I. Introduction, 597. — II. The underlying metaphysics, 600. — III. A notional mechanism for social evaluation, 603. — IV. The theory is utilitarian, 606. — V. The conflation problem, 609. — VI. Specification of the good, 618. — VII. Pluralism in welfare standards, 621.

In a recent article in this Journal, John H. Makin 1 observed a positive relationship between the dollar forward premium on gold and the ratio of gold to dollar assets in international reserve portfolios. This, he concludes, shows that gold is not a sterile asset; it has an expected rate of return that acts as a yield variable in the calculus of central banks making portfolio choices between gold and dollar assets. expected rate of return on gold is represented by the size of the forward premium on gold, which mirrors expectations of capital gains to be realized in the event of appreciation (or revaluation) of gold with respect to the dollar. analysis, as Makin recognizes, depends crucially on the assumption that an observed forward premium on gold reflects expectations of an increase in the dollar price of gold. behavior of the forward gold premium, however, should reflect, in addition to expectations about the future price of gold, movements in the rate of return on dollar securities. Covered interest arbitrage between the dollar and gold should establish a positive relationship between the rate of interest on dollar securities and the forward gold premium, just as it creates a link between interest differentials and forward premiums in currency markets. If the three months' rate of return on dollar-denominated securities rises above the three months' (percentage) forward premium on gold by an amount greater than the costs of moving into and holding dollar securities, arbitragers can profit by replacing gold with dollar securities in their portfolios and simultaneously buying an equivalent amount of gold forward. On the other hand, if the rate of return on dollar securities falls below the (percentage) forward premium on gold by an amount greater than the costs of moving into and holding gold, arbitragers can profit by replacing dollar-security holdings with gold and selling an equivalent amount of gold forward.2 This demand and supply of forward gold by * I am indebted to Thomas D. Willett and Terry Rush for helpful comments, and to John H. Makin for making available his series on forward gold premiums. Suggestions by referees were also highly useful. 1. John H. Makin, Swaps and Roosa Bonds as an Index of the Cost of Cooperation in the 'Crisis Zone', this Journal, LXXXV (May 1971), 34956. Also see John H. Makin, The Composition of International Reserve Holdings: A Problem of Choice Involving Risk, American Economic Review, LXI (Dec. 1971), 818-32. 2. Arbitragers will be willing to extend their positions until the cost of moving into and holding the asset acquired rise so as to become equal to the

[Assuming each assignment of strong preference orderings to individuals is equally likely, we examine how the probability of social intransitivity (under asimple majority vote decision rule) changes with changes in the number of alternatives and the number of voters. A similar study is made of violation of quasi-transitivity and failure of existence of a maximal alternative.]

The paper compares the power functions of the conventional tests of significance based on asymptotic theory with those of some alternative tests suggested by Dhrymes and Richardson and Rohr and also a test that was suggested earlier by Anderson and Rubin in a simple two equation model by means of Monte Carlo experiments.

The purpose of this paper is to note that the question of optimal diversification cannot be answered simply by determining the average variability of equally allocated investment. Empirical results are presented which show that it is possible to obtain the same level of average variation with far greater average portfolio returns and fewer securities in the portfolio by using an alternative allocation scheme.

William H. Beaver, Joel S. Demski, The Nature of Financial Accounting Objectives: A Summary and Synthesis, Journal of Accounting Research, Vol. 12, Studies on Financial Accounting Objectives: 1974 (1974), pp. 170-187

There have been many efforts in recent years to explain differences in the performance of commercial banks. Interest has centered on the extent to which changes in a selected group of indices of bank performance are related to the structure of banking markets and selected other factors thought to influence bank behavior. While various techniques have been used, the most common has been multiple linear regression. The measures of performance entered into the regression equations have included the price and quantity of bank services and bank profitability, while the explanatory variables have included, to name only a few, the one-, two-, or three-bank concentration ratio, the number of banks in the market, the existence of competition from nonbank financial institutions, bank costs, bank size, and proxies for the demand for banking services. Generalizations then have been made about the impact of market structure and other variables on bank performance, generalizations based upon the regression coefficients of the explanatory variables. The consensus appears to be that the demand for banking services and bank costs are significant determinants of the performance of individual commercial banks; market structure appears to be much less important. However, the conclusions are by no means unanimous.

This paper develops an economic theory of replacement investment that can provide a basis for specifying an econometric model of investment behavior. The long-run and short-run effects of changes in the interest rate and in tax laws are examined. The paper also investigates several reasons why the common assumption of a technologically constant rate of replacement is incorrect even as an asymptotic limit. LARGE VARIATIONS in capital spending continue to motivate econometric studies of investment behavior. The past decade has seen the development of attempts to model net investment as the adjustment of the capital stock to a desirable level. Building on earlier work by Lutz [35], Haavelmo [21], and others, Jorgenson and his collaborators (e.g. [24, 28, 31, and 33]) have provided an operational model of net capital accumulation that relates desired capital to the cost of capital services. Although serious objections have been raised about the specification of the optimal capital stock (including [5, 9, 13, and 15]) and about the arbitrary nature of the adjustment dynamics [37], it is likely that some form of this general model will continue to provide a framework for future investment studies. In contrast to these developments of a theory of capital expansion, replacement investment continues to be analyzed in terms of a non-economic model of technical necessity. Jorgenson and others have adopted the simplifying assumption that replacement investment is a constant proportion of the capital stock.2 This assumption has been challenged and contrary evidence has been offered by Feldstein and Foot [14] and Eisner [10]. The purpose of the current paper is to examine several aspects of a theory of replacement investment. We hope not only to show that a model with a constant replacement rate is implausible and unsatisfactory but also to provide a basis for better empirical work in the future. The magnitude of replacement investment (the annual rate of replacement investment generally exceeds expansion investment) makes this issue a matter of substantial importance.

Abstract This article discusses some problems which arise at an early stage in accounting instruction as a result of textbook obsolescence. Textbooks, invariably postulate a set for basic assumptions or contentions or principles of accounting; it is clear to the instructor or practitioner that these relate to published financial statements. It is certain that students acquire an unnecessarily restrictive view of accounting by mistakenly believing from the start that these propositions apply throughout the spectrum of accounting possibilities.