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Presents information on various articles related to economics, published in the July 1963 issue of 'Oxford Economic Papers.' Reexamination of open-market operations; Diagrammatic analysis of effects of buffer fund stabilization; Tariff for the bulk supply of electricity; Marginal efficiency of capital.

The purpose of this article is to describe a method of reducing the time required for preparing a statement of source and application of funds. It consists of substituting two T-accounts for the formal working papers commonly used in source and application of funds preparation. The method is especially useful in examinations because of the great saving of time effected in organizing the information required for the statement. Of the two T-accounts, one is used to accumulate information for determining and explaining the amount of funds provided by operations. The second T-account is used to list funds provided and funds applied, the balance, of course, representing the change in working capital as shown in detail by the statement of working capital changes or determined in some other manner. In preparation of the formal statement of source and application of funds, if time is limited, the student may be allowed to show funds provided by operations as a single figure, since he has already shown the details in his T-account.

This section presents abstracts of papers which were published in the April 1965 issue of "Review of Economic Studies." The paper "Existence of Optimal Programs of Accumulation for an Infinite Time Horizon" develops necessary conditions for the existence of an optimal growth path in a general model of the Ramsey type which includes population growth and technical progress. "Size and Growth of Firms" measures the proportionate growths of a large sample of British companies from the period 1951 to 1960 and concludes that the larger the company the greater its proportionate rate of growth. "Neoclassical Growth and the Efficient Program of Capital Accumulation" is concerned with the problem of optimum capital accumulation in a two sector growth model, with a utility function depending on consumption. In the paper "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," a simple model of utility maximization is used to study the effects of lifetime uncertainty on consumption and saving. Under the assumption that the consumer is familiar with mortality tables, two cases are investigated. The paper "Traditional Capital Theory" deals consecutively with the two main problems in traditional capital theory, the origin of the rate of interest and the nature of capital as a factor of production.

In so far as the concept of systematic risk is predicated on the Sharpe-Lintner theory of capital market equilibrium [5, 4], the time-horizon of systematic risk must conform with the time-horizon of market equilibrium. Since it has been suggested that market equilibrium is instantaneous [3, p. 188], it would follow that systematic risk should also be instantaneous. This paper is, therefore, concerned with the evaluation and measurement of instantaneous risk. Although Jensen [3] has made a similar attempt in a much larger study, we have reason to believe it is not satisfactory. We shall then begin in Section I by discussing Jensen's approach to the horizon problem. In Section II, an alternative procedure of evaluating systematic risk is suggested. Section III concludes the paper by comparing estimates of instantaneous risks based upon weekly returns of 30 Dow-Jones stocks. The motivation behind the paper is obvious. A correct formulation of instantaneous systematic risk is not only a logical extension of the capital market equilibrium theory but is also a yardstick for measuring portfolio performance in terms of risk and return. [ABSTRACT FROM AUTHOR]

The article discusses the abstracts of several papers on economics published in the 1965 issue of the journal "Kyklos." The first paper of the journal "On the Interpretation of the Just Price," by Samuel Hollander, argues that the just price is related to production costs within the medieval context of social status. The second paper of the journal is "Today's Circumstances and Yesterdays Theories: Malthus on Services," by J.J. Spengler. The third paper of the journal "Sources of Variation in the Capital-Output Ratio in the United States Private Business Sector, 1909-1959," by John E. La Tourette, examines the source of variation in the capital coefficient for the United States private business sector during the 1909-1959 periods. In the paper "Theme and Variations--Remarks on the Kaldorian Distribution Formula," by K.W. Rothschild, the author opines that the Keynesian distribution formula is very useful when considered as a tautological formulation of the coherence between investment, saving and income as circulatory components.

Selecting the best from among competing investment proposals is the most important financial decision problem faced by the managers of enterprises. It confronts every high-ranking decision-maker regardless of the nature of his organization's activity. Corporate executive, public official and university administrator alike must determine, with limited information, how much to invest in a variety of risky projects. Managers have been making these decisions since an overfed Australopithicus Robinson Crusoe decided to save a bone for a weapon rather than crack it for its marrow, but there still exists no fully-accepted objective procedure for optimal investment choice, even on a theoretical level where all problems of measurement are neglected. We believe, however, that the direction of research is dear and that a rapid rate of convergence toward an accepted capital budgeting procedure will soon become apparent. Our paper is intended as a single step (in the right direction). We have not solved the problem completely but we hope to have (a) clarified the remaining unsolved theoretical issues and (b) pointed the way toward practical interim techniques which approximate the exact procedures that will be found someday. [ABSTRACT FROM AUTHOR]

This paper presents the results of an attempt to estimate the rate of return on capital by regression analysis of financial data. A model relating current profits to current and lagged inflows of long-term capital is considered and fitted to a set of data from the British Mechanical Engineering Industry. Both time-series and cross-section data are used. Acquisitions of long-term capital are measured by summing depreciation provisions, retained earnings and receipts from issues of ordinary shares and instruments of long-term debt. [ABSTRACT FROM AUTHOR]

In this paper we present the capital structure theorem within the framework of the theory of investors' behavior towards return and risk. Such an approach constitutes a first step towards integrating the theory of the firm's finance with the theory of investors' behavior. It may also help to clarify the controversy over the capital structure theorem. [ABSTRACT FROM AUTHOR]

This paper will attempt to incorporate an aspect of risk associated with the issuance of debt that has been somewhat neglected, the risk of ruin. Introducing the possibility of ruin means that the initial owners may not realize the profits that they know exist if they continue the "game." This paper focuses on the well-being of the stockholders, not on that of the firm. We will assume the objective of the stock or debt-issue decision is to maximize the risk-adjusted expected value of the initial stockholders' investment where value is measured in terms of present value of future dividends, decreased by a risk adjustment. It is assumed that the stockholders are risk averters. As new stockholders are added to the firm, their interests will be considered identical to those of the initial stockholders. We will study two situations that are somewhat simplified and restricted but that contain sufficient elements of reality so the importance of incorporating ruin considerations in the analysis can be seen. In both situations the market value of the stock is assumed to reflect accurately the expected profitability of the firm. [ABSTRACT FROM AUTHOR]

One of the most fundamental, and most difficult problems in most branches of economic theory is the now familiar one of the" measurement of capital." Most branches of theory, however, ignore the attempts actually being made to measure "capital "--in some instances even the entire problem itself is ignored. Our concern in this short paper is with one such branch of theory,[1] namely, international trade theory, and in that theory with an essential aspect of the so-called factor-proportions theory of the forces that determine the structure of international trade. In this paper we briefly consider the effects on the assessment of relative factor-endowments in two countries when we use alternative methods for measuring the quantity of the factor of production capital that either country possesses. These methods have recently been suggested by capital theorists.[3] 4. There are three main ways in which we can measure overall capital supply, namely:[4] (1) by adding-up the physical units of" capital," as we have already noted; I have dealt with another branch in a forthcoming paper, "Measures of Capital and Definitions of Neutral Technical Progress." 2 See, for example, my recent book, The Ohlin-Heckscher Theory or my paper in the September 1963 issue of the ECONOMIC JOURNAL. 3 Especially, of course, by Mrs. J. Robinson, in her Accumulation of Capital. 4 Robinson, ibid., p. 118. (2) in terms of commodities; and (3) in terms of labour time. [ABSTRACT FROM AUTHOR]

The article discusses the abstracts of several papers on economics published in the October 1965 issue of the "Journal of Political Economy." The first paper of the journal "Nature, Capital and Trade," by Peter B. Kenen, argues that dissatisfaction with the Heckscher-Ohlim model is traceable to the concept of capital used in that model--the supposition that disembodied waiting enters the production functions as a separate input. The second paper "Effects of Professional Licensing Arrangements on Interstate Labor Mobility and Resource Allocation," by Arlene S. Holen, explores the effects of state licensing arrangements and practices in medicine, dentistry, and law on interstate mobility and the allocation of professional labor resources. The third paper of the journal "Toward A General Theory of Customs Unions for Developing Countries," by C.A. Cooper and B.F. Massell, attempts to lay a cornerstone for a more general theory of customs unions in less-developed countries. The gain from a custom union formed by two countries depends on what happens to income and industrial output in both countries.

This article analyzes developments in the 1970 balance of payments in the U.S. Lawrence Krause asked whether the trade balance was tracking its usual relationships to demand changes in the U.S. and abroad. This paper extends his question to (a) the basic balance, defined as the current account plus the net direct investment account and (b) the balance on private financial capital, that is, private capital flows other than direct investment. In 1970 the balance on merchandise trade was $2.2 billion, up from $0.6 billion in 1969. Exports rose from $36.5 billion in 1969 to $42.0 billion in 1970, an increase of $5.6 billion, or 15 percent. Adjusted for the 1969 dock strike, which shifted exports from late 1969 into early 1970, exports rose by 12 percent in 1970, compared with 13 percent in 1969. Imports rose from $35.8 billion in 1969 to $39.8 billion in 1970, an increase of $4.0 billion, or 11 percent. The usual definition of the basic balance includes, above the line, the balance on current account plus net flows of private long-term capital, both direct and portfolio investment. In the wake of the sharp decline of interest rates that began in 1970, there occurred a substantial outflow of private financial capital in 1970, which will probably continue, at a diminished rate, in 1971.

The article discusses the abstracts of several papers on economics published in the October 1965 issue of the journal "Review of Economic Studies." The first paper of the journal "Economic Interrelatedness," by Chiou-Shuang Yan and Edward Ames, describes certain intuitive economic concepts such as specialization, diversification, and interrelatedness, which might be made operational with the aid of an interrelatedness function. The second paper of the journal "Embodied Technical Change and the Existence of an Aggregate Capital Stock," by Franklin M. Fisher, is concerned with the construction of aggregate production functions when labor is optimally allocated to different kinds of capital so as to maximize the output of an homogeneous product. The third paper "Qualitative Economics and the Stability of Equilibrium," by James Quirk and Richard Ruppert, examines the local stability properties of purely qualitative models in the context of an adjustment mechanism. Other papers of the journal are: "Technical Change and the Measurement of Capital and Output," by Peter A. Diamond; "Interest Rates, Forced Saving, and Prices in the Long Run," by J. Niehans; and "On Two-Sector Growth Models," by F.H. Hahn.

The article describes the properties of steady-state growth equilibrium in a model with economic obsolescence of machines. Economist Leif Johansen formalized the idea of ex post rigidity of factor proportions in a vintage-capital growth model with technical progress embodied only in new equipment. For example, the relationship between the economic life of capital and the rate of interest, the uniqueness of growth equilibrium, the needed concavity of the present-value function of profits are all very sensitive to the assumption about the ex ante elasticity of substitution of factors and by assuming the latter to be unity one tends to overlook a rich variety of issues and problems. For each vintage of equipment there is a production relationship of the form. An important feature of a vintage-capital model is that capital in such a model has two dimensions, one intensive, the technique on current machines and the other extensive, the economic lifetime of machines. With both the saving and investment functions negatively sloped, the problem of multiple equilibria arises. The average productivity of labor is always an increasing function of the wage rate. It implies that comparing countries in steady states, the country with the higher wage rate will have a higher productivity of labor.

The article presents comments on Investment Criteria and Empirical Research. In a poor country, where labor is cheap, it necessarily follows that investment funds should be allocated in such a way as to maximize the labor/ investment ratio. It is possible that non-minimum initial labor/ investment ratios might lead to a greater rate of capital accumulation (via reinvestments) and eventually to a higher amount of employment creation. But, the medium-sized firms mentioned in G. Ranis' paper would fit into the phrase "relatively high capital/labor ratios" within the context of their setting. Apart from the human factors, it is the capital/labor ratio that determines output per capita. From this point of view the criterion to be adopted is the one that leads ultimately to the maximum capital/labor ratio. Suggested criterion does not require the assumption that all profits are reinvested or that all wages are consumed. The criterion has meaning precisely because different industries, or different size firms, or different sectors of an economy, may and frequently do reinvest different proportions of their profits.

The article comments on taxation of income from capital. On tax theory, the economist Arnold C. Harberger's views have similarities to the income theory of tax incidence suggested by the author some years ago. Of the taxes mainly under consideration in the present work, individual income, corporate income, and property are asserted to reduce property income. In the present volume and in other publications, Harberger's position is left less dear than might be expected if he were inclined to compare and contrast his theories with those of others, and if readers were not asked to embrace unnecessarily strong assumptions patently at odds with the world of experience. Except for the economist Martin Bailey's, all papers reflect more or less the Harberger approach to economics. This approach has a number of features. Something called capital is a factor of production, and differing effective rates of taxation of income from capital lead to distortion. Capital tends to flow to those uses that provide the largest yields calculated after deducting all taxes except individual income taxes, and these net rates cluster about a single number.

At various times over the last twenty years I have presented classes in finance with cases involving the choice between buying or leasing in acquiring a capital asset, and invariably I have been unhappy with the solutions proposed in the solution manuals and the literature as well as the ones presented by the students. However, my objections to these solutions did not lead to a model that represented a satisfactory general solution to the problem. I therefore read the recent paper on the subject by Johnson and Lewellen with a great deal of interest. Their review of the literature and formulation of the problem was undoubtedly facilitated by thinking on the subject because it has resulted in a model that I believe is both completely general and accurate. My model differs from the Johnson-Lewellen model more or less in the following four areas which are central to the correct treatment of the buy or lease decision: (1) the correct discount rate for a risk free cash flow; (2) a difference in term between the lease payments and the life of the capital asset; (3) differences in risk among the components of the buy and lease cash flows; and (4) neutralizing the implicit debt financing tied into the lease alternative. [ABSTRACT FROM AUTHOR]

The volume of literature on the credit-creating powers of the Euro-dollar market, although small, is growing. This paper contends that the stock of net Euro-dollar deposits (E[sub n]) can be expressed as the product of a Euro-dollar base (B) and a Euro-dollar multiplier (k). As in domestic models, the terms of the multiplier reflect asset choices of the sectors reflected by them. A parallel between the flow of funds within the Euro-dollar market and most domestic banking systems exists. Except that no single institution serves as a Euro-dollar central bank, the two systems are highly comparable. [ABSTRACT FROM AUTHOR]

The article presents a response from Keith V. Smith and John C. Schreiner (S&S) to comments Randolph Westerfield directed towards their paper entitled "A Portfolio Analysis of Conglomerate Diversification," which appeared in a 1969 edition of the "Journal of Finance." Westerfield previously asserted that a measure of diversification used in S&S's paper was inappropriate, insofar as it reflected managerial forecasting ability. The authors disagree and explain why they believe an alternative measure proposed by Westerfield is inappropriate. They do, however, acknowledge that Westerfield's commentary included some interesting theoretical content.

The article looks at the stock market and discusses the paper "The Stock Market: Some Considerations of its Future Structure," by Morris Mendelson. Mendelson claims there will be individual investors in the stock market increasing external equity capital-raising activities for corporations but his research is confusing. The author states that points made by Mendelson about the New York Stock Exchange are false; particularly the one where they feel a crowd of floor brokers is an essential part of an auction market.

That the extent of misuse of "scarce" capital is greater in less-developed economies than in advanced countries opens wide the question of why that should be the case. Two answers that naturally follow from the preceding analysis are (1) that distortions in the factor prices are such that they do not reflect real scarcities or (2) that perversities or rigidities in managerial response are such that production decisions do not respond to those prices. The comprehensive analysis of this subject, however, is left to a separate study. (Another issue which is not discussed has to do with the ratio of the firm's fixed to working capital. Several aspects of this subject have been examined in other contexts: Kim, 1968.)
In this paper the hypothesis that there is under-utilization of capital in less-developed economies has been defended on the basis of the sectoral output-capital ratios (Kim, 1969) and direct estimates from earlier studies (Jorgenson and Griliches, 1967; Kim and Kwon, 1973; Winston, 1971, 1974d). We now hope that, given the plausibility of the hypothesis as suggested here, others may also carry out further studies for other economies in order to measure the degree of utilization directly. [ABSTRACT FROM AUTHOR]

The article comments on an ingenious formulation of the investment demand process. The original feature of the underlying production function is the separate introduction of capital and labor utilization. I would have preferred a measure of the cost of capital that made use of stock prices. I and others have used the dividend-price ratio for this purpose. Earnings fluctuate too much, while in a world in which firms tend to stabilize dividends on the basis of expected profits, dividends offer a measure of expected earning. Of course, there is error in this measure, just as there is in attempting to calculate real interest rates from nominal rates, or in assuming that the risk premium that investors require is constant over time. Saul Hymans pointed out that 1968 and 1969 were good years for investigating the effects on investment of labor bottlenecks; thus they could not be used to distinguish a bottleneck effect from the expectations effect that R.J. Gordon. Several discussants were concerned about the inability of the model to produce sensible long-run elasticities of the capital stock with respect to output. Robert Hall noted that this difficulty frequently arose with investment demand models when the a priori restrictions of the neoclassical formulation were relaxed. He did not know what confidence to place in short-run characteristics estimated by the model when these estimates implied a violation of sensible long-run characteristics such as the eventual doubling of capital stock if output were doubled.

Theorizing about the incidence of the corporation tax has reached a point where empirical testing is sorely needed. This does not mean simple observation of overall results but a serious effort to isolate the effects of tax rate changes on the relevant variables. This article presents comments on economist Challis A. Hall's paper on this topic. To begin with the most obvious point, Hall's margin of victory — 97.22 percent of deflated hourly output accounted for with the no-shift assumption and 94.55 percent with the full sales shift — seems much too slim to yield more than the most tentative suggestion. Throughout the paper, very little is said about the quality of the data, their statistical properties, or the nature of the many complex adjustments involved, including especially the physical measure of capital and allowance for changes in the degree of capital use. The basic idea of Hall's paper is an attractive one. If the true adjustment for technical progress as well as the shape of the production function were known by divine inspiration, obtaining a distinctly superior fit with use of the pre-tax profit data would indeed lend support to the no-shift hypothesis.

A good survey lecture should provide the listener with a set of intellectual calisthenics, beginning with warming-up exercises and gradually building up to feats of reasoning that stretch the mental capacities of the audience. Judged by that standard, economist James Tobin has provided with a first-class performance. His paper begins with some apparently self-evident commonplaces, which nevertheless effortlessly tidy away many of the conceptual confusions that have plagued current discussions of economic growth as an object of policy, but thereafter his argument becomes increasingly complex, until at the end he is bringing to bear on the question of growth policy the most elegant proposition of modern capital theory — the golden rule of accumulation. In the main lines of his lecture, Professor Tobin presents and defends what may conveniently be described as the position of the two-G growth man, that is, he favors growth, and he favors government action to increase saving and investment as a means of increasing growth. This position he contrasts with what may be termed the no-G growth position, which he describes as the neutrality of government position and holds up to easy ridicule. This article discusses some of the issues and points out that the problem of growth policy raises some deep issues of political philosophy, which Professor Tobin does not adequately recognizes.

The article highlights that there are few areas of economic statistics in which progress is needed more and would be more valuable than in the measurement of capital. Capital measures are essential for analysis of investment demand, factor prices and inputs, production functions, and productivity. They are thus requisite to empirical study of economic fluctuations and growth generally and as a background for stabilization policy and development planning. The article focuses on various aspects of capital theory that are relevant to capital measurement. It also critically examines the false paths that have been taken in the direction of quantification. In an annexure to this paper are set forth some positive suggestions for solution of several of the major problems confronting the statistician who seeks to measure capital as a weighted aggregate stock. The alternative measures discussed in the paper show that the same rates of change in a hypothetical state of competitive equilibrium exists, with perfect knowledge, with technology and tastes constant, assuming proportionate and steady growth of the real capital stock and labor force. As soon as technological progress is introduced, the measures diverge.

The article presents authors' comments on various research papers on capital productivity and investment analysis. The article says that in the research paper by economist Otto Eckstein is perhaps a little too hard on capital theory. It adds that even if capital theory were entirely satisfactory on its own terms, in presenting the implications efficiency in production of maximization subject only to given endowments and the current technology, much of importance to the planner would be left out including direct interaction between allocation, tastes, and technology. Moreover, there exists a lot of non-economic organizational values and non-probabilistic uncertainty. The article further comments on the research paper given by economist Jack Hirshleifer. The paper highlights that investment decisions have a twofold characteristic. They require certain present wealth to be sacrificed in order to obtain future wealth or income and the future wealth so obtained is uncertain. Rarely can an investment be so perfectly hedged that it can be analyzed entirely in terms of time preference. Similarly, in long-term investment decisions one cannot ignore time preference and consider only the risk dimension. Time and risk are joint attributes of the typical investment.

Economists have long discussed the role in general economic development of the rapid exploitation of innovations especially those requiring immense amounts of capital. Some enthusiasts in looking at the comparative prosperity of the decade of the 1920's have pointed to motor vehicles, the most obvious feature of that prosperity, as the main cause. Actually, investment directly occasioned by the development and growing use of motor vehicles, although very large in the aggregate, was not predominant in the total of new investment in the period of so-called "plateau of prosperity," 1923 to 1929, inclusive. Rather, the automotive development of the period was one of several which provided opportunities for large aggregates of new investment. The rapid developments held to be the driving force of capitalism are said to produce "maladjustments" or "distortions in the structure of production. The conclusions reached in the paper were that during the period 1929-37 the American economy was stagnant and probably slightly contracting relatively to the population.

The article presents a discussion on the tendencies in economic theory. One argues that little or nothing worth has been accomplished in theory during the last thirty years and there is little really left to do. Another says that it is just an evaluation of results and of possible tasks which textbooks in economics have furnished. For example, the subject of trade unionism is badly in need of a general, even if tentative, statement of results. The clear vision and the sense of relative values which such a text would impart should suggest to the workers in the field the tasks which are really most worth doing. Another has put forward his view that much of the economic theory has been static theory, concerned with "normal equilibria" and delicate marginal adjustments, resting on the assumptions of a fluid market where labor, capital, and goods are perfectly mobile. If these assumptions were true, money would, indeed, be a meaningless "cloak," obscuring the real forces at work. It is, moreover, quite grotesque for static theory to offer itself as a support for its own foundation. A static or "normal" theory of money and credit, resting on the notion of accomplished equilibrium, after transitional changes have been effected, misses the main point as to the function of money and credit. Static theory which assumes frictionless fluidity, misses the whole point concerning money and credit. A functional theory of money and credit must be a dynamic theory, basing itself on an analysis of friction, of transitions and the like.

This article discusses labor quality, returns to scale and the elasticity of factor substitution. It was expected after the introduction of the constant-elasticity-of-substitution production function in 1961 that the question of the existence of factor reversal would soon be settled. The problem of estimating the elasticity of substitution between capital and labor in the production functions of differing industries and determining whether these elasticities varied widely or were basically the same was reduced to the apparently simple one. After a lapse of eight years, however, the existence of factor reversal is still an unresolved question. The objective of the present paper is to determine whether the elasticity of substitution between capital and labor varies significantly between industries by means of a method which eliminates some of the sources of bias to which economist Marc Nerlove refers. The article presents a theoretical consideration. This is a two-factor model, capital being assumed to include land and natural resources.

The section comments on an article published in August 1967 issue of the Quarterly Journal of Economics about fiscal and monetary policies under alternative exchange rate systems. The verbal description of the basic model employed in the cited paper stated correctly that the value of foreign exchange reserves forms part of the base of the money supply while the balance of autonomous foreign payments on current and capital account equals its rate of change. Under the stated assumptions, including perfect price rigidity at less than full employment, the correct model for the case of constant exchange rates based on equations, assuming that units are defined in such a way that the value of the rate equals unity. The money supply is assumed to be proportional to central bank liabilities and in turn, equal the sum of central bank claims on domestic residents and foreign exchange reserves and their rate of change. The application of monetary policy induces an equivalent change of exchange reserves in the opposite direction and the long-run equilibrium value of the money supply will remain unchanged. Changes of the money supply will then, of only feasible for the short run. A more realistic model would also have to take account of the nature of internationally mobile funds as a stock. For a constant interest differential to the rest of the world, capital flows would presumably approach zero over time.

One of the greatest events in accounting history was the International Congress on Accounting, held in New York during the week of September 9, 1929. Despite the variation in laws governing accountancy and in the forms in which accounting practice is conducts, a remarkable unanimity was recognized by everybody as existing in the problems faced by the profession throughout the world. There are two views rather definitely set professional auditing over against social economics; they contrast shareholder's desire for information concerning the remainders of original investments with managers' desires for information concerning the intricate details of profit making. To apply reproduction costs to the balance sheet would place the statement, therefore, in conflict with prudence and the sound principle of realized profit only. But on the other hand, the author points out, to apply only past costs in cost accounting would be to deprive the management of current information very necessary to proper market judgment, for competition is going to be most felt from those who most recently bought in the market and thus have secured a tangible new base for their pricing policy.

This section presents abstracts of papers published in the December 1964 issue of the journal "Statsøkonomisk Tidsskrift." In the paper "On the "Own" Capital of the Savings Banks," the author presents a simple dynamic model for the development over time of the own capital of the Norwegian savings banks. Unlike the commercial banks, the savings banks cannot increase their own capital by subscription of shares. The only way in which the savings banks can increase their own capital is by retention of their net earnings. Therefore, the model is based on the assumption that the rate of increase in the own capital of the savings banks is a constant proportion of the average value of their total assets. The paper "Economic Growth and Social Change" considers economic change in primitive societies from the point of view of social anthropology. Special attention is devoted to the development of markets, and their repercussion on the structure of production as well as on the legal and institutional superstructure. "Component Parts of the Number of Births" presents the results of an investigation of Norwegian data on the number of births since 1920. The number of births is thought of as determined by three factors: the number of females in the reproductive age groups; the marriage frequency; the number of children per marriage.

The theoretical analysis set forth in Section I shows that while the capital controls programs initially improve the balance of payments, this initial effect can be reversed after a time. The dynamic simulations over the period 1965:2- 1970:4 presented in Section II suggest the estimate of the control's effect in the initial year is an improvement of approximately $4.5 billion in the liquidity balance. Also, the effects are estimated to diminish gradually and continuously to an annual rate of some $2.8 billion after 5 years. [ABSTRACT FROM AUTHOR]

The article examines the functions and implications of bank capital for commercial banks. Traditionally capital has served to protect depositors from loss and instill confidence in the banking system. The author presents analysis showing that bank capital also influences a bank's financial management by modifying the maturity framework of liabilities. Although more capital is always better from a depositor's perspective, it is shown that, from the viewpoint of the bank's shareholders, an optimal capital position can be identified in principle.

This article presents a reply by the author to critiques by Robert L. Litzenberger and Charles P. Jones, and Robert A. Haugen and James L. Pappas to his work on capital structure theorem. He wishes to incorporate investor diversification among multiple assets into his theorem but he states that removing diversification contraints will not change his cost of capital theorem. Even when equilibrium in the securities market is reached, the author asserts the theorem holds up because if a firm increases its financial leverage the investor can buy both stock and bonds.