THE following production functions have been derived from business records of 609 Iowa farms for 1942, kept at Iowa State College.2 These records give a complete picture of all the business transactions and holdings of each farm and are carefully checked. They are, however, far from typical for the average Iowa farm. Their relationship to actual production conditions at the farm is perhaps comparable to the relationship between yields from careful experiments at an agricultural experiment station to the actual yields of an average field. We have included altogether 609 farm records in our analysis. They have been divided into four main types of farming (dairy, hogs, beef feeders, crops). We use as a regression equation a function which is linear in the logarithms. This is none other than the production function which Paul H. Douglas used in his many empirical studies.3 We do not, however, make the assumption of homogeneity, i.e., the sum of the regression coefficients is not necessarily equal to one. In fact, we shall later present a test of significance designed especially to test, in a fashion, the assumption of a linear homogeneous production function. The reasons which prompt us to use this particular form of the production function are the following: (1) It gives immediately elasticities of the product with respect to the factors of production (Paul H. Douglas called them flexibilities). That is, we get answers to the question: By how many per cent will the product increase on the average if the given factor increases by 1 per cent. Elasticities are dimensionless numbers and independent of the units of measurement. (2) Our form of the production function permits the phenomenon of decreasing marginal returns to come into evidence without using too many degrees of freedom. This would not be possible if we should fit a linear function

IN ITS usual sense, the term inflation (for example price inflation) implies the increase in some index relative to its own value at some other time. In what follows the term relative inflation implies the increase (with time) of one index relative to another index. And the term will be restricted to mean an increase in the cost of finished goods relative to the cost of materials and wages. This relative cost will be measured by the product of the ratios (V'/M) (V'/W) = V'2/MW (' = value added, M = materials, W = wages). Increase in this relative cost may then be measured either by increase in V'2/MW or by decrease in MW/V'2 = B, say.2 When B decreases we shall have relative inflation of V' with respect to M and W, the only relative inflation herein considered.

For several years the Federal Reserve Board and the Federal Reserve banks have employed a method of presenting figures derived from Federal Reserve bank condition statements and from Treasury circulation statements organized in such a manner as to define the channels connecting banking and monetary conditions of the country with the Federal Reserve banks. These figures are presented in the form of a balanced statement, which shows the various currency and credit elements that correspond to increases or decreases in the supply of and in the demand for reserves of member banks. The importance of factors of supply and use of member bank reserves lies in the fact that the ability of member banks to make loans or investments and their attitude in the matter are influenced by the availability to them of reserves and by the method through which these reserves are obtained. There is an important difference in cost, in liability, and in attitude of the banks between reserves obtained at the banks' initiative through discounting paper and reserves obtained either through open-market operations by the Reserve baniks or through the inflow of gold from abroad or of currency from circulation

THE Review of Economic Statistics came to life with the publication of two remarkable papers by Professor Warren M. Persons on the nature and measurement of time-series fluctuations. Persons conceived of an economic time series as a composite of four types of movements secular, seasonal, cyclical, and irregular. His main interest was in the problem of analyzing business conditions, and his hope was to develop, on the basis of historical records, a system of forecasting cyclical sequences in business life. Hence he eliminated secular trends and seasonal variations from time series, expressed the adjusted data in units of their standard deviation, and used coefficients of correlation to sort series according to their time sequence. This novel technique of handling economic data instantly attracted wide attention. Before long it was adopted by numerous investigators in this country and abroad; within a few years of its inception, it became the 'customary' or 'conventional' method of handling time series. But as its use spread, there came criticism and dissent. Some questioned the propriety of some of the detailed methods employed by Persons and his associates. Others questioned the classification of economic movements, and proceeded to develop hypotheses of structural changes, of secondary versus primary trends, of special cycles in different branches of trade, of the intermittence of cyclical waves, and of the coexistence of several sets of cycles each perhaps periodic but combining with others to produce the irregular waves of the familiar business indexes. Still others directed criticism at the 'empiricism' of Persons' methods. Will not the conventional technique decompose a series of random numbers as elegantly as an historical series? If movements of a given type are 'eliminated' from a time series, are the effects of a corresponding cause or group of causes likewise eliminated? Do not the forces of development within a capitalistic economy move in waves, cyclical depressions being the incidental wreckage of economic progress? If so, will the conventional technique bury real problems and create false ones? To the charge of empiricism, that of 'narrowness' was added. Is it wise to measure secular trends, seasonal variations, and cyclical amplitudes, only to discard them without further ado? Is not even the timing of cyclical fluctuations being handled with excessive simplicity? Is it proper to treat the problem of sequences without regard to the stage of the business cycle? Criticism along these and similar lines was inevitable as the study of business cycles deepened. But it is worth noting that critics have all too frequently laid at Persons' door and that of his collaborators abuses committed by a host of ill-trained imitators. Today, few economists seem to remember that Persons' technique was originally developed for handling the problem of constructing a set of forecasting indexes of business conditions, or appreciate that, taken as a whole and in the light of the statistical data available at the time, it was well suited to the purpose for which it was designed. But it is also fair to add that while the 'conventional technique' gave a strong stimulus to economic research in general and to business-cycle research in particular, it has proved of little aid in advancing the frontiers of our theoretical knowledge. There can be no regret that it is losing its pre-eminence. If economists are to gain authentic knowledge about business fluctuations, they must steadily test their tools of observation and seek to improve upon them. Professor Edwin Frickey has worked by this creed. His book on Economic Fluctuations ' makes an outstanding contribution to the methodology of time series. It is an original, painstaking, and scholarly work by an economist who for some years was closely associated