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We develop a methodology to construct nonparametric counterfactual predictions, free of functional form restrictions on preferences and technology, in neoclassical models of international trade. First, we establish the equivalence between such models and reduced exchange models in which countries directly exchange factor services. This equivalence implies that, for an arbitrary change in trade costs, counterfactual changes in the factor content of trade, factor prices, and welfare only depend on the shape of a reduced factor demand system. Second, we provide sufficient conditions under which estimates of this system can be recovered nonparametrically. Together, these results offer a strict generalization of the parametric approach used in so-called gravity models. Finally, we use China's recent integration into the world economy to illustrate the feasibility and potential benefits of our approach. (JEL C51, D51, F11, F14, O19, P33) [ABSTRACT FROM AUTHOR]

Many new technologies display long adoption lags, and this is often interpreted as evidence of frictions inconsistent with the standard neoclassical model. We study the diffusion of the tractor in American agriculture between 1910 and 1960-a well-known case of slow diffusion-and show that the speed of adoption was consistent with the predictions of a simple neoclassical growth model. The reason for the slow rate of diffusion was that tractor quality kept improving over this period and, more importantly, that only when wages increased did it become relatively unprofitable to operate the alternative, labor-intensive, horse technology. (JEL L62, N51, N52, N71, N72, O33, Q11) [ABSTRACT FROM AUTHOR]

Using data from the 2000 census and the 2001-08 American Community Surveys, this paper examines the impact of 9/11 on the earnings of US veteran men. Our hypothesis is that the surge in patriotism after 9/11 improved their relative earnings, but this earnings effect was short-lived. In addition, we further consider whether this effect was equally felt across race/ethnicity and along regional dimensions. Consistent with our hypothesis, we find a significant short-term improvement in the relative earnings of US veteran men following 9/11. However, additional analyses suggest that this earnings effect did not evenly occur across demographic and geographic dimensions. [ABSTRACT FROM AUTHOR]

The article focuses on the international flow of capital between 1880 to 1913, the "golden era" of finance, as well as during the interwar period of 1918 to 1938. Using an open-economy growth model, the authors use neoclassical growth theories to analyze variables including consumption, nonmarket time, domestic capital, and productivity. The relationship between bond returns and countries whose economies rely on either imports or exports is explored. Economic data for countries including the U.S., Finland, Great Britain, and Austria is considered.

The article addresses questions regarding the extent to which fiscal policy affects practical economic outcomes, particularly focusing on the size of "multipliers" on government spending and tax reduction plans. The author presents a series of calculus equations where the fiscal multipliers of these features are treated in a neoclassical growth model with endogenous labor and fiscal policy features. The author asserts that short run multipliers are less effective than frequently claimed. A case example mirroring the stimulus spending program used by the U.S. in 2009 is provided.

Neoclassical growth theory is increasingly being used to study Great Depressions. This article continues the authors' work that focuses on why the US and UK Great Depressions lasted so long. One of the key messages from their work is that the standard neoclassical growth model fails to account for the long duration of these depressions. This article diagnosis the specific failures of the model. The authors do this by measuring the deviations in the model's first-order conditions. They then use these deviations to identify particular factors that might account for these long durations. They find very large deviations in the model's household labor efficiency conditions in both countries, and in the firm's labor efficiency condition in the US. These deviations provide new support for their recent conclusions that distorting labor-market policies are key factors behind the long durations of both depressions.

Neoclassical theory's objective is to understand price-guided, not management-guided, resource allocation. The firm does not play a central role in the theory. It is that well known "black-box" into which resources go and out of which goods come, with little attention paid to how this transformation is accomplished. In the theory's core model, perfect competition, the transformation accords with the dictates of known technology and prices. Management has no real influence. Nonetheless, the firm in this theory, and the household too, serve an important objective, that of conceptualizing an economy in which there is extreme dependency. Production takes place in firms. Consumption and resource supply take place in households. People must depend on each other, and self-sufficiency is thus barred. Multi-person firms are not needed to play this role. A farm is a firm, whether owned and worked by a single person or by many, if its crop is produced for the market rather than for those who have produced it.

Neoclassical growth theory explains growth in terms of interactions between two basic types of factors such as technology and conventional inputs. At the next level, conventional inputs are subdivided into physical capital, labor, and human capital. The initial split into technology and conventional inputs is promising, because technology does differ from all other inputs. However, for technical reasons, neoclassical theory mapped this split onto the theoretical dichotomy between public and private goods. This means that the theory leads to a dead end when one tries to understand the details about technology in a second-stage analysis analogous to economist Richard Dawkins's investigation of the steam governor. Technology in the model does not correspond to anything in the world. It is possible to understand capital in terms of things like machine tools that can be observed, but for a description of technology, neoclassical theory only relates to things that live in models-shifting production possibility frontiers and the like. The obvious real-world candidates for technology simply are not public goods. For example, a promising line of work in the 1960's studied embodied technological change. Implicitly, it modeled technology as designs for machines. This line of work lost its momentum, perhaps because of the difficulty people had in reconciling what is known about machine design with an initial cut that makes technology a public good.

Neoclassical theory of economics has two main interpretations of its concept of rationality, internal cognitive consistency and the maximization of self-interest. Self-interest, unlike consistency, is normally an added characterization of an agent who is already formally characterized as choosing in accordance with some ranking. Nevertheless it is implicitly present in much of traditional economic theory. For example, in general equilibrium theory, in establishing the correspondence of equilibrium with Pareto optimality. Self-interest may also be added to formal consistency as a spice of "realism." It is often introduced, not in the formal axiomatization, but by an appeal to intellectual history. Even economist Adam Smith's conception of industrial capital class was based on accumulation of self-interest. A defense of self-interest today must confront present challenges and will take little comfort from a deep study of what Smith actually had written.

The article focuses on roles of power in models of distribution of within marriage and, more generally, distribution between women and men. Economists have three alternative models of distribution within marriage: altruist model, cooperative bargaining models, and noncooperative bargaining models. The altruist model remains the leader. It implies that the equilibrium distribution maximizes the utility of the altruist subject to the family's resource constraint. Cooperative bargaining models are exemplified by the "divorce- threat" models and by the "separate-spheres" model. In divorce-threat models the threat point is the utility each spouse would receive in the event of divorce; thus, the threat point is external to the marriage. In the separate-spheres model, the threat point is internal to the marriage and, more specifically, is the equilibrium of a noncooperative game in which the quantities of household public goods are determined by voluntary contributions by the spouses. Noncooperative models of distribution within marriage are less common than cooperative models.

Neoclassical transitional dynamics are a central element of standard macroeconomic theory. Quantitative experiments with the fixed-savings-rate models of the 1960's showed lengthy transitions, thus potentially rationalizing sustained differences in growth rates across countries. We investigate quantitative transitional dynamics in various neoclassical models with intertemporally optimizing house-holds. Lengthy transitions occur only with very low intertemporal substitution. Generally, when one tries to explain sustained economic growth with transitional dynamics, there are extremely counterfactual implications. These result from the fact that implied marginal products are extraordinarily high in the early stages of development. (JEL E10, O10) [ABSTRACT FROM AUTHOR]

Both new-classical and Keynesian macroeconomists usually agree that the price level and real output tend to move in the same direction. By standing on this widely accepted fact the economist can see macroeconomics from an original angle, even though two schools of thought disagree on causes of this pro-cyclicality and on whether activist fiscal and monetary policies are justified. According to some new-classicals, real output and the price level tend to move in the same direction, because producers do not initially know whether an increase in prices they observe in their own market is relative and real, or only a nominal increase. By contrast, the traditional Keynesian theory assumes that, when an economy is depressed, there are prices or wages stuck at disequilibrium levels and thus involuntary unemployment. An increase in aggregate demand tends to correct these inefficiencies and thereby increases welfare as well as real output. There are bottlenecks and other limits to price stickiness, so the price level rises when real output increases.

The paper provides a brief survey of the principal tenets of the neoclassical theory and of the variety of criticisms that have been leveled at it. Discrimination is generally understood to exist when some superficial characteristic is used in an attempt to restrict individuals access to the available economic, political, and social opportunities for advancement. The theory follows that effective discrimination will be costly to society, since it results in a clear and potentially serious loss of efficiency. When society's rewards and penalties are distributed to its members in a manner not consonant with their relative productivities, then at least some scarce resources are bound to be overallocated to relatively unproductive members of the "favored" race and underallocated to more-productive members of the race being discriminated against. Neoclassical economic theories of discrimination are invariably theories of labor market discrimination. As such they tend to be too narrowly drawn, paying very little attention to aspects of the problem, like nonlabor market discrimination and collective action, which are central to our under- standing of discrimination in general and labor market discrimination in particular. Thus, a broader theoretical foundation is necessary.

The article presents information on neoclassical theory in the United States. The intellectual breakthroughs that mark the neoclassical revolution in economic analysis occurred in Europe around 1870. The next two decades witnessed lively debates in which the new theory more or less absorbed or was absorbed in the classical tradition that preceded and provoked it. In the 1890s, there emerged a large expanse of common ground and a feeling of repose, both of which created, in the superficial observer, an impression of finality-the finality of a Greek temple that spreads its perfect lines against a cloudless sky. Of course the temple was by no means complete. Its building and decoration continue to this day, even while its faithful throngs worship within. American economists were not present at the creation. To a considerable extent they built their own edifice independently, designing some new architecture in the process. They participated actively in the international controversies and syntheses of the period 1870-1914. Eventually, for better or worse, their paradigm would dominate economic science in this country.

The article provides a brief introduction to macroeconomics. Economists question the internal consistency of Keynesian models. In contrast, the neoclassical or rational expectations school maintains consistency with the principles of perfect competition and flexible prices. Nearly all economists are extraordinarily prejudiced in favor of models exhibiting rational. In apparent ignorance of the intellectual arguments of the neoclassical school, the economy persists in behaving pretty much as the modern Keynesian models predict. The article presents the role of imperfect information in the labor market and then goes on to solve for general equilibrium in the absence of government intervention. It examines the Keynesian-like behavior of this equilibrium. It also examines the impact on GNP, aggregate labor supply and welfare of balanced-budget government spending. In the absence of active fiscal policy, it is seen that Say's Law fails and the author demonstrate why there is a "fallacy of composition."

The theme of this paper is due to economist Alfred Marshall who states that "nearly the whole income of a business may be regarded as a composite quasi-rent divisible among different persons in the business by bargaining supplemented by custom and by notion of fairness. And the division of quasi-rents entails some sort of profit-loss sharing between almost every business and its employees." Marshall emphasizes that a significant portion of composite quasi rent is derived from the organization of business and would be lost if employer-employee connections were dissolved. In this view, bargaining can even be tacit insofar as there is an organizational basis which ensures agreement among the concerned parties. Consequently, internal bargaining models of the firm may be applicable to the analysis of European-style co-determination and Japanese-style labor management. Also, as the relative bargaining strength between labor and management changes, such a view of the firm admits as its extrema, the organization of a labor-managed firm, and the textbook case of a profit-maximizing firm.

Traditional neoclassical theory has one clear, unambiguous, and verifiable prediction. All factors which have a positive price are fully utilized. In recent years, there have been several responses to the apparent inconsistency between the predictions of neoclassical theory and what has in fact been observed. The first is to deny the empirical observations. The 25 percent of the population that were unemployed in the Great Depression, let alone the 10 percent of the population that were unemployed in the Reagan recession, were not involuntarily unemployed. This seems to the authors, at best, semantic quibbling. The second is to argue, without much justification, that there are two regimes. Traditional neoclassical theory applies in "normal times." It seems more plausible to us that the market failures represented by the Great Depression are always present in the economy, but difficult to detect; it is only when they reach the proportions that they do periodically that we can no longer ignore them. A third approach is to modify the standard theory, to assume that wages and prices are fixed.

The productivity slowdown and the competitive difficulties experienced by many American firms in domestic and international markets have triggered considerable research into the reasons for the observed changes. Although rarely featured in systematic analysis of productivity trends, various writers have suggested that management miseducation may be part of the problem. Economists Robert Hayes and William Abernathy focus primarily on the overutilization of techniques that deflect attention from long-run technological development to portfolio management, financial control, and the like. Economists Thomas Peters and Robert Waterman develop this theme further. Their much-acclaimed study of America's excellent companies heaps ridicule on the rational approach to management and asserts that American business schools have a good share of blame for the competitive failures of American industry. The rational approach to problem solving is, of course, central to economic science.

The article focuses on two of the proposed revisions stimulated by real and imagined limitations of neoclassical economic theory. One approach extends the utility-maximization hypothesis to all individual choices under constraints, taking account of institutional restrictions and transactions costs in addition to the usual constraints. The second approach also focuses on the individual as the basic unit of analysis, but rejects maximizing behavior in favor of other auxiliary hypotheses. According to neoclassical theory, the individual consumer maximizes a single valued, convex, twice-differentiable utility function subject to a budget constraint. The budget constraint is determined by the prices of the rights to the use of the commodities in the individual's choice set and by income. Income, in turn, is determined by the quantity and by the prices of the rights to the use of the resources which the individual owns, including the fractional ownership of business firms. The individual typically is a price taker both as a buyer of commodities and as a seller of resources.

The article contrasts the orthodox economics approach and the field network evaluation studies approach as they apply to the impact of federal grants-in-aid to state and local governments. Other assumptions employed in the orthodox approach include restrictions on the price and income substitution among goods and factors, the form of the production function, and the fixity of capital. Another difficulty arises because the standard neoclassical approach usually applies a generalized structural model of local and state government. The field network evaluation approach has been applied to three federal programs administered as federal grants-in-aid to state and local governments--revenue sharing, community development block grants, and the public service employment component of the CETA program. The essential ingredient of this approach is the network of indigenous field researchers familiar with the finances and political structure and processes of each sample jurisdiction. In the field evaluation studies, a major policy change, such as the increased emphasis on certain kinds of federal grants-in-aid, is seen in an institutional context which sets the boundaries in making decisions about how grants are used.

The last few years have seen an intensification of methodological criticism of the foundations of neoclassical theory and in particular of the maximization hypothesis. Economist Harvey Leibenstein argued for a Micro-Micro Theory on the grounds that profit maximization is not necessarily the objective of the actual decision makers in a firm and that a complete explanation would require an explanation of intrafirm behavior. He also gave arguments for why maximization of anything may not be realistic or is at best a special case. And of course, economist George Shackle has for many years argued that maximization is not even possible. There are only two types of criticism of any behavioral hypothesis once one has established its logical validity. One can argue against the possibility of the hypothesized behavior or one can argue against the empirical truth of the premise of the hypothesis. In the case of the neoclassical maximization hypothesis, virtually everyone accepts the logical validity of the hypothesis. For example, everyone can accept that if the consumer is a utility maximizer, then for the particular bundle of goods chosen: the marginal utility is zero, and the slope of the marginal utility curve at the point representing the chosen bundle is nonpositive and usually negative.

A subject of continued dispute has been the essential difference between neoclassical and Keynesian theories of growth and distribution. Economist Hans Brems argues that the key dissimilarities are technological and ontological. Brems contends that the neoclassical model is characterized by an aggregate production function that permits substitution between factors of production while the Keynesian model is characterized by an aggregate production function of the fixed coefficients variety. Brem also contends, discussing the version of the Keynesian model he attributes to economist Joan Robinson, that entrepreneurial behavior violates conventional optimizing motives. The author proposes an alternative view. It will not be necessary to make contrasting assumptions about technology nor the motives of participants in the economy. Throughout this article an aggregate neoclassical production function will be used in both settings. Entrepreneurs will satisfy the behavioral dictates of being profit maximizers and rational in the customary senses.

The resurgent neoclassical school in macroeconomics has, in its simpler characterizations, asserted three hypotheses about the economy. First, the short-run expectations augmented Phillips curve is vertical. Second, the real rate of interest is independent of anticipated inflation. Third, expectations are formed rationally in the sense that people use mathematical expectations conditional on available information. The three propositions together suggest the neutrality of the economy with respect to anticipated inflation. In this article the author proposes a set of regression-based econometric tests of these three neutrality propositions. He carries out simple versions of these tests for the postwar American economy. Such neutrality propositions distinguish the modem neoclassical school from the traditional American Keynes-Hicks school of macroeconomics. It is true that these statements significantly oversimplify the position of the neoclassical school sometimes called the rational expectations school and also true that the traditional school today would mostly accept these propositions in the long run. However, the argument between the two schools does not rest on minor failures of neutrality, but turns rather on different interpretations of gross gyrations of interest rates and unemployment.

The article discusses stability implications of economists Alfred Marshall and Leon Walras's adjustment schemes. In the Keynesian macrosystem, the Marshallian ranking of price and quantity-adjustment speeds is reversed. Thus, in the shortest period, flow quantities are freely variable. However, only one or more prices are given and the admissible range of variation for the rest of prices is thereby limited. Researcher James Tobin has argued that one way to appreciate the importance of this change of dynamic structure is to analyze the stability implications of Marshallian and Walrasian adjustment processes. Tobin argues persuasively that Keynes' achievement was to show that, in a capitalist economy, market forces may be too weak to generate a lull-employment equilibrium. Tobin develops two simple macro models, one reflecting the Walras-Keynes-Phillips (W-K-P) adjustment relation and the other reflecting the Marshallian (M) adjustment relation. It is clear from Tobin's analysis that the speed of adjustment of price and quantity is not the only characteristic distinguishing the Marshallian and Walrasian approaches.

This article investigates the changes in Marshallian surplus under monopolistic and competitive output production conditions. An equation states that the negative of the factor derived demand vector, is the vector of partial derivatives of the profit function when output is monopolistically produced. By the basic line integral theorem, another can be written, which states that the change in Marshallian surplus in the factor markets is precisely equal to the change in monopoly profits that occurs because of the factor-price vector change. This result holds regardless of the number of changed factor prices and regardless of the number of final outputs. By use of the basic line integral theorem the equation, which states that under competitive output conditions the change in Marshallian surplus in the factor markets is precisely equal to the change in total surplus that occurs fie to the factor-price vector change, can be written. An interesting by-product is that the joint derived factor-demand functions, usually satisfy the integrability conditions, a result which generally does not hold for a consumer's demand functions derived from utility maximization. The derived factor-demand functions are integrable under monopolistic output production when there is path independence in the output markets.

The view behind this paper is that although neoclassical (NC) micro theory works some of the time, there are areas of experience to which it is not applicable. As a consequence it is desirable to develop models which are more general than the NC framework, which fit economic realities, and into which the NC framework fits as a special case. The author says that there are many areas where a theory of this sort might be applied. In the case of regulated monopolies the fair profit rate on capital pricing rule does not protect the consumer. There is no motivation to minimize costs. Also, the production aspects of the nonprivate sector (public corporations, the post office, etc.) can be analyzed on the same basis. In this sector, adding funds need not add output proportionately, or add to output at all. It may only result in higher costs. The supply of health services under a health insurance scheme is likely to create a means whereby the managers of health firms simply pass on higher costs to insurees. Hospitals may have an appetite for maximum budgets rather than to contain costs. Similar analyses could be made of various municipal services, where the passing on of costs to the taxpayer may yield very high costs per unit of service.

This article comments on a study by Lowell Gallaway and Vishwa Shukla which claimed to have discovered a condition that rules out the reswitching techniques in a neoclassical production system. The re-switching phenomenon brought to light the fact that the neoclassical production system need not be well behaved. This means that the central proposition in neoclassical production theory, namely the monotonic relation between, the production and the interest rate, need not always hold. There are two ways to cope with this situation. One is to accept what is true. The other is to look for conditions which rule out perverse phenomena in the hope that such conditions are empirically acceptable. Unfortunately, Gallaway and Shukla's claim is unfounded; their analysis is faulty. In their assertion, Gallaway and Shukla observed that all counterexamples do not satisfy the capital-intensity condition. Suspecting that this failure may be the cause of re-switching, they took chances to give a general proof that within the constraints, re-switching cannot occur. The proof is wrong. There is nothing better than presenting a counter-example to demolish a faulty proof. This observation suggests that substitution-complementarity relationships are much more fundamental to the nonperversity of a neoclassical production system than conditions like the capital-intensity condition.

The economics of advertising is marked by the same emotional commitment to conflicting schools of thought that is usually associated with monetary theory and the economics of speculation. To all appearances, the choice of both the axioms used and data to be interpreted has been made in order to justify preexisting conclusions rather than to make an unbiased test between alternative theories. The controversies endure in large part because advertising still remains outside the core of accepted theory. Neither the standard Marshallian partial equilibrium analysis nor the Arrow-Debreu general equilibrium analysis even admits the existence of advertising. Two major explanations of advertising are widely held: one considers advertising as a set of psychological ploys which induce consumers to buy products or brands that they otherwise would not buy; the other treats advertising as a provision of information which allows consumers to make more discriminating choices within the framework of a fixed set of preferences.

The article presents views of the author at the social valuation of input price changes. The author considered the consumer surplus valuation of changes in the private and social cost of an intermediate good used by a competitive industry that produced a consumer good under constant returns to scale. The author concluded that since the input market can at best reflect the consumer's surplus generated in the final product market, the appropriate measure should be used. The following two sections consider the social valuation of a change in the social cost of the first input, accompanied by a change in the private cost. The basic reason for this bias is simple. Under perfect competition, the net surplus is maximized for given input prices by marginal cost pricing of the final product, so that the partial derivative with respect to output is zero. Under imperfect competition, however, this partial derivative is positive since the community as a whole would benefit from increased output. But the welfare effect of ceteris paribus output changes is not reflected in input demand functions, and it thus cannot be detected by analysis of input markets

The article presents the author's views on the foundations of money illusion in a neoclassical micro-monetary model. The analysis of money illusions, as suggested by two economists Robert Clower and John Riley, rests entirely on the claims that the assumption of degree zero homogeneity (in the variables) of the utility function "serves completely to characterize the class of illusion-free demand functions" derivable from ordinal utility theory, and that it is possible to reinstate the usual properties by adopting the "semi separable" utility function. This article will eventually prove all these claims wrong. Under the D-K sufficiency conditions it is possible to have demand behavior which is free of money illusion without imposing the restriction that the utility function be homogeneous of any degree. The resulting demand function are indeed free of money illusion. Thus, the first order conditions are examined for the maximization of the equations created in the article, subject to the budget constraint.

The article presents the author's views on the foundations of money illusion in a neoclassical micro-monetary model, as suggested by Richard Dusansky and Peter Kalman (D-K). The model specifies a utility function depending on the quantities of all commodities and of money, as well as on all commodity prices. Maximization of the utility function subject to a conventional budget constraint leads to demand functions: Dusansky and Kalman's main result is the formulation of two conditions that are sufficient to render all demand functions free of money illusion. In the present paper, D-K's result is extended in two ways. First, the sufficient conditions for illusion-free demand functions are weakened. Second, the validity of the D-K result is extended to supply functions as well. Thus, money illusion is, in fact, numeraire illusion. It is money's function of unit of account that sets money and commodities apart, in the D-K's model. Money's function of store of value is reflected in the appearance of money in the utility function; in this, however, money is indistinguishable from other goods. Money's function of medium of exchange is not reflected in the model, is not translated in mathematical terms; in this, then, money is also indistinguishable from other goods

The concept of the neoclassical production function has come under severe attack in recent years, particularly from the so-called Cambridge critics of neoclassical theory. The upshot of the various criticisms of the neoclassical production function has been to call into question its very existence and all that follows from it. Consequently, it is more than a trivial theoretical point. This article will attempt to clarify the controversy somewhat by defining the sufficient conditions for the existence of a well ordered neoclassical production function. Simply stated, there is only one such condition, namely, that commodity prices be positive and finite for any positive value of the interest rate. The general conclusion is that within the framework of two-commodity indecomposable production systems the neo-classical production function is well-or-ordered as long as positive and finite commodity prices are assumed for all positive values of the interest rate.

Despite recent advances incorporating uncertainty into the theory of the firm, major problems remain which mar the theory and prevent its practical application. This paper explores and offers solutions to two such problems: the form of the neoclassical firm's objective function under uncertainty, and the derivation of equations for investment and factor inputs from the maximization of a properly chosen objective function. The expression adopted in Section I as the best available objective function for the neoclassical firm is derived from the well-known Lintner-Mossin-Sharpe (LMS) market valuation equation. However, the major point of this section is that the LMS equation, as presently written, unnecessarily limits the scope of the analysis of optimal firm decisions, particularly investment decisions. Implicit in the currently accepted version of the equation is the assumption that today's decisions affect firm cash flow only in the present period. In the second part of this paper, a revised version of the LMS valuation equation is used to derive optimal investment, labor input, and production policies for models.

This article attempts to distinguish elasticity of supply from the slope of the supply. It seems questionable to derive elasticities of supply from statistical data without first deriving the supply function, which is the primary and more important relation. Secondly, the discussion of theoretical problems in terms of constant elasticities of supply, postulating this relation for the entire curve and not merely for a short range, seems to ignore the necessary conditions of supply which would require a supply curve starting at some distance from the origin, both for commodities and productive services. Many of the important conclusions phrased in terms of elasticity would be equally valid if stated in term of slope. The discrepancy between elasticity and slope may lead to doubtful conclusions if this distinction is not borne in mind. Finally, the elasticity formula does not best express the relation between costs or receipts of the producers and the changes in output or price. Discussion in terms of the slope of the supply curve or its reciprocal, therefore, would appear simpler and more exact for most matters, while it would avoid important difficulties inherent in the Marshallian formula.

Economist Thorstein Veblen's attempt to make of economics an evolutionary science has been little developed by other economists. The differentiating characteristics of an institutional economics are hard to find; but some economists have oriented their thinking by a postulated institutional prescription of human conduct in an evolving society, in association with an attack upon the ideology of systematic economic theory. The central concern of this group for economic theory has, however been in making it relevant to problems of social control. Descriptive studies have constituted the principal recent additions to economic knowledge. Few if any of these can be regarded as Integral parts of a differentiated institutional economics. Nor can one find primarily institutional contributions to the solution of problems of economic control. The supposed existence of a distinguishable body of economic knowledge or theory properly to be called institutional is in intellectual fiction. One may record a conviction that the current controversy between a posited institutional economics and a posited neoclassical economics is obsolete, unreal, silly and beside the point. One could hardly sit through the proceedings of this round-table a year ago without sensing its futility. Its roots nearly a generation ago grew in an absurd anti-rationalism and an equally absurd and satisfied traditionalism.

The problem of value which logically follows has to do with the establishment of normal price. The proper assumption is that the supply of productive resources is fixed. In determination of value under competitive conditions, it is customary to start with the market adjustment. Into this adjustment, neither production goods nor costs enter at all. Costs do affect future production and future price, but at any time market price is settled through establishment of an equilibrium between the existing supply of consumption goods and existing demands for them. That this price is below or above unit cost of production is of no direct significance, because cost depends on past events. Any entrepreneur at any time has a given amount of resources under his control. His task is to organize these in the best most profitable way. He will tend, as the law of diminishing productivity explains, to push his use of every sort of instrument to the margin. If the use of any instrument is pushed past the margin, the addition to cost will be greater than the addition to product.

The purpose of this paper was to reconcile the income-investment accelerator with the neoclassical theory of the competitive firm. The essence of the accelerator is that the firm behaves as if output were a datum to which it must adjust its demands for inputs. The essential problem is to rationalize such behavior, which, in the conventional neoclassical model, appears to be inconsistent with profit maximization. My approach was to consider a phenomenon which the conventional neoclassical model implicitly rules out-the existence of excess supply in the output market. Such excess supply imposes upon the representative firm a demand-determined constraint upon sales, which effectively fixes its level of output. The above analysis considered the maximization of the present value of the future stream of returns to the firm's owners first without and then with this constraint. In both cases, optimal investment policy involves gradual adjustment of the firm's capital stock to a target value. In the former conventional neoclassical case, the firm takes only prices as given and simultaneously chooses optimal time paths for output supply and input demands, so that the one cannot be considered a function of the other. In contrast, in the latter case, when the demand-imposed constraint on sales is effective, output becomes a datum, and the target capital stock becomes an increasing function of the level of output, as well as of prices. Within this latter context, assuming expectations about future levels of the demand-imposed constraint on output to be static, gradual capital stock adjustment implies a gradual accelerator. Investment demand asymptotically approaches a multiple of the rate of growth of output. The more rapid is the adjustment of the capital stock, the more rapidly is the full accelerator effect approached. [ABSTRACT FROM AUTHOR]

A major development in economics during the last ten years was the joining of the neoclassical theory of capital with the econometric study of investment behavior. While there is controversy over the interpretation of some of the empirical results of neoclassical investment demand equations, this joining of theory and empirical study has led to increased emphasis on the derivation and specification of testable models and more frequent inclusion of output price and factor cost variables in investment studies. The many differences between the U.S. and French economy in both structure and economic experience since 1950 allow tests of both the theoretical flexibility and the empirical validity of investment models which have proved generally successful in their application to U.S. experience. This study employs the neoclassical theory of capital to derive a model of the demand for investment goods by a firm in France. The model relates the net present value of the firm to output and factor market variables. It incorporates the major characteristics of the French business tax system and changes in this system since 1950, different prices subject to credit and anti-inflation policies, and product demand factors. Using these relationships, author derives models of industry investment and tests these models using regression analysis of annual time-series data, 1950-65, for the private manufacturing sector of France and eight industry subgroups of this sector.

This article examines the neoclassical theory of technical progress as a shift parameter of the production function and the way in which technical progress affects such function. The examination of the effect of technical progress on the relationship between certain primal and dual variables which are derived from the production function and which include the input-output coefficients, the factor proportions, the marginal productivity, and the marginal rate of substitution. The most important type of neutrality is the Hicks-neutral wherein the relationship between the marginal rate of substitution and the factor proportion is invariant. The study aims to: (1) present some new basic sets of parameters associated in a two-sector economy producing both consumer and capital goods; (2) provide unified treatment on the basic relations between any two of the three measures of bias; and (3) discuss conditions for aggregate neutrality. Finally, it is assumed that the production functions are linear homogeneous and that inputs are paid according to competitive imputations.

All external effects are found in principle to be reducible by correct input pricing to economies or diseconomies. This holds for separable and nonseparable externalities in production and for externalities viewed either in terms of specific firms or among industries. Different industry structures produce optimal allocation either for technological or for pecuniary externalities if the externalities are internal to an industry and the firms therein use the same factor proportions. When these conditions do not hold, only competitive structures and pecuniary externalities suffice to produce an optimum in the absence of very complicated combinations of taxes and subsidies which require a wealth of accurate detailed data utilized with consummate insight and speed. [ABSTRACT FROM AUTHOR]

The purpose of this article is to provide an alternative, simpler diagrammatic proof, showing that the Golden Rule is an application of the usual economic rules for optimization and to extend the Golden Rule to simple open economies. Just as the profit-maximizing firm increases output until the marginal revenue on the last unit produced equals its marginal cost, so an optimizing community should increase the capital to labor ratio by varying the saving rate and capital intensity until the addition to output per man equals the extra saving per man. With the marginal product of domestic capital held equal to the world rate of interest in this way, the question of optimal saving in the open economy is fundamentally different from that in the closed economy. The analysis of Golden Rule saving for closed economies suggested that the growth rate could be viewed as the marginal cost of additional saying and the marginal product of capital as the associated marginal revenue. In choosing among Golden Age saving ratios, the closed economy could vary the marginal product of capital so that consumption was maximized where Marginal cost is equal to marginal revenue.

The effectiveness of tax policy in altering investment behavior is an article of faith among both policy makers and economists. Whatever the grounds for this belief, its influence on postwar tax policy in the U.S. has been enormous. In 1954 and again in 1962, amortization of capital expenditures was liberalized by providing for faster writeoffs. Since 1962, a tax credit for expenditure on equipment has been in force. The purpose of this article is to study the relationship between tax policy and investment expenditures using the neoclassical theory of optimal capital accumulation. To get some idea of the effects of tax liberalization, the authors have calculated the impact of the adoption of first-year writeoff of investment expenditures beginning in 1954. This tax policy represents the ultimate liberalization since it is equivalent to treating capital expenditures in the same way as current expenditures for tax purposes. The effects of such a policy on investment expenditure would have been very substantial throughout the period, 1954-63.

This article contains a model designed to serve two purposes, to examine long-run competitive equilibrium in a growth model and then to explore the effects on this equilibrium of government debt. Samuelson has examined the determination of interest rates in a single-commodity world without durable goods. In such an economy, interest rates are determined by consumption loans between individuals of different ages. External debt has two effects in the long run, both arising from the taxes needed to finance the interest payments. The taxes directly reduce available lifetime consumption of the individual taxpayer. Further, by reducing his disposable income, taxes reduce his savings and thus the capital stock. Internal debt has both of these effects as well as a further reduction in the capital stock arising from the substitution of government debt for physical capital in individual portfolios. To avoid the problem of expected capital gains, it will be assumed that all government debt has a one-period maturity. It will also be assumed that the debt, which is refloated each period simultaneously with the achievement of equilibrium in, capital market, pays the current interest rate.

The article cites the paper of the author that highlights that if there exists a golden-age growth path on which the social net rate of return to investment equals the rate of growth or, in market terms, a golden-age path on which the competitive interest rate equals the growth rate and hence gross investment equals the gross competitive earnings of capital, then this golden age produces a path of consumption which is uniformly higher than the consumption path associated with any other golden age. The article discusses issues related to the paper. There are concerns related to conditions for the existence of the consumption-maximizing golden age. Some of the papers erroneously suggest that the path can exist only in neoclassical models that are models in which capital and labor are continuously substitutable. Some of the papers leave the false impression that the consumption-maximizing golden age exists only if there is no technical progress. The author's paper highlights the technical progress that permits a consumption-maximizing golden age. His paper presents two kinds of models related to the conditions for the existence of the golden age.

The essence of the Turnpike Theorem in modern economics is the catenary property of efficient paths in closed von Neumann or neoclassical models. Although the catenary is met less frequently in physics and economics than its antipodal concept, sinusoidal vibrations, according to the author there are two other places in economic theory where the catenary is involved. One is in the pure theory of intertemporal speculative price equilibrium. The other is in connection with the famous Ramsey problem of optimal saving. This aspect of the Ramsey problem, which seems not to have been commented on in the literature, was actually one clue back in 1949 to formulating the Turnpike Theorem, even though that theorem explicitly excludes the enjoyment of consumption as the goal for maximizing by virtue of the Neumann assumption that all output is reinvested in the closed system. Frank Ramsey, living in a happier age and being a Cambridge philosopher, assumed society would last forever and seek to maximize the utility of its consumption over all infinite time.

This article focuses on the workability and usefulness of econometric models in economics. In any growing society, growth comes through change and causes change. There will necessarily be a constant change in the type of goods wanted and the methods of production used. The process of growth involves a constant revision and redirection of the product mix. The aggregative technique finds it hard even to remember this, the essential, growth problem. Worse yet, the "constant revolutionizing of the means of production" causes men to change their ideology and institutions, and these changes reflect back upon the performance of the aggregates. Reality consists both of objective economic forces and of cultural alteration. Since the modern technique finds these partial, discontinuous, and cultural changes very difficult to handle, there is a tendency either to throw out the econometrics or to throw out reality. What is to be done then? Econometric models are useful as long as it remembers the rest of the total pattern. What should be asked first is: Does the model bring out anything new? meaning, does it tell us of some really new principle at work? Second, does it point out some new field for practical research? Has some real aspect of the problem been overlooked? Finally, are the models and results any good for prediction? Do they help in forecasting?

The specification of a criterion which may be used to determine the optimum longevity of capital in an economy has been the subject of some controversy in literature. The contributions to the solution of this problem falls into two distinct categories. One approach to the problem of determining the optimal longevity of capital emphasizes micro-economic criteria based on profit maximization or cost minimization. A second approach emphasizes macroeconomic criteria based on the impact of changes in the longevity of capital on the level and rate of growth of aggregate consumption and output. The purpose of this paper is to determine within the context of a neoclassical growth model, the conditions which must be satisfied in order for the micro- and macroeconomic criteria to lead to similar results. In the next section, a macroeconomic growth model is specified and the equilibrium properties of this model are described. In sections III and IV, respectively, the macroeconomic and microeconomic capital replacement criteria are explicitly derived. The implications for the life of capital of each of the two criteria are compared in the final section and the conditions which must be satisfied for their equivalence are developed.

The rise of management science has provided major new insight into the complexity of enterprise organization-a complexity which persists even when quite modest numbers of people are involved. The growing specialization and division of labor within management itself has provided much evidence of this complexity. Closely related is the role of information, communication procedures, and uncertainty in influencing enterprise decisions. But the picture of the firm which emerges from this line of study is still restricted by the limited range of organizational forms available for study in Western countries, and particularly in the United States, where the bulk of the work still seems to be done. In a complex organization burdened by substantial externalities, there may be a great deal to be learned by varying the form of' organization. For the effect may well be to generate much new information and consequently new decision patterns, some of which may prove to be more effective than those evolving from contexts presently under study. Yugoslav nationalized firms offer a highly original combination of features with whose operation- there is now a twelve-year experience. In this paper a few general and somewhat speculative comments will be offered as to the functioning of this type of organization and its significance for the understanding of problems of enterprise decision making in general.

The object of this paper is to present a diagrammatic proof of the neoclassical theorem that, in balanced growth, consumption per man is maximized when the marginal product of capital is equal to the natural rate of growth. The proof has a number of advantages. Firstly, it makes use of the production function and so focuses on the purely technological nature of the theorem. Secondly, it is perfectly general since it can incorporate both the rate of population growth and Harrodian neutral innovations. Thirdly, it facilitates the ease with which the theorem is grasped since the proof involves a simple extension of the familiar diagrammatic technique developed by an economist to show convergence to balanced growth. Finally, a neat economy of exposition is achieved since the diagram can be used to illustrate both convergence to balanced growth and the neoclassical theorem. All potential equilibrium points for alternative saving ratios at which the economy clicks, at time zero, into balanced growth with a constant capital to labor ratio are defined by the intersection of sF(r,1) and nr and so must lie along the ray nr. The distance between the ray nr and the x-axis then defines all potential total saving per man for all potential saving ratios, in turn, the distance between the ray nr and the total product curve defines all possible levels of consumption per man.

There is no greater gap between economic theory and econometric practice than that which characterizes the literature on business investment in fixed capital. According to the neoclassical theory of capital, a production plan for the firm is chosen so as to maximize utility over time. Under certain well-known conditions this leads to maximization of the net worth of the enterprise as the criterion for optimal capital accumulation. Capital is accumulated to provide capital services, which are inputs to the productive process. By contrast, the econometric literature on business investment consists of ad hoc descriptive generalizations such as the capacity principle, the profit principle, and the like. The purpose of this article is to present a theory of investment behavior based on the neoclassical theory of optimal accumulation of capital. Of course, demand for capital is not demand for investment. The short-run determination of investment behavior depends on the time form of lagged response to changes in the demand for capital. For simplicity, the time form of lagged response will be assumed to be fixed. At the same time a more general hypothesis about the form of the lag is admitted than that customary in the literature.