Although few academic economists today endorse a gold standard, historical data show that actual gold standards have outperformed actual fiat standards in at least five respects. Gold standards have exhibited: (1) lower mean inflation rate, hence lower deadweight cost of economizing on money balances; (2) lower price level uncertainty, hence deeper long-term bond markets; (3) greater international trade and capital flows, due to network benefits of a common currency area; (4) lower resource costs of gold mining for monetary purposes with a lower real price of gold, due to the absence of private demand to hold gold as an inflation hedge; and (5) greater fiscal discipline. Returning to a gold standard would be immediately feasible for the US, the Eurozone, and Switzerland, where official gold stocks are large enough at the current price of gold to provide historically reasonable reserve ratios behind broader monetary aggregates. Other major nations (Japan, UK, China) would have to purchase gold.

JHEN PUBLISHERS receive copies of reviews of their books, they quickly scan them for possible quotes for use in promotional materials. They are often frustrated to discover that a reviewer really liked the book, yet never managed to say so in a clear, unequivocal way. The people at Harvard University Press will experience no such frustration with this essay on James Coleman's application of rational choice theory to the classical issues of sociology. Professor Coleman's Foundations of Social Theory is a masterwork. Epic in scope, it is clear, engaging, and forcefully argued. Traditional sociologists will be unable to ignore its bold new agenda for their discipline. And the book will have a lasting impact on economics, political science, psychology, and other disciplines concerned with human behavior. Having issued this ringing endorsement of the work as a whole, I hasten to add that there are many points on which I find myself in substantial disagreement with Coleman. On some occasions, he pushes the rational choice theory too far; on others, not nearly far enough. But one of his great virtues is his remarkable willingness to articulate clear theories and commit himself to their predictions. In the process, he leaves himself open to being proved wrong, and indeed he sometimes is wrong. Yet how much more satisfying is his approach than the familiar alternative of constructing vague ad hoc explanations to fit known fact patterns. Foundations of Social Theory is organized into five parts. Part I, Elementary Actions and Relations, introduces the basic building blocks of the theory-actors, resources, interests, individual rights, and relatonships involving authority and trust. Part II's focus is the micro-tomacro transition; it applies the theory of rational individual behavior to the units developed in Part I to deduce how systems of actors will behave. Here, Coleman is concerned with social exchange, crowd behavior, and the emergence of social norms. In Part III, Coleman constructs a theory in which the principal actor is not the individual but the corporation. His aim is to explain how and why individuals empower formal organizations to act on their behalf, and the means whereby such authority can be revoked. Part IV, entitled Modern Society, employs the theories developed earlier to shed light on developments in contemporary social and economic life. Coleman devotes Part * James S. Coleman. Foundations of Social Theory. Cambridge, Mass. and London: Harvard University Press, Belknap Press, 1990. Pp. xvi, 993. ISBN 0-674-312250-2.

We study an environment with short-sale constraints and heterogeneous beliefs among outsiders and between insiders and outsiders. Firm insiders choose between equity, debt, and convertible debt to raise external financing. We analyze two settings: one in which heterogeneous beliefs is the only market imperfection and another in which there are significant security issue and financial distress costs. Our model generates a pecking order of external financing different from asymmetric information models, and new predictions for capital structure, sequential tranching of securities, the price impact of security issues, and long-run stock returns. We also provide a new rationale for convertible debt issuance.

We analyze location choices of foreign-born science and engineering students receiving PhDs from US universities. Foreign students who stay in the United States are positively selected on observables. They tend to stay in the United States during periods of strong US economic growth and during periods of weak home country economic growth. Foreign students from higher-income countries and from recently democratized countries tend not to remain in the United States. Education and innovation may therefore be part of a virtuous cycle by which education enhances a country’s prospects for innovation and innovation makes the country more attractive for scientists and engineers.

This is a post-peer-review, pre-copyedit version of an article published in Review of Accounting Studies. The final authenticated version is available online at: https://doi.org/10.1007/s11142-014-9295-6

Using the value that a mutual fund extracts from capital markets as the measure of skill, we find that the average mutual fund has used this skill to generate about $3.2 million per year. Large cross-sectional differences in skill persist for as long as ten years. Investors recognize this skill and reward it by investing more capital with better funds. Better funds earn higher aggregate fees, and a strong positive correlation exists between current compensation and future performance. The cross-sectional distribution of managerial skill is predominantly reflected in the cross-sectional distribution of fund size, not gross alpha.

Earnings smoothing via accounting discretion could improve or garble actual earnings information. Although managers prefer a less volatile earnings path and perceive lower risk for earnings smoothness, prior studies show that there is no discernible relation between smoothness and firm valuation. Recent literature documents that socially responsible firms behave differently from other firms in their earnings management and financial reporting. We conjecture that the reported earnings of smoothers that are socially responsible deviate less from their permanent earnings, thus their reported earnings are more value relevant. Our empirical tests show income-smoothing firms with higher corporate social responsibility (CSR) experience higher contemporaneous earnings-return relationship, greater Tobin’s Q, and stronger current return-future earnings relationship. The results show that CSR is proved desirable as it adds a unique “quality dimension” to earnings attributes and is useful for firm valuation.

The experience of first Japan and now Europe and the USA suggests that Hansen's concept of secular stagnation is highly relevant. Recovery has been anemic and follows a generation of financially unsustainable and often lackluster growth. Investment demand has declined while the supply of saving has increased, leaving the economy vulnerable to liquidity traps. Although some US indicators have improved, forward real rates have declined sharply, European prospects remain muddled, and the zero-bound will likely constrain again during the next recession. Infrastructure and private investment are the best ways to both minimize the risk of secular stagnation and raise demand.

Some mutual funds purchase stocks before dividend payments to artificially increase their dividends, which we call “juicing.” Funds paid more than twice the dividends implied by their holdings in 7.4% of fund-years examined. Juicing is associated with larger inflows, and is more common among funds with unsophisticated investors. This behavior is consistent with an underlying investor demand for dividends, but is hard to explain by taxes or need for income, as funds can generate equivalent tax-free distributions by returning capital. Juicing is costly to investors through higher turnover and increased taxes of 0.57% to 1.52% of fund assets per year.