Knowledge that Transforms

Discussion regarding Professor L. W. Mints' recent monetary policy proposals I has been concentrated on his basic suggestion that contra-cyclical fiscal flexibility be attained primarily from the receipts side, with a substantially fixed budget of total expenditures. The present writer will limit himself to outlining an ancillary proposal that a general sales tax should figure prominently in any plan for contra-cyclical variations in tax receipts, and to a reconsideration of the case for sales taxation in the light of such a receipts policy. Professor Mints' plan includes a special device which suggests with particular force the desirability of a linkage with sales taxation. This is his proposed sales subsidy as a remedial measure for deep depressions. The sales subsidy is proposed despite the admitted administrative difficulty of superposing this negative tax on a Treasury without provision for collecting the corresponding positive levy. This particular feature of Mints' plan may be only an insignificant afterthought, since its author expects slumps to be controlled by less extreme monetary and fiscal measures.2 Yet even though Mints' own sales subsidy be disregarded as a superfluous gadget, definite reasons remain for preferring sales to income taxation as a vehicle for moderate contra-cyclical variation in receipts, just as Mints himself prefers the sales to the income subsidy as a vehicle for deflation control in extremis. In the discussion which follows, the normal (full employment, balanced budget, but nonboom) sales tax rate is envisaged as substantial, perhaps the io or 15 per cent suggested during World War II. Rate variations about the usual American state figures of two and three per cent can hardly be expected to have practical effects.

rT W. SCHULTZ and his circle have been making penetrating analysis of agricultural conditions, problems, and policies, showing unusual awareness of the whole national economy, of evolving knowledge over a wide range, and of advances in general economic thought. Their works, properly referred to frequently in Schultz' meaty one here reviewed,' deserve the respectful attention of economists, whether specialists in or not. The present stimulating contribution, evolved from a mimeographed draft that was widely circulated for comments, especially challenges discriminating examination by serious students. To a degree that I cannot adequately indicate in detail, much of its content strikes me as excellent. Many positions are well taken on broad and specific issues on which much divergence of opinion exists. Some new ground is broken, e.g., on income-elasticity of demand. Yet the book is not thorough, well matured, and authoritative. It is marred by defects of organization, excessive repetition, and various omissions and obscurities. I find puzzling the author's peculiar or inconsistent usage of terms, such as durable goods, returns, political economy, economic progress, and even There are many slips, and numerous statements to which exception should be taken. On a few important matters, moreover, Schultz seems to me either wrong or on insecure ground. To argue all these points fully is out of the question, but it seems appropriate to present a liberal sample, of course without claiming that my own position is invariably right. Agriculture in Unstable Economy is one of the research studies sponsored by the Committee for Economic Development, in a group dealing with long-term fundamental problems. The title fails to suggest that the book deals almost solely with the American economy, with only incidental references to others. In referring to the economy as unstable, 2 Schultz means merely dynamic, expanding and fluctuating. He evidently expects both expansion and sizable business fluctuations to continue: maintenance of high-level employment is a very worthy goal but one uncertain if not unlikely to be achieved (pp. 2 I9-20). In his Foreword, T. 0. Yntema calls the book an analysis of the essential conditions for a healthy, prosperous agriculture. Schultz says in his own Preface: Its main purpose is to lay the foundations for a [revised? ] national with regard to agriculture. 3 In my view, the book falls short of achieving these highly ambitious aims. When he comes to Part IV, Schultz overmodestly describes his constructive chapters as essentially a series of notes on problems in policy (p. I86). He deliberately gives only incidental attention to problems within agriculture in order to devote primary attention to between problems, to the functions of in the political [!] economy

shall escape a serious wage-price spiral, leading to collapse, within the coming year and a half. In effect, we believe, this is to assume that throughout this period union wage demands are kept within very moderate limits. No doubt it is incorrect to say that the inflationary pressure on wage levels observable at full employment results exclusively from union behavior; we know from the experience of previous booms that competition will generate it in markets, and the evidence of the past fifteen months suggests that this will be true even under price ceilings. But powerful unions enhance the pressure immeasurably in at least two ways: ( i ) they tend to force increases much larger than those which would take place under competitive conditions in factor and product markets; and (2) they intensify the speed and magnitude of any reaction of wages to a rise in prices, when the latter are free to rise. With price controls rapidly going by the boards, they will now be able to move along both avenues. At the present writing (November, I946), among the agents making for rapid short-term inflation they seem to be the most important as they are the least controllable. If they run wild, the inevitable collapse might create a need for a strong reflationary policy.

T HE question is often asked, how does the composition of the family budget change over time when the independent variable, family income,2 changes? In the way of a partial answer, at least, a study of continuous farm family budgets based on secondary data was undertaken by the Bureau of Agricultural Economics for the years immediately preceding World War II. In some ways the results of this study are illuminating; in others, disappointing. But let us review the analysis before we draw too sweeping conclusions.