Capital and Money in Hungary (2)

Capital and Money in Hungary  (continued)

My 1991 London paper as cited in 2014.11.27. 21:29 Minnesota

1.5. Financial capital in Eastern Europe

Everybody seems to agree on that Eastern Europe badly needs working capital imports but few analysts deal with the development of financial markets as their precondition. Financial markets are the realm of financial capital existing in interaction with working capital. Capital value expressed by stock prices is different from the reproduction and goodwill value of real assets. The ratio of stock exchange value and reproductory value is an important regulator of real investments. /12/ Generous tax exemptions and other measures have created incentives for working capital import into Hungary. Lack of normal telecommunication, bureaucracy and transitional risks create obstacles which can be counterbalanced only by seducing financial conditions.

Though Hungary boasts of the highest among newly emerging democracies speed of direct foreign investments the volume of their inflow is lagging behind the needs. The overruling of some takeovers already done somewhat worsened the whole climate for capital involvement. But securities markets remain all the time bearish owing to the high speed of inflation and not to some penniwise financial import policy measures. Financial markets are to be built up not only out of domestic savings which are poor but also by way of international capital involvement. Working capital imports are by no means the only alternative to growing indebtedness. Import of financial capital should be relied on to a much higher degree. This factor requires development of financial markets, which, for the beginning would not surely be ‘efficient’ ones. But if their regulation complies with business requirements exposure to foreign capital inflows might help them soon to attain a necessary degree of clearing power. So if policy-makers want to have efficient markets, first they should promote the development of any markets. And if they want to have more working capital imports they should create incentives also to non-working i.e. financial capital imports.

The above cannot be attained without letting all the national capital work and bring profits to the investors who should be able to reallocate their funds to business activities with expected higher returns. Financial markets are the most powerful instruments of capital reallocation. And corporate structure of industry and service /cf.1.2./ (cf. marks cross-references to this paper) is the most eminent purpose for their existence.

1.6. Corporations

In accordance with some earlier analyses in a 1981 public discussion this writer brought forward a proposal for transformation of state enterprises into corporations. A book in line with this idea in application to the then existing and now anachronistical situation was published in 1983 and its shorter English version in 1984. /13/ Some professional conclusions have been reproduced in quite a few economic documents of both the recent administration and its opposition. A system of business enterprises based on the functional division between owners and enterpreneurs was the gist of the proposed practice. The bearing of the risk that goes with investments was selected as a base of enterpreneurial gain or loss. Reducing of the state property and confining the state activities to macro-economic policy, a social safety-net, resarch-development and environmental issues were said to be preconditions for this type of business culture. The proposal offered a wide factor liberalisation program on the level of risk takers. If the managers were willing to pay higher wages they would have to withdraw funds from some other allocations, e.g. investments providing there was an adequate monetary policy. As regards capital involvement the managers were to attain the same wide range of autonomy as in production and employment decisions. The establishment of a bond and stock exchange was also propounded in 1981. The above was concluded by an initiative to establish a Bank of emission functioning independently of the government. Proposals on currency convertibility were made earlier.

The above mentioned strategy envisaged reducing the complex form of collective ownership by incorporation to the simple form of individual ownership. Thus state property might have attained a new character: it were to act in relation to other owners as a single individual. /Legal experts created a complementary theory to the effect that if the enterprizes are incorporated the state ceases to be an owner as an actor of public law. It can retain its holdings as a subject of private law./ Securities are the proper titles of ownership for profit oriented private owners. As any other owner the state is interested in dividends, bonds and shares prices, yields, etc. This sector may be significant in Central and Eastern Europe, where, apart from some other reasons, due to constraints to domestic purchasing power and limited foreign interest in real investments the state will remain a largest owner of assets in some industries for a long time to come. The strategy propounded in the early eighties /see above/ included practical suggestions on the issue. The majority of corporations would belong to portfolio firms and investment banks with the controlling package of them remaining in some cases with government institutions within a stepwise system of participation. This pattern cannot give an overall solution to the problem of state enterprises. It can be efficient only in the framework of extensive business relations as their partial but not dominating sector.

The privatisation of a considerable part of the state property remains an exigency. As it appears against the background of specific circumstances it is distinct from its theoretical model. To take it in the only context of abstract theory when arguing for or against a given decision in a given country would not be quite appropriate. An explicitly theoretical line of thought will be referred to under the next subheading.

1.7. Privatisation

Although no limitations to privatisation can be found in neoclassical theory /14/ no exclusive importance to property issues is attributed either. As evidenced by international comparisons the relative efficiency of public as against private ownership depends on a variety of factors, incl. the efficacy of capital market monitoring, the way of the public decision-making and the managerial market. /15/

Profit maximisation is considered as an ultima ratio of decisions concerning privatisation. In contrast to this ultima ratio there is strong evidence for that firms deviate from strict neo-classical behaviour viewn as short-run profit maximisation. That is explained partially by game theory and neo-institutional theory. /16/ In capital theory the wealth-preserving function is no less important so that what used to be considered as a single motivation is broken down /with respect to profit flows and capital stocks/ into profit maximisation and risk diversity maximisation /cf.1.4./ This ramification applies also to the above issue. It is not meant to define the exact boundaries of remaining state property but gives it a capital-orientation. Apart from public goods and providing externalia for the private business the remainder of the state property itself should function in a businesslike way represented not only by profits but also by capital gains.

The dilemma of state versus private would be oversimplified without a historical reflection. According to the analysis of economic backwardness from a historic perspective made by A.Gerschenkron in Western Europe individual private capital, in the East the state and in some other, mainly central regions business banks were the engine of accumulation and industrialisation. Banks represent private but as typical not individual capital. Although not any typology is of exclusive validity this one seems to apply with some necessary modifications. When individual capital is weak and state capital slopes downward, financial mediators /and not only banks/ may acquire a considerable place in ownership and redistributive relations.

That role of state which is predicted to remain more important than in Western countries can also be performed by way of public participation in bank ownership. Mixed ownership is another option in addition to privatisation or nationalisation.

Even in some most developed countries there is a link between crediting and ownership. A good part of firms relies on the same bank in every respect. A work quoted above /16/ has proved on grounds of Swedish evidence that a bank that is a principal creditor of a firm is likely to become its main supporter also in bond issuance and ownership contracts. Antitrust or general antimonopolistic regulation prohibits only the excesses in this relations. Long-term principal bank relations are associated with high rates of technical progress for example in Japan where firms rely to much less extent on equity capital then the American ones. Comparisons between France and Great-Britain /15/ show somewhat similar differences.

In Central and Eastern Europe the speed of privatisation relates also to specific circumstances of countries in question which pertains to the multidisciplinary theory of transformation.

1.8. Process of transformation

In Central and Eastern Europe several types of changes are going on. Systemic changes represent one type. Under the heading of another type is a secular evolutionary process of modernization including moving away from peripherical situations,from authoritarian rule that was in existence well before it flourished in one-party states. Some Weberian secularisation aspects of modernisation were even forcefully promoted. But the Luhmanian requirement regarding the economy as a functionally autonomous social subsystem was not lived up to. This is regarded even a more general failure than the one embodied in distorted ownership relations./17/

The third type of change is connected with achieving high technological standards, developing postindustrial features of a modern society based on information. One has to bear in mind the new quality of capital briefly referred to /cf.1.1./. It has been unrecognisably different from its previous untransformed versions. The modus operandi has preserved its essential nature but in the context of a new social organism. Its important regeneration in a century and especially in the last fifty years gives a powerful impetus to the development of this social pattern also in other parts of the world. As a consequence, the appeal of capital is to be taken in account as the environment of transformation of the Eastern half of Europe.

A fourth type is represented by the swift restructuring of the whole world: the international aspect which, in the highly sensitive European space comprises many new security problems. Even apart from them this continent is going to acquire a new identity. The E.C. membership may double in ten years. With the republics of former Eastern federal states it may treble within some years after the end of the millenium.

The fifth type of change is the worsening standard of life that is not unnaturely a most sensitive and dangerous issue. It began in the early eighties /in Hungary/. It is the background of social and political upheavals in Eastern Europe.

These processes interact. They have prompt, short run and long-range sequential layers which also intermingle. These inter-temporal, inter-spatial, and inter-dimensional cross-relations are not to be forgotten when one thinks of the specifics of each process. Change always supposes also continuity even if they combine differently in dramatic and epic phases. Continuity does not relate to everything: there are vectors that must cease to exist. The ‘command’ systemic vector belongs here in our time.

East-European history has produced a type of mutant societies which, in some crucial aspects, are not related to the same classificational dimension as the ‘feudal’ or ‘capitalist’ ones are. Particularly, in feudal times an antiintelectual establishment was not anachronistic like the one in the XX-th century. The animal-farm tale has been supplemented by new actors. The policies of the rhinoceros-like nomenclatura most perfectly personified by some soviet leaders of the seventies and eighties sometimes looked like a purposeful attempt to prove the historical inadequacy of the whole setup.

Mutation notwithstanding the past is not described exhaustively by it. The life of nations was richer than that. One cannot state that in 40 or 70 years of a nation’s life everything was evil. A mutant developmental path was not unrelated to its previous history even if it may not be explained away by earlier events. Analysis includes efforts to avoid biases of ideological thinking in terms of absolute priorities. The market system is better in comparison with the command one but there is no such thing as a perfect system. Nor the market can function without some public regulation. Pure systems anyway exist only in abstraction. In reality they always combine. Market does not combine with the command system but with regulating impulses coming from outside of it.

Politicians as against researchers incl. political scientists sometimes identify the transition to a new system with any important issues on agenda. Systemic dimension, however crucial, is not the only one. It cannot explain such simple things as different economic performance across European country borders, not to mention the Japan phenomenon. An exclusively systemic approach reflects a European way of thinking. For a major part of the world underdevelopment and starvation remain the first problem. From that some ‘command appeal’ emerges and remains in existence whenever the populace can be convinced that there is more food under dictatorship. If there is neither food nor democracy nothing remains of this belief. Command society eliminated, other dimensions or vectors continue, no matter how one likes them. For example, nationalism. But economists should warn first of all against miserable material conditions. Ethnic violence is linked not only to cultural traditions. Well to do people rarely have propensity to kill each other on grounds of ethnic diversity.

By social transformation we mean an extremal in its complexity historic matrix. From this angle the systemic change proper is but a part of a whole and, consequently, should not substitute for the whole.

1.9. A compensation problem.

The texture of national organism emerging from history determines also the social and economic contents of business culture and its implications on the speed of privatization. /cf.1.6./ Systemic transition, being a part of a whole /cf.1.8/, nevertheless is a complex issue in itself and is a deeper qualitative change than the one under way in Western societies. It is more extensive and intensive than any process of deregulation in market economies. The former include such a wide factor liberalisation as to allow the general transformation of property relations. In the field of capital movements the changes also exceed the problem of deregulation in a market economy, for deregulation is not as same as the development of financial market itself. Complexities of the situation may be demonstrated on the evidence of financial problems of denationalisation.

In Hungarian experience the revenue from privatisation is directed to the paying off state debt which is approximately 21 billion dollars or 1300 billion forints (1990 data). Some schemas of privatization credits were implemented. Refraining from the detailed examination of this process the compensation which is paid to former private owners instead of reprivatisation should be mentioned as a particularly sensitive issue linked to it.

Compensation is being paid in form of securities, it can be used for the purchase of new property. /19/ It limits state revenues from privatisation and somewhat slows down the above mentioned
paying off of the state debt. The opposition holds the view that all this is equal to diluting money because the securities can be sold while the government states that the measure does not touch upon macroeconomic equilibrium.

Both are in the wrong. The measure does not involve additional money supply or slow down economic growth which is slow /negative/ anyway. It is not a direct inflationary move. But it dilutes securities in the sense that for the same assets the state will be paid less money, because a part
of the securities will not be sold but distributed in the form of compensation. By limiting state revenues future equilibrium efforts may be weekened. To minimise this danger the compensation is gradualised in time, it will take about five years or more, owing to which it is not the compensation that will reduce the purchasing power of money but the diminishing of the latter will reduce the real sum of the compensation. The matter will boil down to a symbolic political gesture. But this is beyond the concern of economic researchers.



My 1991 London paper as cited in Italo Romano 2014.11.24. 16:38:54

First Part

Karoly Foldes


The first part of this paper examines capital as an ownership phenomenon of monetary nature. It is written with the purpose of giving an as explicit as possible qualitative account on some theoretical assumptions within the limited boundaries of the matter in question and of space. Practical ownership relations are assessed with regard to this orientation. The review of literature is concentrated here. A section is devoted to the broad complex of social transformation which is connected with the narrow subject by many links. The second part is an updated English summary of some works published by the author for the last twenty years in Hungarian. It deals with several capital related attributes of a monetary system. Conclusions on Hungarian macro-equilibrium trends are concentrated here and not repeated separately.

The choice of topics is motivated by the question whither go newly emerging democracies. Insofar as capital is a part of the answer to this question its modus operandi falls within that choice. What this paper has been trying to do is to assess this mode of working as a diagnostical orientation for transformational processes. That includes a trouble-shooting approach to actual decisions as well as programs of incumbent and would-be decision-makers. They are expected to perceive inquiries into the situation /needless to say, not this only one/ as a kind of software designed for users like them but not dependent on them. Criticism of policy coming from this part is no political judgment and should be distanced from partisan debates.

The paper represents but a modest fraction of Hungarian views on economic matters. Some salient capital phenomena could not be elucidated in it. Particularly, a lot of works on measuring capital and capital-output ratio, the impact of capital on growth and the influence of interest rates on investments have been published. The problems just mentioned have been scrutinized by a number of international academic panels the first of which, after World War II. was held, to our knowledge,in 1958. /1/ (References: See at the end.)

Capital is perceived as a business-like behaviour with respect to property in the context of imperfect markets. This viewpoint would be incompatible with lines of thought theoretically eliminating capital. They are tolerated as well, but here the matter has to be presented on a lower level of abstraction. Definitions will not be discussed.

1.1. Capital and labour

Insofar as social transformation includes the adoption of some first principles it seems to be appropriate to begin this part with a brief remark on a question pertaining to them.

There exists a kind of functional complementarity between capital and labour within the boundaries of their mutual substitution and competitive relations. Capital embodies human intellect while
labour represents human capital to a growing extent. In creative work these two sides may merge into one blend. As a rule, skilled labour is propertied. Millions of small business units are based on a personal union between capital and labour. Together with wage-earners living at middle class level they maintain social stability. This electorate is changing its cyclical allegiance.

XIX-th century capitalism with its crude type of free market gone for good, transformation of Eastern and Central Europe is not aimed at its restoration. There is no substantial confrontation between capital and labour there. In Poland, it was labour that created conditions for the functioning of capital. In Hungary, labour and capital have been fighting together against some ill-conceived measures of the administration, against inflationary pressures.

Another, well-known to specialists link between capital and labour this author has just come across. Self-management is likely to generate some special wage-differentials which may be attributed either to capital market or labour market imperfections existing owing to this system. These two do not exlude each other./2/ And in both cases it is the management of capital by labour that creates this particular pattern of wage determination.

1.2. Capital and time

A transformation process from the domination of preserving social attitudes to the innovating ones is under way. The theory of innovation in its original form /3/ deals with “new combinations” which is also a key problem of present endeavours at structural change with the entrepreneur as the key problem-solving actor of the whole setup. He or she works in an environment of disequilibrium, his or her space of choice is under the influence of this state of affairs. One of the main functions of an
enterpreneur as a market actor is to transform input informations received from this space into output informations, i.e. decisions. The decisions of market actors are interdependent under cooperative or non-cooperative game conditions.

Regarding phenomena in question a fairly considerable part of entrepreneurial activity is engaged in corporations, which are regarded by law as persons distinct from the individuals who in fact compose them. Thus in the English Law of the Persons a corporation is distinct from the directors, and from the shareholders (if any) who are its creditors by contract,and from the beneficiaries (if any) for whom it holds property in trust.

In cases when capital from outside is engaged in a corporation in the form of loans, and also bonds, shares and other securities, prompt money of the investors was exchanged for future money of the company. Future is uncertain. Terminal deals, at least partially, harmonise expectations in connection with this uncertain future. Central authorities are unable to do so. Stock-like dynamics, investor-corporation relations, non-stationary conditions which a futures economy as against an imagined prompt economy is based on evolve out of the profit drive of the capital and its wealth-preserving function. The proper context of the time-problem is the management of the capital of other people by a fairly considerable part of business activity. This peculiar function of entrepreneurship as opposed to ownership is a conspicuous feature of modern capital.

Dynamic economics, particularly in Hicks, gives utmost care to the time elapsed between resource involvement, factor combination and output under non-stationary state, when needs, technology and
resources change. /4/ This concept of time as against others, like that of Bohm-Bawerk is given a well deserved preference in the economic literature.

1.3. Capital as a wealth preserver

A general feature of the capital is that its yield over the whole life-cycle surpasses its original costs. /5/ In Tobin, capital as a yield-producing reservoir of wealth and value stands in both substitution and complementary relation with monetary tools, non-monetary wealth and foreign capital. The market of non-capital and non-monetary wealth-holders influences the valuation of productive capital. And though there is no clear-cut line of demarcation between capital stocks and money flows, still there is an undeniable difference between them. Return rates or yield rates mediate between the dynamics of money flows and the dynamics of capital stocks.

The above considerations of economics have recently much more relevance to the development of capital economy then the erstwhile mutual critique of neoclassical and Post-Keynesian authors. And these lines of thought, very much confrontational in times of the Cambridge contraversy (exhaustively examined in a recent history of the question) /6/ have in the meantime adapted to each other to a considerable degree. For example, in the analysis of the demand and supply of wealth preservers the relationship of which depends, inter alia, on preferences concerning the structure of wealth; on the constraints of substitution between different wealth-preservers; and on expectations about the dynamics of interests, dividends and prices.

There remains a divergence of opinion among various schools with respect to these complex (to be briefly mentioned under the next, 1.4. subheading) but the impossibility of satisfying at once all the optimum requirements of social choice /7/ now appears to be generally accepted. Lack of dictatorship would have been one of the requirements of optimal choice. State influence as well as organisational and situational oligopolies and monopsonies create elements of dictatorship even in market economies, not to mention command systems. As to which theories are most likely to give the most comprehensive behavioural orientation game theory and Simon’s bounded rationality theory are to be mentioned. The latter comprises logical and metalogical foundations of second best decisions. Portfolio selection belongs here.

1.4. Portfolio selection

In Markowitz, there are three major ways in which portfolio theory differs from the theory of the firm and the theory of the consumer. First, it is concerned with investors rather than manufacturing firms or consumers. Second, it is concerned with economic agents who act under uncertainty. Third,it is a theory which can be used to direct practice, at least by large /usually institutional/ investors with sufficient computer and database resources.

The first of these needs no further comment. As far as the second is concerned the neoclassical theory assumes that the competitive firm knows the price at which it will sell the goods it produces. That is what should not be assumed in the analysis of investor behaviour. The existence of uncertainty is essential for the latter. One of its main features i.e. diversification is aimed at reducing uncertainty. /8/ The reader recognises here a problem-setting which traces from Frank Knight.

The third difference is connected with the approximate method of portfolio selection “Thus we prefer an approximate method which is computationally feasible to a precise one which cannot be computed. I believe that this is the point at which Kenneth Arrow’s work on the economics of uncertainty diverges from mine.” /9/ Basic dimensions of a portfolio are the expected returns and its variance. Portfolio components with variances complementing each other in time contribute to maximisation of risk diversification. The risk of an asset is seen as its contribution to the risk of the aggregate portfolio.

In Sharpe the ‘beta value’ of a share indicates its marginal contribution to the risk of the entire portfolio. A beta coefficient greater than 1 shows an above-average effect on the risk of the aggregate portfolio. In an efficient capital market,the risk premium and the expected return on an asset will wary according to this coefficient. /10/ This rather simple method of computation shows the percentage of profit rate growth on a given investment as a result of 1% growth of the average rate. It boils down to an elasticity computation. Worth of mentioning is that average rate stands here not for the whole of the exchange but for some index of a group of securities, e.g. Dow-Jones index. The method is widely used by price experts of financial markets.

Experts analysis however is not the only possible way of portfolio selection. In non-scientific professional publications some curious comparisons are made in this respect. A recent article has illustrated four methods of assembling a portfolio, that is to say the experts’, the directors’ choice, the high yield, and the random. The first group of decision makers is selected out of analysts, fund managers and stockbrokers of the City. The second group consists of directors,who bought shares in their own companies in accordance with law. The importance of these two methods goes without saying. The third one is a high yield portfolio. In the short term, the benefit is a high income, in the longer term the investors enjoy capital growth as the yield falls. The fourth method works as dartboard players do. The article quotes a theory that a chimpanzee armed with a set of darts can perform just as well at stock-picking as a sophisticated fund manager, with all his computers and balance sheet analysis.

The existing share price reflects all the currently known information about a company. The price can be affected by “new” information which cannot be known. Accordingly,a random selection of stocks is likely to grow as quickly as a professionally chosen portfolio of shares. /11/ But, to the contrary, enterpreneurial imagination based on professional expertise demonstrated for example by the Soros-story may give better performance on the long run. There is no space here to demonstrate a most exciting aspect of portfolio decisions, namely, diversification into foreign currencies and securities.

Európai munkanélküliség a múlt század végén

(Földes Károly:

Az európai munkanélküliség tényei és összefüggései. Tanulmányrészlet, 1999.)

1. Kiinduló helyzetfelmérés

Bevezető tájékozódásra alkalmasnak látszik a tárgy mértékrendjeinek, mennyiségi viszonyainak tanulmányozása. Ehhez az EU-térség mellett két nagyobb és két közepes lélekszámú tengerentúli ország mutatóit használom fel. (USA, Kanada, Japán, Ausztrália), továbbá egyes olyan európai országokét, amelyek nem minden statisztikai megfigyelés idején voltak, (csak az utóbbi időben lettek) EU tagok. Néhány kisebb EU tag egyes időszakokra vonatkozó jelzőszámait, helykímélés okán, nem nyomtatom ki.

A munkanélküliség összetett jelenségét néhány egyszerűbb elemre törekszem visszavezetni. Ehhez meg kell vizsgálni kapcsolatát más helyzeti és folyamati ismérvekkel. A kapcsolat lehet oksági, vagy ennél gyengébb, például funkcionális jellegű és egyszerűen rendezési összefüggés, ami minden további tanulmány alapját jelenti. Ezeket az egyes országok összehasonlítása alapján próbálom elkülöníteni. Ezután kerül sor az idősorok részletesebb vizsgálatára. Az első megközelítésben inkább az idősori átlagok országok közötti összehasonlítása történik, a másodikban pedig az időszakok közötti változásokon lesz a hangsúly. Mindezt egyfajta nyelvezet interspatiális és intertemporális elemzésként különbözteti meg. Talán elegendő, ha ehelyett földrajzi egységekre , illetve történelmi időpontokra , szakaszokra vonatkozó ismérvek összevetéséről beszélünk. Jelen esetben, míg az első feladat nehezebbnek, a második fontosabbnak ígérkezik, mert ez jelenti a fejlődési tendenciák vizsgálatát.

Kezdetként a nyolcvanas évek néhány országos mérőszámáról lesz szó.

Rövidítések: angol országnevek első két betűje, ill. AUS: Ausztrália, AU: Ausztria. GE: Németország (nyugati része), B+L: Belgium és Luxemburg. Forrás: The World Competitiveness Report, IMD-World Economic Forum, 1991. A részben eltérő

statisztikai felépítések miatt fejezetrészenként homogén forrásokból állítottam össze néhány adatsort míg a készen átvett táblázatokat a Függelék tartalmazza.

1.1 Reál GDP átlagos évi növekedése, 1983-1989 (a továbbiakban: növekedési ráta)

1.2 Foglalkoztatás átlagos évi növekedése, 1981-1989, %

1.3 Munkanélküliség az aktív lakosság %-ában, 1989

Ország 1.1 1.2 1.3
AUS 4.55 2.51 6.13
AU 2.54 2.24 3.16
B+L 2.64 0.16 8.60
CA 4.41 1.59 7.54
FR 2.56 0.26 9.38
GE 2.77 1.03 5.61
GR 2.27 0.47 7.89
IR 3.42 -0.46 15.63
IT 3.09 0.06 12.09
JA 4.60 1.17 2.29
NE 2.46 -0,43 7.37
SP 3.94 1.20 17.09
SW 2.62 0.70 1.35
UK 3.35 1.23 6.17
US 3.87 1.97 5.27

Az 1.1 oszlophoz képest a 81-82 es válságévek figyelembe vétele (amit jelen forrás nem tartalmaz) alacsonyabb átlagokat eredményez, de ez láthatólag nem szüntetheti meg a nagy különbséget az 1.1 és az 1.2 dinamikái között. A foglalkoztatás növekedése ebben az adatsorban többnyire 2-3 százalékponttal elmarad a “növekedési ráta” mögött. Ezt kielégítően magyarázza az alább kimutatott termelékenységi tényező (1.10). Ami az 1.3 oszlopot illeti, ez a jelek szerint nincs pozitív korellációban az előző két vektorral. Szóródási pontjai nem “sorakoznak” össze, akár az első, akár a második oszlop számsorát tekintenénk független változónak. Tehát tovább keresendő, hogy az eligazodás jelenlegi szakaszán még kaotikus mértékhalmaz (3.1) mögött van-e rend. Ehhez strukturális elemeket is ismerni kell. Egymással részben ellentétes irányu helyzet- és folyamatjelzőkről lehet szó, amelyek nagyobb csoportokban kezelhetők. Kezdjük a képzési csoporttal:

1.4 Vállalaton belüli átképzés eredményessége, rangsorszám

1.5 Képzési költség/fő, 1988, rangsorszám, + 15 évesnél idősebb analfabéták aránya

1.6 Egyetemet végzettek aránya, 1987

Ország 1.4 1.5 1.6
AUS 11 14 +1.0 7.52
AU 6 10 +na 4.76
B+L 9 13 +na 13.24
CA 20 3 +4.0 12.15
FR 18 11 +1.0 na
GE 3 12 +na 4.52
GR 15 22 +6.8 na
IR 8 18 +na na
IT 12 17 +2.9 4.58
JA 1 9 +na 11.53
NE 7 8 + na 4.01
SP 16 19 + 4.6 3.05
SW 5 4 +na 10.86
UK 22 15 +1.0 15.75
US 17 6 +0.5 19.19

Az 1.4 mutatóban elért előkelő helyezés csak néhány országban járt együtt alacsony , vagy közepes munkanélküliséggel (JA, GE, SW, NE) . A kiugró munkanélküliségi ráták többnyire összefüggésben állnak az 1.5, 1.6 és 1.7 oszlop kiugróan kedvező vagy kedvezőtlen mutatóival, amelyek viszont az általános fejlettségi szinthez kapcsolódnak, (hajlékonyan, l. pl. a kanadai analfabéták nagy arányát.) A szigorúbb mérésekhez nagyobb adatbázisra van szükség, de itt már előtűnik némi minőségi és mennyiségi rend, amely szerint például, ha az alacsony képzettségi szintű országok GDP-je a többinél gyorsabban növekszik, akkor ez az összes munkanélküliségre ceteris paribus növelően hat az illető országcsoporton belül.

A strukturális jellemzők következő alcsoportja a nők és fiatalok helyzetével kapcsolatos.

1.7 A női munkaerő aránya a gazdaságban, %, 1989

1.8 24 évnél fiatalabb munkanélküliek aránya , %, 1988

1.9 Szolgáltatói szektor aránya a foglalkoztatottak között, %, 1988

Ország 1.7 1.8 1.9
AUS 40.20 42.63 67.80
AU 40.50 31.20 54.50
B+L 41.10 30.00 68.72
CA 43.90 29,76 69.80
FR 42.50 30.11 62.90
GE 39.30 22.70 56.10
GR 36.90 42.80 46.20
IR 30.50 38.32 56.80
IT 36.20 49.53 57.70
JA 40.10 25.09 58.00
NE 38.30 44.87 68.80
SP 33.80 42.10 53.10
SW 48.00 36.07 66.70
UK 42.00 29.43 68.00
US 44.50 36.98 70.20

A nők munkanélküliségi rátája magasabb, mint a férfiaké, ezért az utóbbi évtizedekben elért nagyobb arányuk emeli az általános munkanélküliségi mutatót is. Más típusú mutatószám a munkanélkülieken belüli arány ( az utóbbiak között jelenleg az európai régióban a férfiak vannak többségben, ami a ciklus következő szakaszában megszűnhet). Egy ilyen típusú jelzőszámot a tábla a fiatalokra nézve tüntet fel. Magas mértékét

feltehetőleg elviselhetőbbé teszi, hogy a képzési lehetőségekkel is nagyobb arányban élhetnek, tehát a perspektívájuk ezért is jobb, mint az 50 éven felülieké. Végül, itt szerepel a női munkát az átlagosnál nagyobb mértékben alkalmazó szolgáltatási szféra aránya az összes foglalkoztatotton belül.

Az 1.2 pontra visszautalva, a termelékenységi faktorral folytatható a gondolatmenet.

1.10 Gazdasági növekedés termelékenységgel fedezett hányada

Ország Arány(%)
AUS 24
AU -0.25


+/ Megjegyzés
B+L 114
CA 38
FR 87
GE 39
GR 65
IR 119
IT 95
JA 71
NE 115
SP 59
SW 62
UK 34
US 27

A fentinek az 1.2-vel való összevetése alapján olyan szóródás tapasztalható, amelyben a termelékenység alacsonyabb részarányaihoz, bizonyos elhajlások mellett, a foglalkoztatás gyorsabb ütemű növekedése tartozik. +/Ausztriában a termelékenység csökkent

2. Növekedési ráta, fejlettségi színvonal, munkanélküliségi ráta

Ebben a fejezetrészben a növekedést és a munkanélküliséget az 1977-1986 -os időszak országonkénti átlagos rátái jelzik, a fejlettségi színvonal mutatói 1983-ra vonatkoznak. Forrás : IMF World Economic Outlook, Washington D.C. October 1995

és Nemzetközi Statisztikai évkönyv, KSH 1986

Az előző tábláktól eltérően Belgium külön szerepel, Luxemburg nélkül.

2.1 Növekedési és munkanélküliségi ráta

2.2 Fejlettségi szint és munkanélküliség

2.3 Növekedési és munkanélküliségi ráta kombinációja

2.1 Munkanélküliségi ráta országonként

GDP növekedési ráta 0-5% 5-8% 8%-nál magasabb
3%-nál magasabb JA 2.4 CA 9.3

IR 11.6

2-3% US 6.2 FR 7.6

GR 6.5 UK 7.8

AUS 7.3 EU 7.8

IT 8.2
2%-nál alacsonyabb SW 2.6

AU 3.3

GE 5.8

NL 6.6

BE 9.6

SP 14.5

A címoszlop és a címsor által határolt 3×3 cellás téglalapon meghúzható két átló közül a bal felső – jobb alsó irányú egyenes fut keresztül azon a “normál” tartományon, amelyben a magas növekedés alacsony munkanélküliséggel jár (JA) és fordítva (BE, SP), míg a közepes növekedés közepes munkanélküliséggel jár. Az ide tartozó országoknak, köztük az EU egy részének mutatói a növekedési ráta emelkedésével csökkennek.

Ezzel szemben a bal alsó – jobb felső irányú átló alapján nem tárható fel logikai láncolat: a nagyobb munkanélküliség (CA, IR) általában nem a gyorsabb növekedés hatása. Azért “általában” nem, mert kis részben igen: a magasabb növekedési ráta, ha gyorsabb reálbér-növekedéssel jár, ösztönzi a munkapiaci kínálat kiterjedését, amit persze más tényezők rendszerint ellensúlyoznak. Kérdés marad tehát, hogy az első átló által nem érintett országokban mi a racionáléja a munkanélküliség alakulásának. Erről a 2.3 tábla ad majd bizonyos felvilágosítást. Az is tudható, hogy az első átló sem nyujt egyedüli magyarázatot a saját tartományában, tehát ott is vannak további hatások. A strukturális tényezőről már volt szó, ezen a helyen még a fejlettségi szint szerepét is latolgatni kell . A következő tábla csak az országokat sorolja be, a számokat az előző tábla tüntette fel.

2.2 Munkanélküliségi ráta

GDP/fő, 1983, USD 5%-nál kisebb 5-9% 9%-nál nagyobb
9000-nél nagyobb JA







5000-9000 AU UK


5000-nél kisebb GR IR


A táblázatból annyi direkt következtetés mindenképpen levonható, hogy a csekély munkanélküliségű országok között nem találunk szegényebbeket. Ennek fordítottja már nem igaz, nagy lehet a munkanélküliség gazdag országokban is, pl. Kanadában, Belgiumban sok az állástalan, A fejlettségi szint indirekt vonzatairól viszont részben már említés történt az 1.4, 1.5 és 1.6 adatcsoportok kapcsán. (Ehhez tartozik, hogy pl. a képzés csak célirányos szervezettségben emeli a foglalkoztatottak arányát.)


Ország Kombináció
AUS 21.17
AU 6.6
BE 11.52
CA 28.3
FR 16.72
GE 11.02
GR 4.95
IR 37.12
IT 22.14
JA 9.6
NE 10.56
SP 24.65
SW 4.2
UK 16.38
US 16.74

A két ráta lineáris kombinációja (szorzata) a GDP munkanélküliség miatti veszteségét jelenti, adott növekedés mellett, vagy azt, hogy adott munkanélküliség mellett minél nagyobb a növekedés, annál több “hiányzik” a GDP növekményéből. Ennek alapján a már tárgyalt normál átló útirányából kimaradó országok is folytonosan helyezkednek el a 2.1 értékeit keretező téglalap bal alsó sarkától kezdve, a következőképpen: 1/ alsó sor bal cella 2/ alsó sor középső cella 3/ középső sor jobb cella 4/ felső sor jobb cella. De ez még nem eléggé egyszerű megoldás, mivel két tényezőn alapul, használata nehézkes is lenne.

2.4 A kombináció egyértelmű rendje

Egyszerű algoritmust kínál egy q tört:



q: kvóciens, u: (unemployment rate) munkanélküliségi ráta, g: GDP növekedési ráta.

Ekkor az ebben az alfejezetben vizsgált 1977-1986-os időszakra a következők a q értékek:

Ország q
AUS 320
AU 485
BE 757
CA 293
FR 420
GE 500
GR 408
IR 277
IT 340
JA 244
NE 719
SP 505
SW 574
UK 440
US 348

A (100-u), vagyis az u komplementje 100-ra a “nem munkanélküliek rátájának” nevezhető. Más mint a foglalkoztatási ráta, mivel a nemzetközi statisztika nem ehhez a 100-hoz viszonyítja a foglalkoztatást, hanem a munkaképes korúakhoz. (Ezt tudva, elfogadhatjuk egyik foglalkoztatási mérőszámnak). Mit jelent a fenti komplement és a g – növekedési ráta – hányadosa? Azt, hogy egy százaléknyi növekedésre hány százalékpont “nem munkanélküli ráta” jut. Itt tehát egy differenciálhányados és egy megoszlási hányados arányáról van szó. Közgazdasági tartalmát tekintve ez a termelékenységi dinamikához kapcsolódó mérőszámok közé tartozik. A nevezőben szereplő g növelésével csökkenő q értékekhez jutunk. Az f(g,u) funkció szóródási egyenese a független változónak tekintett g növekedésével lejt, (a deviancia nem nagyfokú).

A fenti, országnézetű vizsgálódás hatótényezőit, egy idősor-nézetű megközelítésben is figyelni kell. Ezeknek a hatótényezőknek a jelenlegi összefoglaló elmélete a munkanélküliség természetes rátájával foglalkozik. A kifejezés nem túl szerencsés, de valós problémák állnak mögötte.

3. A munkanélküliség természetes rátája

Fellendülés idején is van munkanélküliség. 1/ Frikciós munkanélküliség. A munkába újonnan belépőknek és az állástalanná válóknak idő kell, míg elhelyezkednek, akkor is, ha ez sikerül. A régebben szándékosan otthon maradó, majd ujra állást kereső emberekre is ez vonatkozik. Ez az a tartály, amiből gazdasági expanziók munkaerő igénye kielégíthető. 2/ Technológiai munkanélküliség. A nem elég univerzális kiképzésű munkakínálat alkalmazkodása annál kevésbé elégséges, minél gyorsabb a műszaki fejlődés. A szükségessé váló újfajta képzettség és gyakorlottság híján állás nélkül maradók elhelyezkedése beruházás- és időigényes. Mivel a gyors átalakulás a versenyhelyzet javulását eredményezi, a munkanélküliségnek ez a növekedése, megfelelő szociális környezetben, pozitív szerepet játszó folyamatok korellátuma lehet. 3/ Az egyes országokra specifikus összetételi, képzési fejleményekről már részben volt szó. Bizonyos intervallumban emelő hatása van annak is, ha kedvező a munkanélküli ellátás. Lényeges a munkapiaci szabályozottság foka és magának a munkakínálatnak (pl. térbeli) immobilitása, amelyek növelően hatnak a munkanélküliségre. A bérek színvonalának hatását nem kell eltúlozni, de pl. a minimálbér merev szabályozása csökkentheti a tanulatlan munka iránti keresletet. – A fenti három tétel a strukturális munkanélküliség fogalmában összegezhető és állítható szembe a ciklikus munkanélküliséggel. A természetes ráta ennek a strukturális munkanélküliségnek a viszonyszáma. Csak empirikusan megbecsülhető adat, amely pl. az USÁ-ban 6% alatt van (legalábbis S.Fisher – R.Dornbush: Macroeconomics, 1983 alapján) az Európai Unióban pedig, később részletezendő okok miatt ennél magasabbra tehető.

Mivel statisztikai anyaggal dolgozunk, további megfontolásra érdemes, hogy a munkanélküliséget másként mérik, mint a foglalkoztatottságot. Az előbbi mérése a nemzetközileg elfogadott gyakorlatban háztartás-statisztikai módszerekkel történik. Kevés országban szorítkoznak csak a regisztrált munkanélküliség mérésére. A legtöbb helyen az amerikai módszert követik: a reprezentatív megfigyelés során, ha egy munkaképes korú az elmúlt két hét, vagy tíz nap alatt néhányszor keresett, de nem talált munkát, munkanélkülinek számít, függetlenül attól, hogy regisztrálták-e. Az illető korcsoporti adottságán belül döntő, hogy a pénzkereset határhaszna nagyobb-e számára, mint a teljes szabadidőé , vagy általánosabb megfogalmazásban, helyzete szükségessé és lehetségessé teszi-e a munkavállalást. A csoporton belül munkát nem találókból aggregálódik a munkanélküliségi ráta. – Ezzel szemben a foglalkoztatottságot a munkaképes korcsoportokhoz viszonyítják. Rátája a növekedési potenciál egyik fontos eleme, a hosszabb távú fejlődés szemszögéből talán fontosabb, mint a munkanélküliség, a munka- (munkaerő)piacnak, a munkaerő-mérlegnek azonban az utóbbi az eleme.

Mivel a munkapiaci kínálat nem azonos a demográfiai munkaerő potenciállal, van egy önálló kulcskategóriája, a labour force, a terjedő amerikai írásmód szerint: labor force. Más, mint az aktív népesség, amely az önállókat is magában foglalja. Munkavállalók a tagjai, akár van állásuk, akár munkanélküliek. Az így körülhatárolt munkapiaci kínálat nagysága a munkavállalási kedvtől is függ. Tehát a fogyasztási hajlamon és a beruházási (határ)hajlandóságon alapuló elemzés azon a ponton is kiegészítésre szorul, ahol döntő szerepet játszik a munkavállalási (határ)hajlandóság. Végül is, ez határozza meg a munkakínálat expanzióit és összehúzódásait. Ma már mindenütt lemondtak a teljes foglalkoztatásról, de fontosságot tulajdonítanak ennek, mint elméleti etalonnak. A modellek nagy része a teljes foglalkoztatás melletti output helyzetétől indul el. Ismerni kell tehát azt, hogy mihez képest teljes a foglalkoztatás. A keynesi foglalkoztatási arány nem a mai statisztika foglalkoztatottsági indexe. A “teljesség” nem az összes munkaképesre vonatkozott, de a munkavállalási hajlandóság elemzése kimaradt a vizsgálatból.

Ha pedig ezt bevonjuk a gondolkodásba, akkor kiderül, hogy a teljesen, vagy részben foglalkoztatandók köre maga is flexibilis. Ez két jelentékeny bonyodalom okozója. (1) Nem csak a munka iránti keresletet meghatározó beruházási multiplikátortól, monetáris és fiskális eszközöktől, inflációtól, stb. függ , hogy mekkora a munkanélküliség aránya, hanem attól is, hogy a potenciális munkaerő mekkora része jelenik meg tényleges munkaerő-eladóként. A munkának erre a kínálatára részben közvetve, részben közvetlenül szintén hatnak az említett kategóriák. Tehát a gazdaság teljesítményét egy olyan mércéhez kellett mérni, amely mérce maga is a teljesítményt befolyásoló eszközök hatása alatt változik. (2) A munka kínálata egy sor olyan tényező hatására is változik, amelyek ugyan nem függenek a keynesi kategóriáktól, tehát az előbbi pontban említett bonyodalom nem áll fenn, viszont a gazdaságon kívüli hatásokat tartalmaznak, mivel itt nem csak egy piac egyensúlyáról van szó, hanem emberekről.

Ennek a gyakorlati fontossága a következő. Tételezzük fel, hogy a gazdaság munkaerő igénye monoton módon növekvő, például évi egy százalékkal növekszik a munka iránti kereslet és a demográfiai forrás (munkaképes lakosság) is ugyanilyen arányban sokasodik. Ha most az utóbbin belül egy bizonyos időszakban a munkavállalási kedv és arány megnő és emiatt a munkakínálat évi két százalékkal lesz nagyobb, akkor a jelzett időszakban a munkanélküliségi ráta állandóan emelkedni fog. Ez nem tarthat a végtelenségig, de eltarthat több évig, amíg a működésbe lépett ellenható tényezők miatt a munkát keresők aránya alacsonyabb szintre áll vissza. Ennek is meglehet a saját ciklusa, csakhogy itt nem a konjunktúra-mozgás részeként végbemenő dinamikáról van szó. Mivel a “ciklikus” jelzőt , rövid említésekre célszerűbb az utóbbira fenntartani, a most körvonalazott mechanizmust jobb híján “kínálati munkanélküliségnek” nevezem. A “ciklikus” munkanélküliséggel szembeállított strukturális munkanélküliségbe ezt az elemet is bele kell foglalni ( a fejezet elején említett harmadik tétel részben már tartalmazza ), de az is egy terminológiai lehetőség, hogy külön csoportban szerepeljen. Ilyen módon a munkanélküliség természetes rátája a munkakínálat önálló dinamikájának hatását is tükrözi. Van-e további, nem ciklikus elem? – ez olyan kérdés, amelyre majd az idősorok elemzése alapján keresünk választ…


in business usage, the excess of total revenue over total cost during a specific period of time. In economics, profit is the excess over the returns to capital, land, and labour (interest, rent, and wages). To the economist, much of what is classified in business usage as profit consists of the implicit wages of manager-owners, the implicit rent on land owned by the firm, and the implicit interest on the capital invested by the firm’s owners. In conditions of competitive equilibrium, “pure” profit would not exist, because the competitive market would cause the rates of return to capital, land, and labour to rise until they exhausted the total value of the product. Should profits emerge in any field of production, the resulting increase in output would cause price declines that would eventually squeeze out profits.
The real world is never one of complete competitive equilibrium, though, and the theory recognizes that profits arise for several reasons. First, the innovator who introduces a new technique can produce at a cost below the market price and thus earn entrepreneurial profits. Secondly, changes in consumer tastes may cause revenues of some firms to increase, giving rise to what are often called windfall profits. The third type of profit is monopoly profit, which occurs when a firm restricts output so as to prevent prices from falling to the level of costs. The first two types of profit result from relaxing the usual theoretical assumptions of unchanging consumer tastes and states of technology. The third type accompanies the violation of perfect competition itself.

Related Spectrum Categories

The earnings of land, labour, and capital employed in the productive processDistribution by factor shares: wages, profits, interest, and rent

To cite this page:
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Open-market operation

Open-market operation,
any of the purchases and sales of government securities and sometimes commercial paper by the central banking authority for the purpose of regulating the money supply and credit conditions on a continuous basis. Open-market operations can also be used to stabilize the prices of government securities, an aim that conflicts at times with the credit policies of the central bank. When the central bank purchases securities on the open market, the effects will be (1) to increase the reserves of commercial banks, a basis on which they can expand their loans and investments; (2) to increase the price of government securities, equivalent to reducing their interest rates; and (3) to decrease interest rates generally, thus encouraging business investment. If the central bank should sell securities, the effects would be reversed. (see also Index: government security)
Open-market operations are customarily carried out with short-term government securities (in the United States, frequently Treasury bills). Observers disagree on the advisability of such a policy. Supporters believe that dealing in both short-term and long-term securities would distort the interest-rate structure and therefore the allocation of credit. Opponents believe that this would be entirely appropriate because the interest rates on long-term securities have more direct influence on long-run investment activity, which is responsible for fluctuations in employment and income. (see also Index: short-term financing, long-term financing)

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Money supply

Money supply,
the liquid assets held by individuals and banks. The money supply includes coin, currency, and demand deposits (checking accounts). Some economists consider time and savings deposits to be part of the money supply because such deposits can be managed by governmental action and are involved in aggregate economic activity. These deposits are nearly as liquid as currency and demand deposits. Other economists believe that deposits in mutual savings banks, savings and loan associations, and credit unions should be counted as part of the money supply.
The Federal Reserve Board in the United States and the Bank of England in the United Kingdom regulate the money supply to stabilize their respective economies. The Federal Reserve Board, for example, can buy or sell government securities, thereby expanding or contracting the money supply (see monetary policy.

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The subject of money has fascinated wise men from the time of Aristotle to the present day because it is so full of mystery and paradox. The piece of paper labelled one dollar or 100 francs or 10 kroner or 1,000 yen is little different, as paper, from a piece of the same size torn from a newspaper or magazine, yet it will enable its bearer to command some measure of food, drink, clothing, and the remaining goods of life while the other is fit only to light the fire. Whence the difference?
The easy answer, and the right one, is that people accept money as such because they know that others will. The pieces of paper are valuable because everyone thinks they are, and everyone thinks they are because in his experience they always have been. At bottom money is, then, a social convention, but a convention of uncommon strength that people will abide by even under extreme provocation. The strength of the convention is, of course, what enables governments to profit by inflating the currency. But it is not indestructible. When great variations occur in the quantity of these pieces of paper–as they have during and after wars–they may be seen to be, after all, no more than pieces of paper. People will then seek substitutes–like the cigarettes and cognac that for a time became the medium of exchange in Germany after World War II. As John Stuart Mill wrote: (see also Index: inflation)

There cannot, in short, be intrinsically a more insignificant thing, in the economy of society, than money; except in the character of a contrivance for sparing time and labour. It is a machinery for doing quickly and commodiously, what would be done, though less quickly and commodiously, without it: and like many other kinds of machinery, it only exerts a distinct and independent influence of its own when it gets out of order. (Principles of Political Economy, W.J. Ashley [ed.], 1909, p. 488.)

Mill was perfectly correct, although one must add that there is hardly a contrivance man possesses that can do more damage to a society when it goes wrong.

ContentsNext section

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Money market

Related Spectrum Categories
money market,
a set of institutions, conventions, and practices, the aim of which is to facilitate the lending and borrowing of money on a short-term basis. The money market is, therefore, different from the capital market, which is concerned with medium- and long-term credit. The definition of money for money market purposes is not confined to bank notes but includes a range of assets that can be turned into cash at short notice, such as short-term government securities, bills of exchange, and bankers’ acceptances.
A brief treatment of money markets follows. For full treatment, see Markets: Money market.
The details and the mechanism of the money market are complex and vary greatly from country to country, but in all cases the basic function, performed by middlemen providing a service for a profit, is to enable those with surplus short-term funds to lend and those with the need for short-term credit to borrow. In most countries the government plays a major role in the money market, acting both as a lender and borrower and often using its position to influence the money supply and interest rates according to its overall economic priorities (see monetary policy). Apart from domestic money markets, there is an international money market, which, although it utilizes many different mechanisms, provides fundamentally the same service by facilitating the borrowing, lending, and exchange of currencies between countries.
Two of the oldest and most developed money markets are those of the United States and Great Britain. In Great Britain the money market is sometimes referred to as the discount market, because one of the key institutions in short-term money transactions are the 12 banks known as discount houses. The main function of discount houses is to buy short-term credit notes and to resell them. The two most important forms of these notes are the commercial bill of exchange, which is a short-term obligation by one party to pay another, and the treasury bill, which is a similar obligation issued by the government. Discount houses borrow call money (that is, money repayable on demand) from commercial banks in order to purchase bills of exchange or treasury bills, which they may resell at a profit to commercial or clearing banks. By lending call money to the discount houses, commercial banks earn interest on reserve assets not required for immediate operations, and by buying bills, which fall due on specific dates usually up to three months, they obtain a regular supply of funds. The government borrows from the banking system by selling treasury bills to discount houses, which sell them in the same way as bills of exchange. The discount and price attached to bills depend on their maturity (the date on which they must be redeemed) and the level of interest rates.
The acceptability and price of commercial bills of exchange also depend on the reputation and standing of the issuer, although they may be guaranteed by one of the acceptance houses for a small fee based on the value of the bill. The government also acts as a lender of last resort. Thus, when commercial banks are short of cash and recall their call money from discount houses, the government, through the Bank of England, will lend to the discount houses at the official minimum lending rate, which includes a penalty component to discourage overuse.
In the United States the money market operates on similar principles, but the institutions and the mechanisms are different. One of the unique features of the U.S. money market is the large number and great variety of participants. This is due partly to a much smaller degree of concentration in the banking system, because of severe restrictions on branch banking, and to the large number of financial and non-financial concerns handling short-term funds. Much of the business in bills of exchange and other liquid financial instruments is transacted by dealers who buy and sell in basically the same way as the discount houses in Britain, using a variety of sources for finance. There is a market for a wide assortment of financial instruments including bills of exchange, government securities, securities issued by official federal agencies, clearinghouse funds (deposits at one bank loaned to another), as well as time certificates of deposit issued by commercial banks. In addition to the availability of these and other financial instruments, the Federal Reserve System provides considerable short-term credit directly to the banking system. For many smaller banking operations, the money market is not always capable of meeting their needs for short-term funds quickly enough to cope with the inevitable peaks and troughs of their business. In situations like this, banks (as long as they are members of the Federal Reserve System) can obtain funding through their own Federal Reserve Bank at the non-penalty discount rate of interest. In addition, banks can acquire immediate funding through the Federal Reserve System at variable rates of interest known as the federal funds rate. The Federal Reserve System also participates on its own accord in the daily market, acting to smooth fluctuations in money supply and distribution and in interest rates.

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 In macroeconomics one is concerned with the aggregate outcome of individual actions. Keynes’s “consumption function,” for example, which relates aggregate consumption to national income, is not built up from individual consumer behaviour; it is simply an empirical generalization. The focus is on income and expenditure flows rather than on markets. Purchasing power flows through the system from business investment to consumption, but it leaks out at two places in the form of personal and business savings. Counterbalancing the savings are investment expenditures in the form of new capital goods, houses, and so forth, which constitute a source of new injections of purchasing power in every period. Since savings and investments are carried out by different people for different motives, there is no reason why “leakages” and “injections” should be equal in every period. If they are not equal, national income, the sum of all income payments to the factors of production, will rise or fall in the next period. When planned savings equal planned investment, income will be at an equilibrium level, that is, a level at which it can sustain itself; when the plans of savers do not match those of investors, the level of income will go on changing until the two do match. One can complicate this simple model by making investment a function of the interest rate; by introducing the government budget, the money market, labour markets, imports and exports, foreign investment; and so forth. But all this is far removed from the problem of resource allocation and from the maximizing behaviour of individual economic agents.
The result is a kind of intellectual schizophrenia in which the techniques of microeconomics do not carry over fully into macroeconomics and vice versa. This is widely held to be an unsatisfactory state of affairs; economists have in recent years sought to build a bridge between the individual consumer and the overall consumption function and between the individual investor and the behaviour of aggregate investment. Nevertheless, the bridge remains incomplete, and the student of economics must be prepared to work with two boxes of tools.

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Economic Systems

Economic Systems


Economic systems refer to the ways in which humankind has arranged for its material provisioning. One would think that there would be a great variety of such systems, corresponding to the many cultural arrangements that have characterized human society. Surprisingly, that is not the case. Although a wide range of institutions and social customs have been associated with the economic activities of society, only a very small number of basic modes of provisioning can be discovered beneath this variety. Indeed, history has produced but three such kinds of economic systems–those based on the principle of tradition, those organized according to command, and the rather small number, historically speaking, in which the central organizing form is the market.
The very paucity of fundamental modes of economic organization calls attention to a central aspect of the problem of economic “systems”; namely, that the objective to which all economic arrangements must be addressed has itself remained unchanged throughout human history. This unvarying objective is the coordination of the individual activities associated with provisioning–activities that range from hunting and gathering in primitive societies to administrative or financial tasks in modern industrial systems. What may be called “the economic problem” is the orchestration of these activities into a coherent social whole–coherent in the sense of providing a social order with the goods or services it requires to assure its own continuance and to fulfill its perceived historic mission.
Social coordination can in turn be analyzed into two distinct tasks. The first of these is the production of the goods and services needed by the social order, a task that requires the mobilization of society’s resources, including its most valuable and most resistive resource, human effort. Of nearly equal importance is the second task, the appropriate distribution of the product. This task must not only provide for the continuance of society’s labour supply (even slaves must be fed) but must also accord with the prevailing values of different social orders, all of which favour some recipients of income over others–men over women, aristocrats over commoners, property owners over nonowners, or party members over nonmembers. (see also Index: production theory, distribution theory)
All modes of accomplishing the basic tasks of production and distribution rely on social rewards or penalties of one kind or another. Tradition-based societies depend largely on communal expressions of approval or disapproval. Command systems utilize the open or veiled power of physical coercion or punishment, or the bestowal of wealth or prerogatives. The third method–the market–also brings pressures and incentives to bear, but the stimuli of gain and loss are not usually within the control of any one person or group of persons. Instead, they emerge from the “workings” of the system itself, and, on closer inspection, those workings turn out to be nothing other than the efforts of individuals to gain pecuniary rewards by supplying the things that others are willing to pay for.
There is a paradoxical aspect to the manner in which the market resolves the economic problem. In contrast to the conformity that guides traditional society or the obedience to superiors that orchestrates command society, behaviour in a market society is mostly self-directed and seems, accordingly, an unlikely means for achieving social integration. Yet, as economists ever since Adam Smith have delighted in pointing out, the clash of self-directed wills becomes converted into just such a means within the setting of competition that is an indispensable legal and social precondition for a market system to operate. The unintended outcome of this competitive engagement of self-seeking individuals is the creation of the third, and by all odds the most remarkable, of the three modes of solving the economic problem.
Not surprisingly, these three principal solutions are distinguished by the distinct attributes they impart to their respective societies. The coordinative mechanism of tradition, resting as it does on the perpetuation of social roles, is marked by a characteristic changelessness in the societies in which it is dominant. Command systems, on the contrary, are marked by their capacity to mobilize resources and labour in ways far beyond the reach of traditional societies, so that societies with command systems typically boast of large-scale achievements such as the Great Wall of China or the Egyptian pyramids.
The third of the systems, that in which the market mechanism plays the role of energizer and coordinator, is in turn marked by yet another historical attribute, resembling neither the routines of traditional systems nor the highly personalized achievements of command systems. The mark of the market is the galvanic charge imparted to economic life from the energies unleashed by its competitive, gain-oriented setting. This charge is dramatically illustrated by the trajectory of capitalism, the only social order in which the market mechanism has played a central role. In The Communist Manifesto, published in 1848, Karl Marx and Friedrich Engels wrote that in less than a century the capitalist system had created “more massive and more colossal productive forces than have all preceding generations together.” They also wrote that it was “like the sorcerer, who is no longer able to control the powers of the nether world whom he has called up by his spells.” That creative, revolutionary, and often disruptive capacity of capitalism can be traced in no small degree to the market system that performs its coordinative task.
For coverage of related topics, see SPECTRUM, section 531, and the Index.

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