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This section introduces the articles which appeared in the March 1972 issue of the "Brookings Papers on Economic Activity." In the first article, William Branson estimates that the 1971 currency re-alignment, when fully effective, will bolster the United States merchandise trade balance by $7 billion to $8 billion a year. The effect of the devaluation of the U.S. dollar on the trade balance depends on how much it raises the dollar prices of U.S. imports, how much it lowers the prices of U.S. exports in terms of the currencies of buyers, and how responsive both buyers and sellers are to price changes -- that is, how large their price elasticities are. As Branson views the process, exporters set the price tags on tradeable goods in terms of their own currency. The paper by F. Thomas Juster and Paul Wachtel examines the effects of inflation and of transitory changes in income on consumer saving and spending behavior, with particular reference to the inflationary experience of recent years. The authors seek to explain consumer demand in several different ways, relying on both subjective data drawn from surveys of households and objective economic variables such as income, relative prices, and the rates of unemployment and of inflation. In the third article, Arthur Okun reaffirms analytically the desirability of an activist fiscal-monetary strategy. Like other Keynesian economists, Okun believes that fiscal and monetary policy should be shifted toward stimulus or restraint in light of observed and predicted economic fluctuations.

This section presents commentaries on articles about Chinese planning and economy published in the May 1973 issue of the American Economic Review. It is enlightening to learn from Dwight H. Perkins' paper about the problems which the People's Republic of China has had in formulating and implementing consistent plans for development. Perkins also raised but does not resolve some of the central issues of planning and plan implementation in China. Imports can be an efficient source of goods which can relieve unforeseen bottlenecks and exports can permit the utilization of capacity which might otherwise remain idle. Perkins' argument may be interpreted as meaning that the signals of resource misallocation or plan disruption are somehow clearer and stronger when foreign trade is not available as an offset. With regards to the paper by Ta-Chung Liu and Kung-Chia Yeh, it is clear that they have employed considerable ingenuity in assessing the overall economic performance of China. However, the source of the differences in the incremental fixed capital-output ratios may not be in the differences in the mix of industries and projects in China as compared to other countries, but in the relative inefficiency with which investment projects are carried out.

This section introduces the articles featured in this issue of Brookings Papers on Economic Activity.

This article presents commentaries on the paper presented by James Pierce and Jared Enzler at the thirteenth conference of the Brooking Panel on Economic Activity, which analyzes the way external shocks may impart inflationary spurts to the economy. According to David I. Fand, the paper introduced a money demand function that is designed to pick up any increase in money demand resulting from a rise in transactions associated with the higher import prices. Since import prices have risen by as much as 10 percent in recent quarters, the demand for nominal money should have increased significantly. Fand believed that this change in money demand may be viewed either as a sort of real-balance effect or as a transaction effect. On the other hand, R. J. Gordon described the paper as very timely and important one. However, he wants to question some of their specific quantitative findings and focus on certain aspects of the model they used which he thinks could be improved. For example, the effects of a one time increase in the price level without any accommodative response from the Fed, that is, the growth of the money supply remains unchanged. The initial effect is an upsurge of both inflation and unemployment, which seems entirely reasonable. And, since this is a model with a natural unemployment rate, in the long run the economy eventually returns to the unemployment and inflation rates that would have prevailed had the initial jump in the price level not occurred.

Discusses the articles that appear in this issue of the "Brookings Papers on Economic Activity." Objectives and goals of the articles; Summaries of the articles.

So much has been written on the theory of interest rates and their influence; yet so indecisive have been the available facts. As usual, theories are more abundant as the facts are few. It has been assumed, for example, that the 60 or 90 day rate on commercial paper is the typical interest rate and that its gyrations are characteristic of interest rates generally. As a matter of fact, this rate applies probably to scarcely 1 per cent of the total amount of money loaned in one form or another in the United States. The questions here to be considered are: what are the typical and dominant interest rates of the country; how much do they vary; and how much influence has this variation on the changes in the trade cycle? The discount rate of the Federal Reserve banks, applying to a sum which in recent years has varied as widely as from nearly 3 billions to less than 200 millions; range of rate within this period, 3 to 7 per cent. There is the large volume of current and casual credit extended by manufacturers, jobbers, retailers and dealers of all sorts to their customers.

The new book, "Stabilizing the Dollar," brings under one cover much of the material the author has presented in numerous papers and develops the argument for his plan in such persuasive form that the reader can hardly escape regretting his inability to be converted. The writer desires to call attention briefly to the phase indicated in the title of this paper, i.e., the probability that if the author's plan were in operation the periods when prices are falling would be marked by sharp drops in money values that would be disastrous to many lines of business and would increase the distress that goes along with depressions in the recurring business cycles. Business mortality would rise, failures multiply and opportunities for mitigating disaster by spreading the losses over the community would lessen. The level might not rise as high as in the case of unstabilized prices, hence the distance of the fall might be shorter but the descent would be more abrupt, less subject to control. The process of credit inflation in connection with war finance has been made familiar in discussions too many to mention. The government received credit on the books of the banks in exchange for certificates of indebtedness.

This paper reports on the formulation and implementation of explicit formulae for consolidation of equity and efficiency criteria in the selection of regional development projects in the United States. The programmes we concern ourselves with are "area specific" or "region specific" Federal grants, such that choosing one project over another bears resemblance to choosing one area over another. In effect, therefore, this note is concerned with the construction and application of Bergsonian-type welfare functions in an operational context. This paper discusses and illustrates our treatment of these issues on an experimental basis for the United States Economic Development Administration, an agency which makes grants-in-aid (and loans) to economically depressed localities in the United States. The primary legal criteria for being "depressed" in this case are that a locality (usually a United States county) has an unemployment rate greater than 6% or has a (1959) median family income which is 50% of the national median or less. [ABSTRACT FROM AUTHOR]

This article presents repose of the authors on comments made by scholar Henry H. Villard on the paper "Investment Criteria, Productivity, and Economic Development" that was published in the August 1955 issue of the periodical "The Quarterly Journal of Economics." Villard raises issues, which the authors agree are important, and must be taken into account in any realistic discussion of economic development. The paper makes clear, the awareness of the fact that population must be regarded as a variable, rather than a constant, in development plans. One of the authors had already devoted a considerable amount of attention to the theoretical side of this question. But it is difficult to understand Villard's feeling of practical certainty about the productiveness of direct investment in factories making birth control devices, in the agricultural setting. No evidence is presented to support this assertion. Since he speaks only of devices, he evidently does not include the cost, both private and social, of achieving the revolution in mores, mental attitudes, and social and moral values, conducive to the acceptance of birth control. This is a delicate and perhaps explosive issue. A reading of the contributions of demographers and other experts who have been close students of this problem does not leave one with a feeling of practical certainty on this point.

The article presents a discussion related to business cycle written by Milton Gilbert and a reference to the paper written on the same topic by Jacques J. Polak and Rudolf R. Rhomberg. Europe has had only two recessions since the war, one in 1952 and one in 1958, contrasted with the four that the U.S. has had. The 1952 recession was due mainly to restraints exercised by the policy-making authorities for the purpose of correcting balance-of-payments difficulties, although the reaction from the Korean boom was also a factor, it was secondary. The 1958 recession was also due to policy restraints exerted during the three years from 1955 to 1957. These restraints were applied mostly to correct excess demand, overfull employment, and inflationary pressures, although balance-of-payments difficulties were a factor in some or most cases. Thus the only recessions resulted from policy measures, taken deliberately. The recessions also were ended by policy management. Restraints were relaxed when the authorities considered that expansion could be safely resumed. And it did resume.

The article presents a list of books and articles on economic relations. Some of the books and articles on world trade are "Industrial Growth and World Trade," by Alfred Maizels; "The Ohlin-Heckscher Theory of the Basis of Commodity Trade," by J.L. Ford, published in the September 1963 issue of "Economic Journal"; "World Trade Outlook," published in the October 1963 issue of "International Commerce." Some of the articles on regional economic groups include "America Gets an Unexpected Break," by Henry S. Reuss, published in the Fall 1963 issue of "The Atlantic Community Quarterly"; "A Canada-U.S. Free Trade Arrangement," by Sperry Lea; "U.S. Should Move Toward Common Market With U.K.," by I. Harold Kellar, published in the November 1963 issue of "Export Trade"; "International Manual on the European Economic Community," by Henry Junckerstorff. Some of the books and articles on economic development and aid are "The Wedding Income Gap," by Gunnar Myrdal, published in the September 1963 issue of "International Development Review"; "Economic Development: Past and Present," by Richard T. Gill.

Among the fundamental issues for public policy consideration at this time is the question of what constitutes an appropriate or good regional distribution of economic activity. What course is the American economy taking in distributing population, industry, income, and employment between urban, suburban, and rural places and among the various geographic regions of the country? Should that direction be controlled or altered? How? This paper reports on planning tools and analyses developed to investigate those questions. The study was undertaken as part of the program planning and budgeting efforts of the Economic Development Administration, where the year 1975 was used as a planning horizon. Specifically, the paper describes the following components of the analysis: (1) alternative regional projections (to 1975) of employment and income (alternatives depended on various assumptions as to national growth); (2) alternative population projections (to 1975) for comparable regions (alternatives depended on migration assumptions); (3) comparisons of labor force availabilities, and demands for labor by region. [ABSTRACT FROM AUTHOR]

Publication in 1955 by the Federal Reserve of a national system of annual flow of funds accounts provided a much needed framework for study of interrelations between transactions in financial instruments and transactions in goods and services. In 1959 these accounts were published on a quarterly basis and in 1962 on a seasonally adjusted quarterly basis. Since large intra-year movements are not uncommon in financial flows, elimination of seasonal influences makes for much closer correspondence of financial data to the principal measures of economic activity. It is now possible, for the first time, to systematically analyze recent cyclical patterns in the volume and direction of financial flows. The figures summarized in this paper deal only with changes in the direction and volume of financial (as opposed to non-financial) flows, and cover only the three most recent business cycles--1953-1957, 1957-1960 and 1960-1962. As such, they have possible significance for areas of macro-analysis which recently have been receiving particular attention: the adjustment of various sectors of the economy toward desired positions of net worth, forms of assets held, and volume and types of liabilities assumed; shifts in the origin of pressures and sources of ease in financial markets over the business cycle; and therefore changing financial pressures in the form of interest rate movements as business conditions advance and recede. The purpose here is to see if there is some cyclical regularity with respect to financial assets acquired, assumption of liabilities, and net contribution to or drawing on financial markets by the major sectors of the economy. The relation between changes in financial and non-financial transactions, however, is not examined. In this sense, then, the following material is only a fragment of business cycle analysis. [ABSTRACT FROM AUTHOR]

The article discusses the abstracts of several papers on economics published in the August 1965 issue of the journal "Bulletin of Economics and Statistics." The first article is "The Territorial Incidence of the East African Common Services," by Arthur Hazlewood. It attempts to assess the balance of benefits of various common services for each of the three East African countries. The second article "Is Britain's Worsening Trade Gap Due to Bad Management of the Business Cycle?" by P.M. Oppenheimer, refutes the view that Britain's trade gap has gotten bigger over the past decade because of the increased speed of successive cyclical upswings. The third article "The Genesis of Bank Deposits: New English Version," by R.L. Crouch, elucidates the process whereby surplus reserves are eliminated by the banks and also specifies the forces generating surplus reserves within the banking system. The third article "Soviet Living Standards," by P. Hanson, compares Soviet and British living standards in 1964 and 1965.

It is the purpose of this paper to review and appraise some conceptual problems in the field of economic base identification, suggest an alternative approach to the problems, and implement a case study. Many different units of measure such as income, payrolls, employment, value added, and sales can be used to quantify economic activity of a community. Employment as a unit of measure is used throughout this study mainly for simplicity and convenience in terms of data available. [ABSTRACT FROM AUTHOR]

Accounting statements are one of the chief sources of data which mold the financial activity over the various phases of the business cycle. They are the basis on which capital funds are (or should be) invested and earnings distributed. Thus they contribute directly to those influences which bring about business inflation, and, in turn, they measure the extent of the aftermath of recession, possibly viewing it through the dark-colored spectacles of pessimism. This paper is an attempt to indicate some considerations with which accounting is concerned in its relation to the business cycle. The paper has been suggested by the types of financing which have taken place in the recent period of prosperity, by the several questions raised in accounting theory by the fact or myth of appreciation, that there is a fundamental error in bookkeeping which tends to augment directly those influences that contribute to the optimism of business expansion and the pessimism of depression. The discussion will be limited to a consideration of accounting for income over the period of the business cycle.

Presents a paper on protecting homebuilding from restrictive credit conditions. Description of the housing industry and its heavy use of credit; Government involvement in housing might included government aid to the mortgage market; Housing production and the gross national product; The interest sensitivity of housing and homebuilding; Principles of an efficient monetary policy as it involves homebuilding; Fluctuations in homebuilding; Policy implications for protecting housing from high credit markets; Need to shift the adjustment burden.

Introduces a series of articles which deals with economic activity.

This article criticizes the Phase II of the wage-price control program of the United States. A number of issues concerning the present program of price and wage controls divide members of the Brookings Panel on Economic Activity, as they divide economists generally. This paper does not deal with the more basic of these issues. Rather, it takes as given the decisions to freeze prices and wages last August 1971, and to follow the freeze with a program for Phase II having essentially the objectives of the present one. It considers how well the program is achieving these objectives and whether and how they might be achieved more effectively. The treatment is selective rather than comprehensive. Assuming that the administration knew what it was getting into in adopting mandatory wage and price controls, it surely deserves credit at least for courage in electing to use them. And having taken that decision, it did some things well. First, it gave no indication that it was going to take this course; the public, business, and the unions were taken completely by surprise. The result is in sharp contrast with the terrible mess created in 1950, when discussion of a possible freeze was allowed to go on for nearly six months -- and government officials themselves actively contributed to it.

Introduces a series of articles on studies regarding economic activity, including the issues of economic performance that confront the maker of public policy and the executive in the private sector.

The article presents the comments of several economists concerning the discussion of Robert J. Gordon on his acceleration idea of inflation in 1969 in the U.S. Robert Solow claims that Gordon's idea on the increasing rate of inflation gets no support from the data published. He denotes that in 1969 most economic measures of excess capacity are steady or rising, yet Gordon's model predicts a higher rate of inflation than on what actually has occurred throughout the said year. In addition, George Perry agrees to what Solow claimed that there is a mistake on Gordon's paper. Perry states that Gordon's finding in the manhours unemployment rate does not connect with what really took place. Moreover, the response of Gordon regarding the comments is given.

The article focuses on financial developments in Italy from 1860 to 1884. It falls naturally into two parts. In the first, after a brief examination of the economic conditions under which the new kingdom of Italy began its existence, an effort is made to present Italy's situation at the time of suspension and to discover in how far, broadly speaking, a forced paper was a necessity. The general condition of Italy at the time of her political consolidation was backward. Her national economic life did not really begin until after 1861; and not until the occupation of Rome in 1870 did political affairs fall finally into the background. Lack of confidence in the stability of the governments or of the laws discouraged all commercial undertakings and even the spirit of industrial enterprise seemed wanting. To describe the economic condition of Italy at this time is extremely difficult. So many elements enter into it, and these mixed in such confusion, that to give any precise estimate of the strain endured by Italy just previous to the suspension is well-nigh impossible. Foreign merchants refused to give credit, and were sending in their demands to be collected at any price. In the general panic, information came of the imminence of failures of the highest importance, if certain banking houses were not protected.

The paper examines the determinants of short-run fluctuations in residential construction during the 1946-59 period. The paper explains how the short cycles are measured and describes some of their characteristics. It considers the relationship between fluctuations in residential construction and changes in the supply of mortgage credit. Many observers have noted that residential construction appears to be quite sensitive to credit conditions in the short run but little evidence for this relationship has yet been produced. The analysis is broadened to show the relationship between fluctuations in residential construction and in aggregate economic activity. Again, it has been widely noted that residential construction has had a generally stabilizing or counter-cyclical influence on the economy but no very adequate or complete explanation of this tendency has been provided. The procedure used to identify "cycles" in residential construction activity is similar to that used by the National Bureau of Economic Research, except in one respect. search, except in one respect. Cycles in residential construction are defined in terms of movements in three related series rather than only one, a movement is not recognized as "real" unless it is found in each of the series.

This article focuses on the research paper of Professor Frank H. Knight on immutable law in economics. The exclusion in his paper is business cycles and presumably dynamic theory. They are not mentioned in the discussion of theory, and cycles are specifically classed in the category of "reality" where this term is opposed to "theory." Yet "theorists" study the cycle and other dynamic problems, and propound theories about them. Monopoly and all of its many variations and amalgamations are likewise excluded, relegated to "reality" as opposed to "theory." In Professor Knight's system, "economic theory" is again narrowed and estranged from reality through a kind of fatalistic attitude towards unrealistic assumptions which always "must" for some unaccountable reason be made. Professor Knight seems to have bound economic theory hand and foot with limiting and narrowing assumptions, and leaves the reader with the uncomfortable feeling that he can like it or lump it, for that is just the way "theory" is.

SUMMARY Does export instability interfere with economic development? Work by M cB ean answers in the negative. He finds no systematic relationship between instability and economic growth. This paper asks three questions about M cB ean's work: (1) Has he measured the relevant variables appropriately? (2) Were special factors at work in the period he studied (1950-58) ? (3) Was his sample of countries representative? It presents a broader statistical analysis, using a different index of instability, two decades of data, and more countries. In general, the findings do not contradict M cB ean. But calculations using different time periods (1950-66 and 1956-67) do produce some evidence of interference. Furthermore, the paper finds one new relationship-a strong inverse connection between instability and the level of investment in developing countries. [ABSTRACT FROM AUTHOR]

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This article focuses on the use of the employment-shift technique in analyzing causes of changes of economic activities in a region. The purpose of this paper is to show that this technique yields biased results when unemployment patterns are neglected. By means of the employment-shift technique the total change in regional employment can be separated into three additive components. The first of these is the "national-change effect." Over a period of years there is a strong tendency for a region to change in the same manner as the nation. The national-change effect measures this force. The deviation between the observed regional change and that which would have been expected on the basis of the national-change effect is attributed to two factors: the "regional-share effect" and the "industry-mix effect." The regional-share compares employment change of the industries within a region with that for the same industries in the rest of the nation. The industry-mix effect is a measure of expected regional employment change based on the difference between the growth rates of regional industries and the average growth rate for all industries in the country. This article also shows an example of these effects.

This article tests the magnitude of the "real balance effect" in the short-run on the economic stabilization of the U.S. during the post-war period with the use of time series data. Using quarterly series for individually-held real balances, personal saving, personal disposable income, and an interest rate measure, the real balance hypothesis is stated and statistically tested in multivariate form. The author interprets evidence from this analysis as an indication of a nonexistent short-run real balance effect, leaving the issue of a long-run real balance effect in doubt. Policies based on a short-run version of the real balance hypothesis are believed to be less effective than counter-cyclical stabilization measures.

Past economic development efforts have over-emphasized production problems and neglected marketing problems. The thesis of this article is that marketing "barriers" exist which impede economic growth in developing Latin American societies. The author describes a systems approach for inducing national market development and facilitating economic progress through selective reforms. [ABSTRACT FROM AUTHOR]

The Spain of modern times has been an ultra-conservative nation in virtually every respect: economic, political, religious, and social. But Spain has attained some measure of financial and economic stability within the last five years, and now stands on the threshold of a new economic era. An efficient marketing structure will be a necessary concomitant of any real economic advancement. The author surveys the current state of marketing in Spain, and indicates some of the steps that will be required for the improvement of the Spanish marketing system. [ABSTRACT FROM AUTHOR]

The article focuses on the development of methods for keeping peace in a disarmed environment. Due to technological advancements, the issue of disarmament worries most nations due to the fact that war can not suffice in dispute settlement between authoritative forces. Disarmament discussions are conducted to explore on new ways and problems in the aim to provide peace and security in the society. One of the concerns of member states is the development of a system that adjusts to different peacemaking mechanisms, economic approaches and cultural backgrounds.

The article presents a commentary on the paper "Prosperity versus Strikes," by Theodore Levitt published in the January 1953 issue of "Industrial and Labor Relations Reviews. It outlines the major issues and arguments discussed by Levitt. It presents evidence that there exists a relation between strikes and the business cycle. It contends that the role attributed by Levitt to workers' expenditure patterns and outstanding debts on the propensity to strike is overemphasized. A rejoinder by Levitt is also presented.

In many market-oriented economies, government restrictions upon economic activity are pervasive facts of life. These restrictions give rise to rents of a variety of forms, and people often compete for the rents. Sometimes, such competition is perfectly legal. In other instances, rent seeking takes other forms, such as bribery, corruption, smuggling, and black markets. It is the purpose of this paper to show some of the ways in which rent seeking is competitive, and to develop a simple model of competitive rent seeking for the important case when rents originate from quantitative restrictions upon international trade. A preliminary section of the paper is concerned with the competitive nature of rent seeking and the quantitative importance of rents for two countries, India and Turkey. In the second section, a formal model of rent seeking under quantitative restrictions on trade is developed and the propositions indicated above are established. A final section outlines some other forms of rent seeking and suggests some implications of the analysis.

The article focuses on regional economic development in American and European continent. The questions of social justice in the distributions of the fruits of economic progress are as important and as difficult in terms of regions as in terms of social classes. The question of whether or not the federal government ought to influence the location of economic activity has long been bypassed by government participation in our mixed economy on a scale, which inevitably has important regional consequences. It is undoubtedly in recognition of this phenomenon that important efforts already have been made to give the government a creative role in the solution of regional problems. Nevertheless, these efforts are not yet commensurate with the difficulties posed by lagging regions and congested metropolitan areas. This paper has proposed a number of operationally feasible approaches to the tasks, which remain in the quest for optimal spatial resource allocation from a social point of view. While they do not pretend to indicate final solutions, they are at least conceived on a scale consistent with the issues involved.

When an economically inert, semi-arid land, larger than the state of Rhode Island, receives water, a Cinderella like transformation takes place. People move in, farm production increases, business establishments are built and commerce begins. This economic awakening augments investment opportunities, employment, and income. As economic activity broadens, it adds balance to the local and regional economy. These changes on the local scene can be easily observed and recorded. The changes farther removed from the area of impact are not so easily measured although the direct and indirect ties between the local and national economy are in evidence everywhere. Where the factors of production are as fluid as in the United States, the development, or more efficient use of resources in one area, results in long-run benefits which are diffused industrially and geographically. In this paper, attempts have been made to measure some of the regional and national changes in economy resulting from irrigation of the Columbia Basin. [ABSTRACT FROM AUTHOR]

The article attempts to explore certain fundamental relationships between economic activity carried on by one or more branches of the government and economic activities carried on by nongovernmental organizations and by individuals in the U.S. Except incidentally, the objective is to examine the basic problems rather than problems merely incidental to readjustment, when hostility ceases. Certain premises that are accepted in this paper are briefly discussed. The first one is that every government; and particularly every democratic government, will be under an impulsion to attempt to provide for the economic needs of substantially all its people; Secondly, the method will be an attempt to assure substantially general opportunity for useful work at adequate pay, accompanied by social security provision for the nonproductive periods of life, including childhood, maternity, sickness and old age. Thirdly, whenever any substantial gap appears in the generality of the provision achieved, government will be under pressure to fill that gap through direct entry into economic activity heretofore commonly carried on by nongovernmental agencies. Fourthly, the economic readjustments in large countries may be presumed to create problems of such magnitude that purely private activity cannot provide for them.

The article focuses on the income and capital formation. The first part of the report on national income and capital formation dealt with the share of capital formation in changes of the national product during the period from 1919 through 1932. The changes were studied both for the long cycle from 1921 to 1932 and for the four reference cycles established by the National Bureau's business cycle study; and the most comprehensive measure of economic activity utilized was the commodity product, approximately defined as the value of all services embodied in new commodities (thus excluding the value of direct services to ultimate consumers). The main measure sought was the share that capital formation contributed to the rise and decline of the commodity product during the established periods of cyclical expansion and contraction in the country's economic activity. There were also significant differences in the relative intensity of participation in the cyclical fluctuations of commodity product by the various specific components of capital formation.

The recent apparent abandonment of the principle of annually equating federal revenue levies to concurrent total expenditures is in accord with the currently much advocated suggestion that balancing the budget over the business cycle would tend to stabilize private economic activity. For such a policy to succeed the budgetary authority must have a revenue system which permits: 1) access to broad and stable tax bases; 2) highly reliable prediction at long range of the revenue yield to be expected from a given set of tax rates; and a) a distribution of tax burden in accordance with the will of the legislature. Our present revenue system--in particular, our federal income tax--does not fulfill these conditions. In this paper a mode of measuring taxable income and of making levies upon it is suggested which will fulfill the necessary conditions, viz., differential rates on "real income" or "final objective income." [ABSTRACT FROM AUTHOR]

The article presents an explanation on business cycle. In formal economics it is the practice to discuss production and consumption as two almost separate and distinct concepts. In fact, some economists stress one or the other and almost lose sight of any relationship existing between the two. Credit in U.S. economic system is that phenomenon which enable people to raise prices. In other words, expanded credit is one of determiners of price. It might be said that credit is price. Also, it might be described as apparent money gains or "paper profits." Without it the industrial, commercial, and financial system, taken as a whole, could not seem to "make money." But over the longer period of the entire business cycle it has been shown that the credit expanded and the credit contracted must be equal. The money "made" and the money "lost" offset each other. Therefore, over the complete period of the cycle, credit does not enter into price or into profit. Over the short period of a year or so it appears to; but over the longer period it does not. When the business cycle has been terminated and balanced through the condition of depression, it is seen that credit is neither goods, nor price, nor profit; it is inflation. It is seen, further, that incomes from one's shares from production on actually must pay for all commodities and services.

This article considers differences in the response of consumers to changes in different types of income as a possible explanation for the major swings in personal saving that have puzzled economists, as of June 1971. The total of household disposable income is a heterogeneous mixture of after-tax earnings from wages and salaries, rent, interest, entrepreneurial pursuits, and transfer benefits such as old-age pensions and underemployment compensation. The composition of income by components has shifted dramatically in the past few years as a result of the slowdown in overall economic activity, the expansion and liberalization of government transfer benefits, and important changes in rates for personal income and social insurance taxes. The author relies on an analytical model in which every dollar of income ultimately adds a dollar to consumption, but in which the time patterns of responses are allowed to differ depending on the type of income earned. Statistical findings imply that increases in social insurance paid by employees initially reduce personal saving more than dollar for dollar. Since employers pay half the tax, the result could make sense if workers who pay social insurance taxes believe that the government is saving on their behalf both their tax payments and those of their employers.

This section introduces a series of articles on economic activity in the U.S.

This paper compares solution error and dynamic multipliers of major U.S. econometric models. The models have been simulated within sample periods, from fixed initial conditions, for intervals up to eight quarters in duration and for a long continuous span of time. Where possible, the simulations have been confined to the uniform time span 1961 through 1967. The errors are relatively low in comparison to levels and changes in the variables and are indicative of strong performance. Errors in simulation of first differences of gross national product (GNP) and related variables reveal a stable and small error pattern. First-difference errors do not exhibit strong growth trends. For most models this stability is more pronounced for real rather than nominal GNP, indicating difficulties of accurately predicting prices. Given nonlinear relationships between real output and prices, increments in nominal or constant dollar fiscal stimulus will reveal different multiplier responses at various stages of the economy's growth cycle. At low utilization rates real multipliers will be greater than when capacity is more fully utilized. Much of the sustained multiplier increase is attributable to pressures on prices, which seem to accelerate as simulation periods are lengthened. At the end of five to ten years, some of the models show that continued sustained fiscal stimulus has ever-increasing perverse impacts.

This paper examines the impacts of laws and property right assignments on the organization of economic activity in the Netherlands. Nonexclusivity in consumption threatens the familiar free rider problem that discourages the production of public goods in optimal amounts. State, commercial, and pay broadcasting are organizational forms that derive from differences in the structure of property rights and the cost of transacting in markets. A closer look at Dutch broadcasting clubs provides support for the relevance of the by-product theory. By law, the production of a programming guide is the exclusive right of such clubs. This suggests that the monopoly element in exclusive production rights to programming guides protects broadcasters from nonclub suppliers only and does little to suggest why more than one club should share two-thirds of all listener-viewer households. Since membership size produces revenues beyond club dues, there is some incentive for clubs to subsidize subscription purchases. Employers and employees are prohibited by law from unilaterally terminating an employment contract without the express permission of the relevant district director of labor affairs. Because of this law, use of the market, via hirings and layoffs, as a means of varying its utilization of labor resources entails a special cost to the firm. Another, if somewhat novel, substitution away from unilateral employment termination is investment by firms in job search on behalf of their workers.

This article aims to investigate the effect of a hypothetical major budget decision on both stabilization and allocation variables over a five-year planning horizon. First, the endogenous nature of many budget outlays is recognized by defining relationships between outlays and general macroeconomic variables. Second, a framework is established for estimating the net allocative effect of the budget. Finally, the paper uses a simple macroeconomic model to trace out the effect of a choice between two alternative budgets on both stabilization and allocation and thus attempts to synthesize the aspects of budget policy.