Knowledge that Transforms

JN a I948 issue of this REVIEW, Professor Ragnar Frisch detailed an ingenious plan which would, it was hoped, rescue international from the existing chaos of bilateralism and restore it to a truly multilateral basis.2 Few economists will disagree with his ultimate aim of restoring multilateralism, but it appears to the present writer that Frisch's particular policy proposals are thoroughly infected with the cardinal marginal utility heresy, and are consequently of questionable merit. By using the more orthodox notion of an ordinal welfare index, however, it seems quite feasible to attack the multilateral problem, and, at least in principle, solve it. Because of space limitations, it is hardly possible to do justice to Professor Frisch, and to reproduce his entire discussion. What follows is the barest skeleton of his remarks. He points out that the prevalent system of conducting international on an essentially bilateral basis primitive barter is a quite inefficient method of organizing the international division of labor. In place of this patchwork, some comprehensive multilateral arrangement must be set up. Apparently, Frisch envisages a condition of repressed inflation 3 within each trading country, i.e., a condition in which money prices are meaningless as transformation ratios.4 Consequently, each participating nation must group all import and export goods into perhaps ten categories (0,1,2, . . . 9), such that, within each category at the given domestic prices, the same marginal social valuation is put on a (or whatever the local currency unit may be) of one good as on a of any other good. Furthermore, a crown's worth of goods in category 3 is preferred to a crown's worth of goods in category 2, but is in turn inferior to a crown's worth of goods in category 4. Next, an international authority is to ascertain the categories into which its members place various quantities of import and export goods. It is then claimed that there will exist a unique allocation of trade, given two conditions: (i) the requirement that, in terms of any currency unit, the aggregate value of imports of any one nation from all other nations within the system must, within rather close limits, equal the aggregate value of exports of that nation to all other nations within the system; and (2) the condition that the global from trade be maximized. The crucial objection to the Frisch plan arises from the fact that the notion of global gains is not unambiguous.

M R. WALTER ISARD'S An Addendum on Cowles Commission Estimates, in August I949 issue of this REVIEW, contains three criticisms of a Cowles Commission study of economic aspects of atomic power.' i. The Adjustment of Thomas Estimate:2 Our adjustment of this estimate is discussed in full detail in forthcoming Cowles Commission book on economic aspects of atomic power. However, major source of difference between our results and those of Mr. Isard is quite easily indicated. The Thomas report arrives at following conclusions on cost of atomic power: (a) that at a ioo per cent rate of capacity use, atomic power will cost 8 mills per kw-hr; and (b) that at a ioO per cent rate of capacity use, power produced in an ordinary plant burning coal will also cost 8 mills, when coal costs $io.oo per ton. It is this comparison between two costs, rather than absolute atomic cost figure shown in Thomas report, which we consider significant. Both Mr. Isard and Cowles Commission concluded that a conventional power plant of most advanced design burning coal at $io.oo per ton and operating at a ioo per cent rate of capacity use can generate electricity at about 6 mills per kw-hr rather than at 8 mills, as estimated in Thomas report. This indicates that both revised certain of accounting and engineering data used in making Thomas thermal cost estimate.3 The major difference between us is that I believe this revision should also apply to those elements of cost of atomic power which represent equipment or operations or accounting practices similar to those in an ordinary thermal plant 4 (see Table i). 2. The Mini'mum Cost Estimate: For certain purposes in our analysis, a rough approximation of lowest conceivable cost for atomic power was used; it is described in my article as the estimate below which atomic costs are not expected to fall. This limit is helpful in answering question: What effects could atomic power have under most favorable assumptions concerning its cost? We take lowest conceivable cost for atomic power to be that cost which would exist if investment per kilowatt of capacity in atomic power should be same as in ordinary thermal electricity. Mr. Isard describes this as pure hypothesis. Of course it is, but it serves a particular purpose and is not a capricious choice. It rests on fact that, according to all authoritative reports, process for generating electricity from heat of nuclear fission is expected to resemble in important respects production process used in generat'Mr. Isard's discussion is an addendum to Comparisons of Cost for Atomic and Conventional Steam Stations by Walter Isard and John B. Lansing, this REVIEW, XXXI (I949), Pp. 2I7-26. The addendum was prompted by a recent article of mine which summarizes, prior to publication of our complete report, some of our major findings about possible effects of atomic power on selected energy-consuming industries (Atomic in Selected Industries, Harvard Business Review, July I949). This article did not explain derivation of our power cost figures because of limitations of space, but stated that a complete explanation would appear in our final report. One typographical error should be noted. In beginning of second paragraph quoted from my article in Isard's addendum, word appropriate has been incorrectly substituted for word approximate. 2The Thomas estimates are found in report entitled Nuclear Power in The International Control of Atomic Energy, Department of State Publication 266I, p. I26. This report was prepared under direction of Dr. C. A. Thomas of Monsanto Chemical Company. 3This does not reflect on accuracy of Thomas thermal cost estimate, because there is considerable leeway in choice of these factors. We introduced very favorable assumptions in making our conventional thermal power cost estimates. 4In adjusting Thomas atomic cost estimate, we determined, first, how factors we used in estimating cost of thermal power differed from those used by Thomas. We then adjusted those elements in Thomas atomic cost estimate which we judged to be related to factors used by Thomas in making his thermal cost estimate. In proceeding in this way, we have followed usual practice of using accounting and engineering factors taken from conventional thermal power plant experience as benchmark values in estimating cost of atomic power.

J OOD prices in Moscow state stores in 1, 1larch I950 were approximately 2.25 to 2.5 times higher than those prevailing in January I936, according to various price indices coimputed below. These indices indicate that the March I950 food prices were, however, about 30 per cent lower than those established in connection with the currency reform and the abolition of rationing in December I947. The construction of consumers' price indices for the Sovi.et Union is subject to a large margin of error because of (i) the paucity of price and consumers' expenditure data and (2) the country's multiple price system. Each of these complications is discussed briefly. The available price data are then tabulated, and, finally, the methods and results of the index number computations are presented.

T HE Bureau of Labor Statistics since I927 has published a breakdown to indicate the number of work stoppages and the workers involved in jurisdictional disputes.' It is the conclusion of this note that these statistics are completely unreliable as a measure of the absolute number of jurisdictional disputes or as an indicator of their variation over time. Unless methods of reporting can be improved,2 the breakdown on jurisdictional disputes in the B.L.S. statistics should be discontinued. It is possible to compare the B.L.S. figures with the records of the National Joint Board for Settlement of Jurisdictional Disputes in the Building and Construction Industry. This private machinery, created by agreement between major contractors' associations and the unions, became effective May i, I948.3 The comparison is particularly significant since by common consent the vast majority of all jurisdictional work stoppages take place in the building and construction industry. Before presenting the figures, it must be noted that the B.L.S. data have a more comprehensive scope by virtue of the following factors: (a) The private machinery does not handle disputes, even in the construction industry, with unions outside the A.F.L. Building and Construction Department. This exclusion for practical purposes would apply to those disputes with the machinists and to disputes with industrial unions over the borderline between maintenance and construction work. (b) Not all jurisdictional work stoppages within the province of the private machinery were presented to it for settlement, although any contractor hiring union men could present a request for a decision on agreeing to be bound by the ruling of the private machinery. There is no way to estimate the proportion of all jurisdictional work stoppages in the industry presented to the Joint Board; the fraction is no doubt very large. Table i indicates the number of jurisdictional work stoppages reported by the B.L.S. and those presented to the Joint Board in the building and construction industry since May i, I948.4 The figures from the private machinery show separately work stoppages in which one or more unions were on strike from instances in which the contractors shut down the disputed work or the whole project as a consequence of a threat of strike.

THE following remarks about Report National and International Measures for Full Employment 1 are concerned with recommendations which deal with international policies. They try to emphasize importance of Report as of most constructive suggestions in field of international financial relations; but they are also meant as a criticism of some of weaker features of Report. In domestic field recommendations of Report are not very original. The experts feel adoption by each country of a system of automatic compensatory measures which would come into operation in clearly defined circumstances announced beforehand is a most important element in a successful fullemployment policy (I65). The suggestions concerning prevention of inflationary tendencies are rather vague. In discussing dollar shortage, experts should have considered more fully than they did fact that dollar gap is to a large degree caused by repressed or open inflation. Professor J. M. Clark in his Separate Concurring Statement, which is appended to Report, obviously feels that treatment of inflation in main part of Report is inadequate, but he does not offer any special recommendations. It should, however, be possible to point out how domestic consumption and investment compete with exports and how, therefore, balance of payments difficulties cannot be overcome if, at full employment, consumption, investment, and public expenditures are permitted to expand to a point where it becomes difficult to command enough resources, to say nothing about inflated wage and price structure which makes it difficult to sell on foreign markets and requires repeated exchange rate adjustments. To be sure, these conclusions are implied in Report; but they are not explicitly stated, and it has not been pointed out which specific steps could be taken. The suggestions of paragraph 87 are too general. The experts could have emphasized general as against direct controls, and they might have indicated need for investment programs which are designed not only to keep total investment on a noninflationary level but also to allocate available loanable funds to industries which should expand. The experts could have considered allocation of loanable funds on basis of a rate of interest which would be high enough to remove need for innumerable direct investment controls which are difficult to co-ordinate and to administer. It can, of course, be argued that should not prescribe to deficit countries domestic measures by which they may try to overcome their dollar shortage. It seems, however, that Report is not quite impartial in this respect. We shall see that experts are quite willing to make precise suggestions concerning contributions which surplus countries should make to solution of problem of international payments disequilibrium. Since no similar clear-cut suggestions are made concerning contributions of deficit countries, Report lacks balance. The Report does point out that the main obligation of deficit countries in this connexion is to pursue policies aimed at reducing internal inflationary pressures which may compromise their ability to export and aggravate their need to import . (I07), but this general statement is not followed up by specific recommendations. It is to be admitted that it will be difficult to formulate hard and fast rules for anti-inflationist policies which are not potentially dangerous. Particularly, wage policies will constitute a formidable obstacle. The experts themselves admit that there exists one important area where it is not possible to make a finding at once positive and simple, where competent study is in its in'National and International Measures for Full Employmnent. Report by a Group of Experts appointed by Secretary-General. United Nations, Department of Economic Affairs, Lake Success, New York, December I949.

THE conclusions reached in this paper, insofar as they depend upon the limited postwar income and expenditures data available, should be considered as tentative, and subject to modification as new data come into use. Nevertheless, for reasons given below, it is felt that the correct long-run relationship between prewar and postwar income and expenditures is described, even though that relationship may not be exactly measured. Analysis of this relationship throws considerable light on such related questions as the cyclical variability of the consumption function, its stability in the long run, and the direction, if any, of the savings trend. In view of the importance of these questions, and the almost total disagreement which now exists on them, this paper is perhaps amply justified, even though in a sense premature.