The paper shall be concerned with short run (cyclical) functional relationships as well as long run (secular) relationships between the variables. In fact, the fundamental difference between the cyclical and secular character of these relationships will be stressed. In general, though with some exceptions, which will be explained presently, these variables are related in constant proportions secularly, i.e., a graphic representation of the secular functional relationship would go through the origin. On the other hand, the cyclical relationship is not one of constant proportions, so that the cyclical function does not go through the origin; it would have a positive intercept. The main conclusions of this paper are as follows: i) Personal consumption expenditures are primarily a function of disposable personal income. Consumption is roughly the same proportion of deflated per capita disposable personal income in peak years.4 This is the secular relationship of consumption and income. Thus in Chart i, which presents the actual deflated per capita data, the line joining the origin with I929 comes much closer to the actual observations of I948-50 than the regression line calculated for the cyclical period I929-40. Presumably, if a serious depression were to develop from the secular peaks of 1948-50, the line of relationship would be the indicated broken line in Chart i, parallel to the interwar cyclical line relating consumption to income, but at a higher level. In other words, while the secular relationship is primarily characterized by constant proportions between consumption and disposable income, in the short run the ratio of consumption expenditures to income varies with the cycle, falling as income rises and rising with declining incomes. Thus, the fact that actual postwar personal consumption expenditures are in excess of those expected from prewar cyclical relationships with disposable income is primarily due to the upward secular drift of the consumption function. 2) This functional relationship between personal consumption expenditures and disposable personal income does not hold for periods of unprecedented disturbances in the economy associated with total war and the postwar transition to a peacetime market. Thus in Chart i, the years I946 and I947 are still considerably off the secular line of relationship. However, by 1948, the function appears to have resumed a mnore normal shape. The relative speed with which the functional relationship of consumption to income reasserted itself after the great shocks assoCiated with World WVar II is indeed ' This article represents part of a larger project on the consumption function which will examine in greater detail its short run aspects as well as the component parts of the aggregates. Appreciation is expressed for the aid of Professors Alvin H1. Hansen, G. H. Orcutt, and J. S. Duesenberry, of Harvard, none of whom, of course, is responsible for any errors that remain. The author is currently on leave from the U. S. Department of Commerce; the views expressed are his own. 2 The sources of the data used in this article are explained in a note at the end of the article. This article was written before the i95T National Income Supplement to the Survey of Current BEusiness was available. 8 J. R. Hicks, A Contribution to the Theory of the Trade Cycle (London, 1950), p. 33. 'For an early statement of the relative constancy of the ratio of consumption to income in peak years see A. H Hansen, Fiscal Policy and Business Cycles (New York, I941), p. 237.

Modigliani and Cohn hypothesize that the stock market suffers from money illusion, discounting real cash flows at nominal discount rates. While previous research has focused on the pricing of the aggregate stock market relative to Treasury bills, the money-illusion hypothesis also has implications for the pricing of risky stocks relative to safe stocks. Simultaneously examining the pricing of Treasury bills, safe stocks, and risky stocks allows us to distinguish money illusion from any change in the attitudes of investors toward risk. Our empirical results support the hypothesis that the stock market suffers from money illusion.

I. The concept of seigniorage, 495. — II. Its practical significance in the British case, 496. — III. The gross seigniorage gain from sterling, 498. — IV. The offsetting interest cost of the sterling balances, 502.

We provide novel evidence suggestive of insider trading through concealed relationships identified using information from over 100,000 Facebook profiles and their 35 million friends. Focusing on connections between fund managers and firm officers, we demonstrate that hidden ties are linked to substantial abnormal returns averaging 135 basis points per month (exceeding 16% alpha annually, t -stat = 3.54) across the universe of mutual funds and public firms. These hidden ties emerge as the most powerful predictor of future stock returns among documented network characteristics, with predictive power increasing over time through the present day. The premium associated with such connections arises not from endogenous selection or familiarity bias; instead, fund managers exhibit specific timing ability in deciding when to hold (or avoid) stocks of firm officers linked through hidden ties. The value of trading information rises with the degree of concealment and is concentrated around earnings and M&A events. The premium is absent in index funds, where strategic stock selection and timing are infeasible. Our findings on the value of hidden ties remain robust across industries, investment styles, time periods, and firm types.

Using firm data disaggregated by industry, the authors establish a set of regularities in the distribution of firm R&D intensities within manufacturing industries. The authors show how a simple probabilistic process, in which change influences a key unobserved determinant of R&D and firm size conditions the returns to R&D, can account for these regularities and other features of the distributions. The model provides a unified, noncausal explanation of a series of long-observed relationships across mean R&D intensity, market concentration, and the coefficient of variation. It also offers a novel explanation for the inverse relationship between R&D productivity and firm size.

Using firm data disaggregated by industry, we establish a set of regularities in the distribution of firm R&D intensities within manufacturing industries. We show how a simple probabilistic process, in which chance influences a key unobserved determinant of R&D and firm size conditions the returns to R&D, can account for these regularities and other features of the distributions. The model provides a unified, noncausal explanation of a series of long-observed relationships across mean R&D intensity, market concentration, and the coefficient of variation. It also offers a novel explanation for the inverse relationship between R&D productivity and firm size.

We examine the relationship between ownership structure and corporate crime. Our approach draws upon two lines of research: (1) the theory of the firm which poses ownership as a critical incentive mechanism and (2) the economic theory of corporate crime, which emphasizes the role played by top management in affecting crime in the corporation. We find that crime occurs less frequently among firms in which management has a larger ownership stake. Our results imply that penalizing `corporations' (shareholders) deters crime, and that corporate crime tends not to benefit shareholders, ex ante. Rather than being something shareholders have encouraged, corporate crime appears to reflect an agency cost limited but not optimally eliminated through the costly efforts of top management. The evidence is consistent with the notion that ownership structure plays an important role in aligning the hidden actions of top management with the shareholder interest.