exactly the same way. It reduces investmentplus-consumption to the volume where the level of employment is not high enough to force up wages and thereby prices and incomes. If we need the iO per cent of output, we can not afford the fiscal policy that would prevent inflation any more than we can afford the monetary policy. And the same holds, of course, for all combinations of the two. Nor does our analysis point to the control of prices or of physical output. As long as employment is at a very high level, workers will press successfully for wage increases and the pressure will come to an end only when the impossibility of increasing prices to cover the increased cost has put enough men out of work to remove the pressure for higher wages. At this point the iO per cent output has also been removed. The use of physical controls to keep output down to the level where prices, costs, and wages do not rise must consist of preventing the iO per cent output right from the beginning. The only way out of this dilemma between accepting inflation and sacrificing the extra iO per cent, is to change our method of wage determination so that the very high level of employment does not result in the fruitless spiral of wages and prices. What is needed is a wage determining mechanism or market which will permit individual wage rates to be adjusted in response to change in the relationship between the demand and the supply in the particular labor market, while keeping the average level of wages from rising very much in relation to the increase in productivity. The criterion on which the wage must be determined in such an artificial market is the relationship between the number of men ready and able to take jobs in the particular labor market and the number of men actually employed in it. This ratio (the index of relative attractiveness) in conjunction with the national average of such ratios would determine whether the particular wage should be increased (and how much) or kept unchanged.1 Unless some such plan is developed for preventing very high levels of employment from raising the general level of wages more rapidly than productivity increases, the benefits of very high levels of employment, which may be of enormous importance in times of national emergency like the present, can be enjoyed only for very short periods and at the expense of severe damage to our greatest secret weapon the price mechanism.

T HE contention of this paper is that the demand for cash balances is unlikely to be perfectly inelastic with respect to the rate of interest, and that policy conclusions which depend on the assumption that the demand for cash balances is interest-inelastic are therefore likely to be incorrect. First, the relationship between monetary and fiscal policy recommendations and assumptions concerning the interest-elasticity of the demand for cash balances will be examined. Second, the argument of Dr. Clark Warburton, whose Monetary Theory of Deficit Spending implicitly depends on the interest-inelasticity of the demand for cash balances, will be considered. Third, the position of Professor William Fellner, who explicitly makes and defends the same assumption, will be reviewed. It will be held that this assumption leads Professor Fellner into a theoretical dilemma which can be escaped only by abandoning the assumption, and that Professor Fellner's reasons for believing the demand for cash balances to be interestinelastic are inadequate. Finally, a statistical relationship between the demand for cash balances and the rate of interest will be presented; this relationship, though admittedly not conclusive, is difficult to reconcile with the hypothesis that the demand for cash balances is interest-inelastic.

The intellectual breakthroughs that mark the neoclassical revolution in economic analysis occurred in Europe around 1870. The next two decades witnessed lively debates in which the new theory more or less absorbed or was absorbed in the classical tradition that preceded and provoked it. In the 1890s, according to Joseph A. Schumpeter (1954, p. 754) there emerged "a large expanse of common ground and ... a feeling of repose, both of which created, in the superficial observer, an impression of finality -- the finality of a Greek temple that spreads its perfect lines against a cloudless sky." Of course the temple was by no means complete. Its building and decoration continue to this day, even while its faithful throngs worship within. American economists were not present at the creation. To a considerable extent they built their own edifice independently, designing some new architecture in the process. They participated actively in the international controversies and syntheses of the period 1870-1914. At least two Americans were prominent builders of the "temple, " John Bates Clark and Irving Fisher. They and others brought neoclassical theory into American journals, classrooms, and textbooks, and its analytical tools into the kits of researchers and practitioners. Eventually, for better or worse, their paradigm would dominate economic science in this country. This paper discusses their contribution.

Maurice Allais' well-deserved Nobel Prize fortuitously brought to our attention an injustice inadvertently done him, to which we were unknowing accessories. For years the literature has ascribed to us the parentage of the transactions-cost model of optimal cash balances, with its notorious square-rootformula derivedfrom inventory theory.' Recently, we found that its essence is contained in Allais' 1947 Economie et Interet (pp. 238-41). As Jacob Viner used to say, no matter to what source the origin of an economic proposition is ascribed, someone is sure to come up with an earlier one. In any event, here is a translation of the pertinent passages. Allais describes the model in footnotes (11) and (12) to the following text (pp. 238-41):