Significance of the question, 423. — The structure of an American Plan, 424. —The major assumptions: population growth and levels of employment, 428. — Basis of the estimates, 429. — Comparison with existing public aid programs and national income, 434. — Comparison with proposed American plans, 435.

Journal Article The Relationship Between Total Output and Man-Hour Output: Comment Get access Lawrence R. Klein Lawrence R. Klein Berkeley, California Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 56, Issue 2, February 1942, Pages 342–343, https://doi.org/10.2307/1881938 Published: 01 February 1942

FELLNER and Somers have commented on my short article' in such a way that I must stress certain observations. They claim that I find no loanable funds theory in the dynamic case. This is not entirely correct. I have followed some routine procedures in setting up dynamic models and can adapt them to contain either a liquidity preference or a loanable funds theory of interest. My purpose is to show that the twQ theories are different in a dynamic framework, and I do not rule out either one in advance. Ultimately the choice between the two theories will have to be based on empirical information. The concept of dynamics proposed by Fellner and Somers is thoroughly unacceptable. Their definitions lead to results that are formally equivalent to those obtained in static analysis, and no number of references to distinguished persons in the field of interest theory will make their brand of dynamics any more interesting or useful. Actually, I have tried to give a more realistic picture of economic processes that yields much richer solutions. I am greatly disappointed at the insistence of Fellner and Somers on what I choose to call a sham dynamics. I must point out that by assuming kg to be an exogenous variable, I am under no compulsion to assume k= ki . This point is made only in the interest of precision since the assumption of Fellner and Somers (kt = kt-1), although unwarranted, plays no essential role in the treatment of the problem at hand. The dogmatic assertion of Fellner and Somers that '.. . in any system, these factors [other than the demand and supply of securities] can affect the market rate of interest only through their effect on the demand and supply of interest-bearing securities closes the door to scientific discussion. This is, self-evidently, the central assumption of the loanable funds theory, but it cannot be used to prove that the liquidity preference theory is identical, for in the latter theory an entirely different assumption is used, namely, that interest is the reward for being illiquid. Thus, the grin has a cat after all. I close with a rhetorical question. What are the structural characteristics of their suggested unique relationship between the excess demand for money and the excess demand for claims? Is it a behavior equation for some group in the economy; or is it a market clearing equation; or is it an institutional equation; or what is it?

IT IS desirable to provide tools of analysis suited for public economic policy that are, as much as possible, independent of the personal judgments of a particular investigator. Econometric models are put forth in this scientific spirit, because these models, if fully developed and properly used, eventually should lead all investigators to the same conclusions, independent of their personal whims. The usual experience in the field of economic policy is that there are about as many types of advice as there are advisors (sometimes even more!). Statistical models of the working of the economy are not proposed as magic formulas which divulge all the secrets of the complex real world in a single equation. The statistical models attempt to provide as much information about future or other unknown phenomena as can be gleaned from the historical records of observable and measurable facts. To the extent to which people maintain their past behavior patterns in the future, the statistical models provide information about the quantitative properties of economic variables in the future. However, econometricians do not operate in a vacuum; their methods are not purely mechanical in the sense that they do nothing but substitute in formulas. Any information of a qualitative nature that is available should be used by the econometrician in drawing inferences about the real world from his models. For example, suppose that an econometrician is called upon to forecast next year's level of employment and suppose further that this econometrician knows that war will break out next year. Would the econometrician merely substitute into his equations of peacetime behavior patterns in order to forecast employment in a period during which there will be war? Obviously, any qualitative information (e.g., the outbreak of war next year) must be taken into account in order to make a proper forecast. The nonstatistical economist has only qualitative information from which to make judgments. The statistical economist has this same qualitative information plus a thorough knowledge of historically developed behavior patterns; hence it may be said that the latter is better equipped.