. We have mentioned that the survey based on this theory was extended to determine reasons for specific locations in communities. We record below without comment these community findings for those who are interested. TABLE 2.THE PRIMARY COMMUNITY FACTORS OF LOCATION MENTIONED

D URING the past decade, a considerable amount of information has become available about share ownership among various population groups. Following the first collection of data on this subject in the I947 Survey of Consumer Finances,' additional information was gathered in subsequent Surveys, in the I952 study of the Brookings Institution,2 and in the I956 Census of Shareowners conducted by the New York Stock Exchange.3 These studies were primarily concerned with the frequency of stock ownership. They showed that only one tenth of the nation's families own publicly-traded common and preferred stocks, and demonstrated considerable variability in ownership among different population groups. Some of the studies, notably the recent Surveys of Consumer Finances, also collected data about the approximate size of stockholdings, and these shed light on the concentration of stocks among different groups of stockholders. Finally, a recently completed reinterview study, conducted by the Survey Research Center, contained attitudinal information related to stock ownership. In the present paper, data from the Surveys of Consumer Finances will be used to investigate the economic and demographic factors associated with the frequency of stock ownership and with the amount of stocks owned. Subsequently, data from the Survey Research Center reinterview study will be used to study the association of stock ownership with some more dynamic attitudinal and expectational variables. In selecting the independent variables to be used in the investigation, primary attention was given to factors which are presumed to explain stock ownership by an individual. These are: his knowledge of the stock market and his familiarity with stocks as an investment outlet; his income and wealth, which reflect his financial ability to enter the stock market; his general personality, which may indicate his attitude toward entering the stock market; and his price expectations, as well as other economic and financial expectations. On the operational level, many of these considerations cannot be tested directly. They can only be approximated by variables about which information is easily gathered and is readily available. It is to be remembered, how, ever, that the surveys used here were not uniquely designed to study stock ownership. Therefore, they do not contain all of the variables which should, ideally, be used in the present analysis. The selection of variables was thus constrained by the availability of data. Following are the operational variables which were selected for the present analysis: A. Socio-Economic Variables: (i) income, (2 ) education, (3) liquid asset holdings, (4) age, (5) occupation, (6) region, and (7) size of place of residence. B. Attitudinal and Expectational Variables: ( i ) price expectations, (2 ) job preference, taken as an indication of security mindedness, (3) investment preference, (4) personal financial expectations, and (5) general economic expectations. Of the socio-economic variables, education, age, occupation, liquid assets, and income were found significantly related to the frequency of stock ownership. Only income and liquid assets, however, seem to be directly related to the amount of stocks owned. Education and age are perhaps associated with it indirectly, through their effect on income and liquid assets. With regard to the attitudinal variables, * The author gratefully acknowledges the help of Professors Katona, Morgan, Lansing, and Mueller of the Survey Research Center, University of Michigan, in the preparation of this study. 'The Survey of Consumer Finances is conducted annually by the Survey Research Center, University of Michigan, for the Board of Governors of the Federal Reserve System. The results of the survey are published in the Federal Reserve Bulletin. I am grateful to the Board of Governors for permission to use these data in this study. 2Lewis H. Kimmel, Share Ownership in the United States (Brookings Institution, Washington, I952). The study was sponsored by the New York Stock Exchange. Who Owns American Business?, I956 Census of Shareowners, prepared by the Department of Public Relations and Market Development, New York Stock Exchange.

OR purposes of economic analysis, two important characteristics of agricultural land are its heterogeneity and the possibility of its use for the production of alternative outputs. One or both of these characteristics are frequently recognized in theoretical studies of land utilization. David Ricardo and his followers used the heterogeneity of land as a cornerstone in their theoretical analysis, but ignored the possibility of alternative uses. Later, Jevons and other economists extended the theory to encompass both characteristics. With the increasing application of linear programming methods, alternative land uses, and occasionally land heterogeneity, are being emphasized in empirical studies of land utilization for individual farms and small groups of farms. However, empirical studies of land utilization for the economy as a whole are seldom, if ever, constructed with an explicit recognition of these two important characteristics of agricultural land. These studies are either formulated without an explicit theoretical framework, or built around a statistical version of the neo-classical demand and supply analysis. This paper is aimed at the development of a theoretical analysis based upon maximizing behavior which can be empirically implemented and will generate numerical predictions of shortrun land utilization patterns for the economy as a whole. Particular emphasis is placed upon land heterogeneity and alternative uses. New methods are developed for the study of agricultural supply relations. Factors such as technological change and input substitution, which are of great importance for a long-run analysis, are largely ignored in the present short-run formulation. The analysis is developed within the institutional framework of agriculture as practiced in the United States. Land utilization decisions are made by a large number of farmers, each of whom possesses a relatively small parcel of land. Generally, we may assume that farmers act independently, i.e., the decisions of each are unaffected by those of the others. The decisions of different farmers are similar only insofar as the factors conditioning their decisions are similar. The dissimilarity of conditioning factors, however, is of particular importance. National land utilization patterns are the result of decisions made by individual farmers who possess different types of land and are subject to a diversity of other conditioning factors. A mass of existing data has been brought together for the purpose of using the theoretical analysis to make predictions of the land utilization patterns of individual decision-making units for the I955 crop year. Each decision-making unit is assumed to allocate its land among alternative uses in such a way as to maximize its expected return, subject to a number of technical and institutional constraints. Limited linearity assumptions are postulated, and the decision problem of each unit is expressed as a linear programming problem. Predictions of national and state allocation patterns are obtained by aggregating the patterns predicted for individual decision-making units. The present analysis is both descriptive and recursive. It is descriptive rather than normative in that the question asked is what will be done rather than what should be done. In this respect it differs from other current applications of linear programming to agriculture, which are intended to determine how individual farmers should allocate their land. It is recursive in that the values of the variables for a particular crop *This paper contains some of the results of a general study of natural resource utilization being undertaken as a part of the research program of the Harvard Economic Research Project. The author is indebted to the members of the staff of the project for aid in the preparation of this paper. He owes a particular debt of gratitude to the staff members who aided in the arduous task of gathering and rectifying the data. Mrs. Virginia McK. Nail provided expert help in all phases of this task. Jan Basch, Richard H. Day, Barbara King, and Ronald J. Wonnacott each made substantial contributions in one or more of its phases. An earlier version of the theoretical part of this paper was presented at a joint meeting of the Econometric Society and the Regional Science Association in Cleveland in December I956, and was reproduced in Papers and Proceedings of the Regional Science Associaotion, Vol. m.