Measurement of the Social Performance of Business - Resenha

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850

Reviews:

T N E C

Monographs

[December

agents and the Antitrust Division, prohibition of price-discrimination between

the government and private buyers, government manufacture of materials

where reasonable prices cannot be obtained by other methods, flexible supply

contracts extending over several years, and attempts to secure discounts during

slack seasons and recession periods. Employment of more Sears, Roebuck pur-

chasing agents by the government migh t well be added to the list Th e legal

and administrative difficulties raised by these proposals are realistically discussed,

with particular emphasis on the extreme decentralization of federal purchasing

and the need for improved planning and coordination if marked economies

are to be realized.

The problems which arise when government purchases constitute a large part

of the national income are not adequately treated. Under war conditions, pro-

curement becomes simply one aspect of central economic control. It involves

regulation of raw materials, labor supply, prices, and money incomes. Analysis of

this complex of problems would have required a separate monograph. The single

chapter on war procurement in the present study is almost entirely historical; it

touches briefly on World War I experience and on changes in Army and Navy

procurement procedures since 1918. It was written, moreover, before the begin-

ning of the present defense program. Were the authors to revise this chapter

at present, they would perhaps be more critical

of

the procurement planning of

1918-40. As far as the pricing of war materials is concerned, there is no evidence

that there was any effective planning during this twenty-year period, and no

assurance that we will be able to avoid the World War mistakes. This discredited

cost-plus principle is once more in use, with no indication that the government

knows more about industrial costs today than in 1918. As an analysis of peace-

time procurement, however, the present volume is interesting and useful.

LLOYD G . REYNOLDS

Johns Hopkins University

No.

7 : M easurement of the Social Performa nce of Business By THEODORE J.

\

K RE P S ,

assisted by

KATHRYN ROBERTSON WRIGHT.

1940. Pp. ix, 207. 30c.

Dr. Kreps regards an industry's performance over a period as socially desir-

able if (1 ) production, (2) employment, and (3 ) payrolls have risen; (4 )

employment has risen more rapidly than production; (5) production, more

rapidly than consumer eflFort commanded (the relative price of the industry 's

product—its exchange value in terms of other goods and services); (6) pay-

rolls,

more rapidly than consumer funds absorbed (measured by "income pro-

duced" or by "value added by manufacture") ; (7) payrolls, more rapidly than

dividends and interest; and (8) consumer funds absorbed, more rapidly than

dividends and interest. Some or all of these criteria are used to measure the social

performance of 22 industries, 9 broad groups of industries, 3 individual com-

panies, manufacturing and all corporations, and the economy as a whole. In the


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1941] Reviews: T.N.E.C. Monographs 851

and (3) to individual industries, derive from Dr. Kreps's belief in an

insuf

ficiency of purchasing power and an inadequacy of employment opportunities.

Tbe two groups of criteria bear little relation to one another and, indeed, at least

(4 ) and (5 ) are mutually inconsistent. Criterion (4 ) implies that an industry

is to be commended if in increasing production it tends to give additional

opportunity for buman beings to get additional wages so tbat tbey may buy and

consume the additional produc t (p . 4 7 ) . Criterion (5 ) implies tbat on tbe

whole society tends to be benefited whenever it gets more ana more product for

less and less effort (p . 4 7 ) ;

i .e.

an industry's performance is desirable if the

(labor) cost per unit of product has Increased, and also if the (total) cost per

unit of product bas decreased and the decrease has been passed on to consumers

in the form of lower prices. The inconsistency of these criteria is confirmed by

Dr. Kreps's data: the rank difference correlation between tbe rankings of 22

industries by criteria (4) and (5) is —.5 and between the rankings of 5 broad

industry group s, — .6. Th e composite ranking of the 22 industries by the real

criteria (1) and (5) shows practically no correlation with their composite rank-

ing by the purchasing pow er criteria ( 5 ) , ( 6 ) , and (7 ) (tbe rank difference

correlation is —.08 between composite ranks assigned the sum of the ranks by

the individual criteria).

As Dr . Kreps says, . . . no attempt is made to explain why an industry per-

formed as it did (p . 7 ) ; the purpose is rather to weigh that performance in the

scale of social desirability. Whether one accepts the particular scale used in this

book hinges very largely on whether, like Dr. Kreps, one believes in an under-

consumption or over-saving theory of cyclical and secular unemployment or, like

the reviewer, believes such a theory, at best, seriously incomplete and, at worst,

completely fallacious. The difference is epitomized by the significance attributed

a decline in labor cost per unit of output: Dr. Kreps thinks such a decline

mischievous because it is likely to reduce mass purchasing pow er ; the reviewer

thinks it commendable because it probably reflects increased efficiency and hence

permits a larger real output to be wrung from our meagre and inadequate re-

sources.

MILTON FRIEDMAN

National Bureau of Economic Research

No. 18: Trade Associat ion Survey. By CHARLES ALBERT PEARCE (assisted by

others). 1941. Pp. 501. 50c.

No.

36:

Rep orts of the Federal Trade C ommission.

By

T H E FEDERAL TRADE

y COM MISSION. 1940. Pp. 275. 35c.

Monograph no. 18 presents the results of the first comprehensive study of tbe

development and activities of the trade association in the United States since the

N.R.A . The principal source of the data included in the study was the Trad e

Association Survey, a questionnaire sent by the Depa rtment of Commerce in

1938 to about 2500 associations of national or regional scope. This is the best

single monograph on the trade association. It should prove of value to the student


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Measurement of the Social Performance of Business - Resenha