Knowledge that Transforms

The author reviews and evaluates Beckers A Treatise on the Family which concerns (a) the allocation of roles and resources and distribution of income within families; (b) the formation dissolution growth and structure of families and (c) the implications of these analyses for inequality and social mobility. In the present paper Beckers approach and substantive conclusions regarding the role of theory and empirical evidence in the study of economics and the family are critically examined. It is suggested that while Beckers discussion is a source of many useful insights the theory does not attempt a systematic treatment of the transition from traditional to modern types of family. (EXCERPT)

TRADITIONAL ECONOMIC ANALYSIS of the theory of the firm has concentrated on single-product firms. But, in reality, most businesses produce many products, and many regulatory and antitrust issues involve only these enterprises. In recent years, economists and policymakers dealing with antitrust and regulatory issues have increasingly recognized the need for a theory that can be used to evaluate the efficiency of market structures in industries dominated by a few firms operating in a diverse range of markets. For such firms, conventional concepts of structure and performance such as economies of scale, measures of concentration, and barriers to entry do not adequately capture the complexity of market relationships. A few examples illustrate the complexities introduced by the multi-product firm and highlight the need for a theory that can be used to evaluate performance and conduct in its markets. In many trucking and air city-pair markets, the efficient number of carriers appears to be relatively small (perhaps even one). Does this imply, however, that trucking firms and air carriers that compete in a wide range of city-pair markets should be regulated as natural monopolists or that mergers involving overlapping markets should be disallowed? In the petroleum industry, there is a current trend to diversify into other sources of fuel, and in cable TV markets there are numerous attempts to integrate vertically. What should economists look for in evaluating whether these changes in market structure are motivated by efficiency or by anticompetitive behavior? For a dominant firm, such as AT&T, there is a frequent complaint that the incumbent firm is preventing entry by cross-subsidizing one of its products, which faces competition by entrants, at the expense of other of its products. What kinds of regulatory intervention in pricing or in market structure must be considered

M Y PERCEPTION of Chicago economics is that of participant-observer. As a working economist at Chicago, I have observed other members of the tribe at close hand, and have obtained their critical reactions to this description of their intellectual outlook and styles of work.' The perceptions of any participant-observer are conditioned, however, by his position in time and in the institutional configuration. My vantage points have been those of a graduate student in the Economics Department, of an assistant and personal friend of Oscar Lange from 1939-41, and of a Professor in the Graduate School of Business since 1974. Yet another source of perspective bias is field of specialization. As a graduate student, my primary interests were Pure Theory, Welfare Economics and Macroeconomics; my present focus is upon Labor Economics, with Industrial Organization a secondary interest. This pattern of specialization determines the workshops that I regularly attend, the manuscripts that I read and the individuals with whom I am in close contact. The influence of specialty upon one's perspective of Chicago economics is not trivial. In preparing this essay, I have found that our Chicago corner of the economics profession can look quite different to someone in Monetary Theory or International Trade than to a specialist in Labor, Industrial Organization or Law and Economics. This essay does not pretend to be an exhaustive account of Chicago economics during the past half century. It is primarily an attempt to describe the evolution of a few basic ideas associated with a particular institution. The focus is upon ideas rather than their protagonists or the institution whose name is their generic label. Describing these ideas is not easy because their central tendency has changed 1 Manifestly, this paper is a personal statement for which no one but the author is responsible. However, I have had far more than normal critical input from friends and colleagues at Chicago and elsewhere. My Chicago associates have served in the dual capacity of information sources and critics: George Stigler's contributions are acknowledged in footnotes, though inadequately, and I have also benefitted from the comments of Jacob Frenkel, David Galenson, Robert Lucas, Merton Miller, George Neumann, Peter Pashigian, Sam Peltzman, and T. W. Schultz. Among the non-Chicago friends who have made especially helpful suggestions are: Kenneth Arrow, Martin Bronfenbrenner, Albert Rees, and the editor. My readers have been unanimous in urging reduction in over-all length, but virtually all of them also suggested small additions. Of course, most of their suggestions would have improved the final product, if only I had had the skill to implement them. Lacking this, I have been compelled to omit discussion of many important ideas and persons. Also, I have not had space to relate the discussion of this paper to previous discussions of Chicago economics such as Warren J. Samuels (1976), Bronfenbrenner (1962), A. W. Coats (1963), Miller (1962), and Stigler (1962a). My only defense for these sins of omission is lack of space and inability to organize better.

Demand for money; Econometric models

Welch and Moses Abramovitz and two referees for help at various stages of our work. This survey represents a substantial revision of work originally supported by the Minimum Wage Study Commission.

George M. von Furstenberg, The Effect of the Changing Size and Composition of Government Purchases on Potential Output: A Reply, The Review of Economics and Statistics, Vol. 64, No. 3 (Aug., 1982), pp. 527-528

This paper examines the conventional monetary equation of exchange rate determination. Under certain exogeneity conditions, one can write the price level, at home and abroad, as the ratio of the nominal money supply to the demand for real money balances. Then, since the exchange rate is the domestic price of foreign exchange, one can equate the exchange rate to the ratio of domestic to foreign prices. This then allows one to write, and estimate, the exchange rate as a function of the money supply differential, income differential and interest rate differential. If the domestic and foreign money demand errors are autocorrelated, and if deviations from purchasing power parity are autocorrelated, tests based on the above model may be invalid. Only if all autoregressive parameters are equal will test results be valid. A full information maximum likelihood procedure is used to estimate and test the assumptions necessary for the conventional procedure to be correct. Finally, two alternative models of exchange rate determination are considered to illustrate the importance of introducing the error terms at the beginning of the analysis.