Knowledge that Transforms

this brief comment I am going to limit myself to what I regard as essentials. I am not going to discuss details, important enough in themselves, but which I think can, among reasonable men, be settled in a fairly satisfactory manner. I do not think it is worth while to waste a lot of time on whether a high level of is a better term than employment. Both phrases need definition. Everyone is agreed that in a dynamic market economy there will be seasonal, frictional, and transitional unemployment associated with changes in the seasons, the introduction of new products and of new methods of production. Moreover, in a free society where wage earners work whom they please, there will of necessity be a degree of labor turnover. Full employment in the United States, in my judgment, means perhaps 4 or 5 per cent unemployed at any one time; assuming a labor force of around 6o million, this would mean unemployment of 2 /2 to 3 million. If on the average 5 weeks should elapse before a new job was found, this would mean that 25 to 30 million people would shift jobs in each 12-month period. Thus an average of 4 to 5 per cent unemployed provides enormous flexibility in the labor market. Important as these matters of detail and definition are, I turn now to what I regard as more fundamental considerations. What is really important is that the Murray Full Employment Bill, if enacted into law, would, in common with the British and Canadian state papers on Employment Policy, represent a new attitude, purpose, and responsibility of the central government with respect to the problem of unemployment. Instead of palliative and ameliorating measures, these state papers announce a positive national policy with respect to the maintenance of employment, production, and national income. The British and Canadian state papers recognize that these are novel experiments. This involves a new approach and a new responsibility the State, says the British White Paper, and adds, In these matters we shall be pioneers. Similarly the Canadian state paper states, We must determine therefore to learn from experience, to invent and improve the instruments of our new policy as we move forward to its goal.... The Government is inaugurating policies which break new ground and is confident that these policies, with full public understanding and support, will achieve . . . satisfactory results of decisive importance. later years as experience grows they can be made to yield ever improved results, which will mark a new era in Canadian development. Apart from announcing a new goal of national policy and a new responsibility of government, these documents are of the utmost significance in that each commits the government in question to a periodical and continuous assessment of the employment situation. The Murray Bill makes it the duty of the President to transmit to Congress at the beginning of each regular session (and thereafter supplemental reports from time to time) a National Production and Employment Budget setting forth the estimated trends and prospective developments with respect to the size of the labor force, the gross national product, national income, private consumption expenditures, private investment expenditures, state and local outlays, and alternative ranges of federal expenditures. The British White Paper stresses the importance of establishing a central staff qualified to measure and analyze economic trends, and it lists the principal classes of statistics which must be obtained for the efficient operation of an employment policy. These procedures assure that the government will continually take the pulse and temperature, so to speak, of the economy in order to measure how well its policies are succeeding in achieving one of its primary responsibilities. Thus the

THROUGHOUT the inter-war period, the 1 value of commodity imports into the United Kingdom was consistently greater than the value of exports. In the fifteen-year period 1924 through 1938, the average annual commodity import surplus was 358 million pounds sterling. Payment for this import surplus was made in three ways. First, the British earned a substantial net income on their overseas investments; average annual receipts from this source in the fifteen-year period amounted to 209 million pounds sterling. Second, average annual net receipts of I04 million pounds sterling were obtained from the sale of shipping services to foreigners. Finally, the United Kingdom received income from abroad, in the form of interest and commissions, for its services as a financial center; the average amount of these receipts was 46 million pounds per year. Considering the inter-war period as a whole, the United Kingdom was able to pay for its commodity import surplus without resort to borrowing or to the sale of overseas assets. The import surplus was offset by invisible exports shipping and financial services and by income from overseas investments. This balanced position for the period as a whole, however, conceals a gradual deterioration in the British balance of payments on current account. In the earlier years (I924-30), invisible exports plus income from overseas investment were slightly greater than the commodity import surplus, but in the thirties (193I-38) the import surplus exceeded invisible income (Table I). Other items, of course, were included in the balance of payments, but in most years these were of minor importance. Changes in the British international position may therefore be described in terms of exports, imports, income from overseas investments, shipping income, and interest and commissions.

THE effect of fiscal operations of government, particularly of the federal government, upon the national income stream has been the focal point of a large part of economic theory in recent years. This emphasis has been expressed in three forms: (i) logical analyses, frequently using the symbolism of mathematics, of relationships between government expenditures -particularly expenditures in excess of taxation or in excess of cash receipts other than borrowing and business fluctuations; (2) factual statistical analyses of relationships between government expenditures in excess of taxation or of cash receipts on the one hand, to the amount of the national income, or some other measure of the income stream, on the other; and (3) proposals for governmental policy of two general types (a) rearrangement and simplification of the federal government budget to show the above relationships, and (b) the pursuit, intermittently or permanently, of a policy of government spending in excess of government revenue.1 That the effect of government fiscal operations upon income flow, particularly the effect of a policy of deficit spending, is associated with monetary phenomena has been recognized by most of the economists who place great hopes on budgetary management as a device for promoting economic stability at a high rate of employment and production.2 However, the theory of this type of fiscal management has not been well integrated with the general body of monetary theory. That relationship to monetary theory is the subject of this article.

mHERE has been a growing tendency among economists to recognize the inadequacy of the simple acceleration principle as the explanation of investment activity. The qualifications and reservations that must be made for that principle to hold true in the real economic world have caused some economists to deny it virtually all validity. For instance, Professor Hansen says, is well known . . . that the simplified conditions usually assumed when the Principle of Acceleration is under discussion are rarely valid in the actual world. When more realistic assumptions are introduced, it is clear that the effect of new consumption upon investment is a very complex and uncertain one. 2 In this paper, the acceleration principle first will be set forth in its virginal simplicity. Then in Part II, the qualifications that theory suggests will be noted, and it will be seen how these are borne out by the statistics on investment in freight cars in the United States.3 Through these investigations, we hope to show that the acceleration principle does in large part serve to explain investment activity if additional variables are introduced and our theory is enlarged so as to include the effects of these variables. Since it has been dealt with so fully elsewhere,4 only a brief sketch of the so-called simple acceleration principle will be made. To put it most concisely, net investment is proportional to the rate of change of consumer-taking.5 Or, as J. M. Clark said, If demand be treated as a rate of speed at which goods are taken off the market, [demand for] maintenance varies roughly with the speed, but new construction depends upon the acceleration. 6 Another version of the doctrine is that the per cent changes in the stock of capital goods equal the per cent changes in the consumption of their products. This second version holds that in the first statement the constant of proportionality the constant of acceleration equals the amount of capital per unit of output the capital intensity. It is clear from the very outset that the abovestated theory is an over-simplification and that it does not describe the course of actual economic events. In Chart i the year-to-year per cent changes in the total number of freight cars are

S OCIAL SECURITY and employment' are looked upon, in all Allied Nations and also in most neutral countries, as the keys to economic well-being in the postwar era. Improved labor standards, economic advancement and social are the economic objectives of the Atlantic Charter. All these terms are somewhat vague in meaning, but they express the hopes of hundreds of millions of people and are central in all postwar planning. Even while the war was in progress, considerable improvement was made in the social security legislation of many countries.2 This is not true of the United States, in which there was no social security legislation whatsoever on the national level during the five years between the enactment of the Social Security Act Amendments of I939 and the passage of the Servicemen's Readjustment Act (the G. I. Bill of Rights) in I944, except for the adoption of annual riders to appropriations acts which provided for freezing of the old-age insurance tax rates. Some advances were made in the states, particularly in the liberalization of unemployment compensation benefits. But the only law in this country which broke new ground was the Rhode Island Act of 194I for cash disabilitv benefits. In many other countries, in contrast, the war period brought forth much new social security legislation. The advances in this respect have been greatest in the Latin American countries. Very significant new social-security legislation also has been enacted in England, Canada, and Australia, while in New Zealand the comprehensive national health insurance and medical-care program adopted shortly before the outbreak of hostilities has been put into full operation. More important even than the new legislation are the comprehensive programs for social security which were developed during the war. Prior to I 944, such postwar programs were formulated and publicized in England, the United States, Canada, Australia, and South Africa all of them under governmental auspices.3 The most famous of these was the Beveridge Plan in England, which made its appearance late in I942.4 Beyond question, this has been the most widely-discussed social security program ever advanced anywhere in the world. In this country it has brought forth far more articles than were written about the Social Security Act during the entire year that this major American social security measure was in preparation and under consideration in Congress. Almost immediately after its publication, the

There are two ways of treating data which are distributed in this manner: (i) One may actually go over to the logarithms y = log x and proceed as though y were normal or nearly so; in this case m is calculated as the mean of y and ois the standard deviation of y and the usual formulas ?m = o,\Vn, uJa = o/V2n would apply. (2) Or one may fit the transform by moments on the original data, in which case the values of m and a may be somewhat different and their standard deviations will be determined by other formulas. We propose to discuss briefly some matters, connected with the logarithmic transform, which we believe have had insufficient emphasis. To make the discussion less abstract we shall give numerical illustrations obtained from the distribution of the percentage net debt (state and municipal) of the forty-eight states relative to the wealth of the state as estimated a decade