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FE D E R A L E X P E N D IT U R E S AND ECONOMIC G ROW TH : A N A LY SIS AND PO LIC Y Daniel C. Vandermeulen, associate professor of economics, Claremont Graduate School and Claremont Men’s College Since the study of economic growth is itself in an early stage of growth, it is not possible to analyze one aspect of the topic with full confidence that everyone will recognize the niche into which it fits. Accordingly, I shall use the first part of my paper to summarize some important conclusions th at economists have reached and to make some suggestions of my own regarding a theoretical and empirical fram e work for the analysis of economic growth. This will provide a basis for the subsequent discussion of the role and responsibility of the Fed eral Government with respect to economic growth. T he A n a l y s is of E c o n o m ic G row th As the best general measure of economic growth, I choose real, per capita, national income,1 appropriately adjusted for changes in per capita leisure. Some correction also needs to be made for cyclical and other short-run variations, 10-year averages being perhaps the best solution. The aim of both corrections is to eliminate variations in the utilization of resources, thus emphasizing that, basically, what is being measured is the change in the volume of productive resources. A per capita measure is chosen as the most appropriate for public policy in the belief th at the American public would not cheerfully accept a growth in aggregate income that failed to exceed the growth in population. I take the rate of growth of population as given, but I do consider some repercussions upon governmental expenditures. For the hypothetical man in the street the chief concern with eco nomic growth is that it be fast enough, so that he can enjoy the benefits of ever higher income. Such an approach is reinforced by external m ilitary threats and by the worldwide rivalry between free and col lectivist economic systems. This aspect of growth has been subjected to increasing study by economists in recent years, particularly in rela tion to underdeveloped areas. Perhaps even more attention has been given by economists to a somewhat more technical, but nonetheless important, facet of growth, its relation to the stability of the economic system. As Professor Schumpeter was fond of em phasizing: “Busi ness cycles are the price th at we must pay for progress.” The more significant of the business-cycle theories have always, in one way or an other, stressed this relationship. Since Keynes directed attention toward short-run aggregative equilibrium in the 1930’s, there has been 1 Since growth Is closely related to the supply of factors of production, national Income has a slight advantage over n et national product in being measured a t factor cost. Gross national product overstates capital form ation, and personal income is unsatisfactory because corporate saving Is excluded and tran sfer payments Included. 308 ECONOMIC GROWTH AND STABILITY 309 an extensive development of growth models that state the conditions for steady growth and show that failure to satisfy these conditions may lead to secular stagnation or exhilaration, prolonged periods of underutilization, or attempted overutilization of resources during which cycles might also occur. Thus, economic growth is no simple m atter of pro j ecting and following trends. ; Any determinate model or theory of growth implies, or can readily be extended to imply, precise conclusions with respect to the role of Federal expenditures in economic growth. A t the present state of knowledge, I do not think that we can place heavy reliance on any single theory. The growth models, for example, have been criticized as being overly rigid and dependent for their results on precise and invariant values of key parameters. I concur in this despite my gen eral belief that growth is such a sprawling and complex phenomenon that we shall always have to rely on relatively limited and seem ingly unrealistic models. There are, however, certain key general relationships that seem to underlie most treatments of the problem. Accordingly, I shall summarize for use in later sections several prop ositions regarding growth on which I believe there would be a reason able amount of agreement among economists. The cost of this step must, however, be noted. I am one who believes that, ideally, policy recommendations should be strict inferences from well-established theoretical models and not intuitive eclectic improvisations, however inspired. By retreating to more general assumptions I am condemn ing such conclusions as I may reach to a comparable degree of gen erality or, if you will, vagueness. Several propositions concerning growth 1. The growth of capital is both income creating in the present and capacity creating in the future, and the two properties have to be in adjustment for steady growth of income. Our economic system is very much like an overly ambitious man whose state of psychological well-being in the present depends upon how fast he is advancing. However, the eminence that he attains this year makes it more difficult for him to perpetuate the rate of ad vance and, hence, the level of equanimity. Similarly, a high rate of growth of capital in the present insures that existing resources will be kept employed and th at the level of income will be high. Yet the higher the rate of growth the larger will be future productive capacity and the greater the problem of keeping it fully employed. There can be no doubt about the two properties of capital formation and the importance of adjustment between them. Disagreement exists as to the ability of the economic system to adjust easily and quickly to different rates of growth of capital. 2. W ith unlimited natural resources but no change in technology, a rate of capital formation in excess of population growth will in crease real per capita income, but the rate of return to capital will fall and ultimately check the growth of capital. 3. I f no increase occurs in the quantity and quality of natural re sources, and no improvement takes place in technology, growth in labor and capital will ultimately encounter diminishing returns. A sufficiently rapid growth of capital might permit rises in per capita real income, but the rapid decline in the rate of return to capital makes the continuation of such growth highly improbable. 310 ECONOMIC GROWTH AND STABILITY 4. The fourth proposition deals with the historical record of growth in the United States. F or this there is no better statement than the conclusion of Abramovitz: The source of the great increase in net product per head was not mainly an increase in labor input per head, not even an increase in capital per head, as these resource elements are conventionally conceived and measured. Its source must be sought principally in the complex of little-understood forces which caused productivity—th at is, output per unit of utilized resources—to rise.2 Both the theoretical and the historical studies of growth are in clear agreement on one point, the importance of advances in scientific knowledge and technology. P ast growth in per capita income and its continuation into the future depend heavily upon knowing how to get more out of given resources. A t the same time, changes in tech nology are required in theoretical models to thw art diminishing re turns and keep investment at a level th at will insure a reasonably full utilization of the resources available at any one time.3 To the extent th at advance in technology steps up the rate of in crease in capacity and, at the same time, causes that capacity to be more productive, its leverage upon economic growth is very powerful. There are, however, various cancellations, offsets, and imbalances that reduce the leverage below the extreme just considered. F or example, stimulating investment may require a high rate of obsolescence and scrapping of existing capacity, thus partially offsetting the productiv ity-increasing effect of the new capacity. F urther, to the extent th at new methods are highly capital saving, fewer dollars are needed for investment. Also, as Fellner has pointed out, the labor-saving, capi tal-saving, and resource-saving characteristics of inventions and inno vations may be out of balance with the relative resource scarcities.4 To some extent, motivation may correct such an imbalance, since research is less likely to be directed toward saving resources that are already plentiful. However, there are long lags and the results of scientific investigation are to a high degree fortuitous, so present in novations may not be well adapted to today’s conditions. I have no doubt th a t very complex conditions have to be satisfied to secure the proper balance between the investment-stimulating and productivity-increasing properties of technological change, and be tween the differential productivity effects and supplies of resources. Further, balance is required between improved methods and the labor skills required. I f these conditions are not satisfied, the consequence is, presumably, instability in rates of growth, employment of re sources, and the level of income. There might also be an unfavorable feedback upon the source of technological change, research, and other productivity-increasing expenditures. I shall not at this time go deeper into this topic, but shall, instead, simply make the assumption a Moses Abramovitz. Resource and Output Trends in the U nited S tates Since 1870, American Econom ic Review, May 1956, Papers and Proceedings, p. 6. 8 A careful analysis of the investm ent-demand curve w ill snow th a t it can remain in place and m aintain a constant level of income only i f technological change offsets the inescapable tendency toward capital saturation. Further, the Harrod growth model, in which the warranted rate of growth appears to be self-sustaining, actu ally requires everincreasing autonom ous investm ent, the main stim ulus for which is technological change; £ee D. Hamberg, Economic Growth and In stab ility (New York : Norton, 195 6 ), pp. 80-82. *W . Fellner, Trends and Cycles in Econom ic A ctivity (New Y ork: H olt, 1956), especially pp. 2 0 9 -2 1 5 .. ; ECONOMIC GROWTH AND STABILITY 311 that advances in knowledge, technology, and skills are, on balance, conducive to growth, and that the side effects on stability, if serious, should be offset by methods other than a deliberate slowdown of these advances in knowledge. The importance of technological change and other means of increas ing productivity suggest certain revisions in theoretical models and in the collection and classification of data. In the two centuries th at they have been plying their trade, economists have probably devoted more time and space to the saving-investment process than to any other aspect of their subject. The original importance was the rela tion to growth, since saving frees resources and investment uses them to augment productive capacity. A vast literature has developed on the mechanism and the network of institutions by which the private economy divides resources between present consumption and future productive capacity. P artly because this mechanism did not appear to function efficiently in the short run, the saving-investment decision has received much attention since the midthirties as the principal de term inant of the level of utilization of existing resources. I t now appears that a decision of at least equal importance is the amount of current resources to be devoted to advances in knowledge, technology, and skills. These will be called productivity-increasing expenditures in contrast to capacity-increasing expenditures (investment). F or an effective study of growth, the private economy must be looked upon as a mechanism for determining not just a 2-way division of resources between current consumption and investment but a 3 way division th at includes the use of resources for increasing produc tivity. Further, it can be shown th at productivity-increasing ex penditures are not correctly classified for the determination of current levels of income. Consider, for example, the sums spent by indi viduals for education, which are classified as consumer expenditures. A good case can be made for regarding at least p art of educational expenditures as being, like investment, an offset to saving in the sense of increasing the demand for current resources without at the same time adding to the supply. A high-school graduate who goes to col lege rather than to work augments the demand for current resources but not the supply in much the same way as a business executive who constructs a plant for future use. Also, education, like capital for mation, is often financed out of accumulated savings. A stronger case can probably be made for the research expenditures of colleges and foundations, which also appear under consumer expenditures. The research expenditures of business, except for the addition of fixed facilities, are similarly treated as a current expense, no distinction being made between hiring a production worker and hiring a research worker. In the simplest income models the expenditures of the private economy are classified as C + I, consumer expenditures (consump tion) plus capacity-increasing expenditures (investment). W hat I am suggesting is that, for the study of growth, a better classification would be C + I + P , the last being productivity-increasing expendi tures.5 Productivity-increasing expenditures I define as those that * W ltli Saving conventionally defined, P fa lls Into the class o f offsets to savings. 312 ECONOMIC GROWTH AND STABILITY tend, to augment the quantity 6 and quality of natural resources, the education and skill of labor, and the stock of pure and applied scien-. tifixs and technological knowledge. Capacity-increasing expenditures are those th at utilize given resources, skills, and knowledge to aug ment productive capacity. Like all definitions these are subject to fuzziness at the fringes, but they do serve to bring out the major distinction. I t is interesting to note that P , like I, can be measured net or gross. Except for accidental loss, knowledge may not be sub ject to deterioration, but its human receptacles certainly a re ; p art of current expenditures merely offset rates of mortality and forgetful ness. Once the productivity-increasing expenditures are separately classi fied, im portant questions follow. Is P prim arily an independent variable, little affected by changes in other economic variables? I f not, how sensitive are productivity-increasing expenditures to changes in income, prices, and the interest rate? Finally, how great an effect do productivity-increasing expenditures have upon both the amount of capital added in the future and the productivity of th at capital ? In contemplating the last question I am sometimes inclined to think th at the best solution is simply to take it on faith th at research and education pay, without attemping to prove it. Unfortunately, even in a society th at lives by faith there is the vexatious economic problem of deciding how much of the resources to devote to the building of cathedrals and the support of the clergy. The classification of governmental expenditures F or the study of growth it is governmental expenditures that suffer most from inadequate classification and analysis. In the national in come accounts, all governmental expenditures are treated as final goods and services, whereas a distinction is made for the private economy between final goods and services sold to consumers and in termediate goods and services sold by one business firm to another. Some governmental expenditure, such as those for parks and recrea tional facilities, do provide final goods and services for the public and can appropriately be called collective consumption. Other expendi tures are intermediate in the sense of providing goods and services for business that are then reflected in a higher value of output of the private economy. In may cases, such as highways, both purposes are served and disentanglement is difficult. Yet, as will be shown later, the distinction is significant. A capital budget for governments has long been advocated on other grounds, but the study of economic growth gives added support to the proposal, since it is vital to know the extent to which govern ments have spent and are spending to augment their own productive capacity. Such additions are essential to the growth of the services governments provide as a component of real per capita income. F u r ther, in terms of the stability of income and prices, recent experience has shown that it makes a difference whether the educational system has enough classrooms and Congress enough office space, or whether 8 I t m ight be better to include augm entation of the quantity of natural resources in capital-increasing expenditures, but I follow convention in n ot doing so. Adding to n atu ral resources is p roductivity increasing in the sense th a t it forestalls the dim inishing returns th a t would otherwise occur in the future. 313 ECONOMIC GROWTH AND STABILITY additions have to be made in competition with a rapidly expanding private economy. As was true of the private economy, it is the productivity-increasing expenditures that are most in need of careful classification and meas urement. The outline of the subcommittee’s study raises the question of the effect on economic growth of different categories of Federal expenditures. The answer lies, I think, mainly in the extent to which those categories contain productivity-increasing expenditures. I t is interesting to note how application of this criterion changes one’s subjective evaluation of the different types of spending. There is, I think, some tendency to regard m ilitary expenditures as not intrinsic ally desirable but imposed upon us by external threats and likely to dwindle in a more peaceful world. Parks and recreation facilities provided by governments are, in contrast, looked upon as intrinsically desirable, regardless of world conditions. Yet in terms of the pro ductivity-increasing expenditures essential to a higli rate of growth the military budget, particularly if the Atomic Energy Commission is included, probably ranks higher than any other category of expenditure. I have struggled to come up with a simple and significant classifica tion of governmental expenditures, suitable for inclusion in a growth model of reasonable proportions. The basic difficulty is th at govern ments participate in all forms of expenditure and their contribution is inextricably intermeshed with the activities of the private economy. W ith respect to capacity-increasing expenditures, governments may construct capacity for provision of greater collective consumption; may build roads, bridges, and dams that are necessary to private cap ital form ation; and they may provide direct subsidies for private cap ital formation. Productivity-increasing expenditures, such as those of the Hoover Commission, may be designed to increase the Govern ment’s own productivity; or, as in the case of some research expendi tures of the Department of Agriculture, the aim may be a specific effect on the productivity of the private economy; or there are expenditures, such as those on education, whose benefits are widely dispersed. This is the sort of vexation that emerges whenever one lifts the lid on aggre gates. F or the present I shall be content merely to classify govern mental expenditures in the same way as private—current, capacity increasing, and productivity increasing—and to recognize th at varying amounts of cross-fertilization exist between public and private ex penditures of each type. T he R ole a n d R e s p o n s ib il it y R espect to of t h e E F c o n o m ic ederal G G overnm ent W it h row th In considering the role of the Federal Government with respect to growth I shall exploit the analogies with short-run income stabil ization and thus utilize the wide experience th at we have had in ana lyzing that topic. First, though, I should like to comment upon the limitations of knowledge within which the discussion of the topic must be confined. Economic analysis deals prim arily with the transmission of effects by way of changes in prices and income. Models of the economic sys tem show how economic units are affected by changes in income and price and in turn transm it effects to others. Productivity-increasing 314 ECONOMIC GROWTH AND STABILITY expenditures, like any other, can be analyzed with respect to the effects that the sums spent have on the economic system. This is not, how ever, the prim ary economic effect or significance of such expenditures. The prim ary effects are on the underlying conditions within which economic activity and economic analysis take place—“the state of the arts,” to use a phrase rich in tradition. The process by which ex penditures produce changes in technology is not prim arily an economic process. Once the change occurs in the state of the arts, economics takes over and analyzes the repercussions th at flow through the eco nomic system. Thus, in terms of economic analysis as generally con ceived, productivity-increasing expenditures are essentially parameterchanging expenditures. The same problem arises with respect to research expenditures of a firm. In economic terminology, shall the production function include the use of resources to change the pro duction function? Of course, economic analysis m ight be extended beyond the traditional boundaries, but there are disadvantages to such amove. The situation, then, is somewhat like this. Productivity-increasing expenditures alter the underlying conditions for economic activity, or the parameters of economic analysis. The process by which these effects are transm itted is largely noneconomic and not very well understood. We think we know the general nature and the general direction of these effects. We cannot say very much about the size of the effects, particularly the relation to dollars spent, nor can we be very definite about the relationship between specific effects and specific types of expenditure. We can, I believe, be reasonably con fident that high levels of expenditure on science, research, and educa tion, particularly if long continued, will cause appreciable improve ments in technology and the productivity of resources. I shall now briefly recapitulate what seem to me to be the salient aspects of stabilization policies. I f one goes back far enough in time, the prevailing opinion among economists was that the Federal Gov ernment should simply confine itself to those activities at which it was more efficient. The economic case for income-stabilizing expendi tures by the Federal Government rests on the conclusion, accepted by most economists, th at the saving-investment mechanism of the private economy will not operate in such a way as to insure stability of income and employment. Compensatory Federal spending was proposed as a remedy but in time was seen to have the defects of requiring fore casts of private economic activity and also fairly specific knowledge of the response of the private economy to Federal spending. Built-in stabilizers then came to be recognized as the best device, since they did not require explicit forecasts of private economic activity. To counteract tendencies toward severe depression or inflation, built-in stabilizers are regarded as probably inadequate, and compensatory spending might be required. I shall use the preceding summary of policy with respect to income stabilization as a guide for a tentative consideration of policy with respect to economic growth. I t will be useful first to explore the consequences of a passive or neutral policy. ! A passive or neutral policy ...... The effect th at governmental expenditures have had on economic growth has depended largely upon the productivity-increasing ex ECONOMIC GROWTH AND STABILITY 315 penditures. To emphasize and clarify that relationship, it will be convenient to sketch out a neutral or passive role in which the respon sibility for growth is left solely to the private economy. Since the problem of an optimal division of resources between the public and private sectors is the subject of another panel, I shall simply assume that they have found the answer. Imagine then th at resources are growing over time and that at each point of time these resources are optimally divided between public and private production. This of course implies th at both the public and private sectors are adding to capacity as well as providing current goods and services. Problems arise with respect to the adjustment of current production to the rate of growth, but let us pass over these. There are also difficulties in timing and a possible acceleration effect in that the growth of private productive capacity precedes and induces the augmentation of govern mental productive capacity. I shall avoid this question by assuming that growth of productive resources is correctly anticipated and divided. Under these restrictive assumptions what effect do governmental expenditures have upon growth? I t is clear that governments are directly providing growth in the public part of real, per capita, na tional income. Otherwise, the resources would not be used at all or, the division between public and private expenditures being optimal, they would be used for goods and services of lower priority. I t has sometimes been argued that the intermediate expenditures of the government, like roads and dams, have external economies and cause income to rise by a multiple of the governmental expenditure. While there is probably some validity to this argument, it has to be carefully scrutinized. In many instances the governmental expendi tures have lagged and created a bottleneck. Removal of the bottle neck then has magnified effects on the flow. To the extent that public and private expenditures are kept in proper balance, the effects are likely to spring from the productivity-increasing property of the ex penditures. Governmental expenditures th at grow with the volume of resources may have a stabilizing effect upon income. In a more general sense, the policy with respect to growth outlined in this section lends sup port to measures for short-run income stabilization. The level of governmental expenditures should be determined by the wealth of the country, not its current income, by the total volume of resources available, not the amount of resources that the private economy is able to use at a given time. Yet the principle of continuous budget balancing would require that, whenever the private economy reduces the percentage of the total resources it uses, the government also reduces its percentage. Thus, some measure of short-run stability would be provided and this, as will be argued later, probably con tributes to growth of the private economy. An active policy with respect to growth I t is obvious th at governments in general and the Federal Govern ment in particular do participate heavily in productivity-increasing expenditures. These range from very general programs such as aid to education by the Veterans’ Administration and the research of the Atomic Energy Commission down to advice to farmers about the proper cultivation of crops arid assistance to uranium prospectors. 316 ECONOMIC GROWTH AND STABILITY One justification for such governmental participation in the increase of productivity could be greater efficiency but since this is the topic of another panel I shall not pursue it further. The question at issue here is not now governmental expenditures should grow over time in relation to private expenditures. I t is rather the use of governmental expenditures for the purpose of modifying the growth of the private economy. The most serious charge th at could be levied against the private economy and the strongest basis for action would be th a t the rate of growth is too slow. This could take the form of inadequate capital formation or it could be th a t all resources, capital included, are not productive enough. U nder our type of economic system, we ate not inclined to criticize any rate of capital formation however small, pro vided that it is equal to savings out of full employment levels o f in come. An inadequate rate of capital formation would, then, flash the warning signal of persistent unemployment, as was true in the 1930’s. So far as I can tell, there is no alarm to warn us that the productivity of all resources is not increasing as fast as possible. Though there are cancellations, as mentioned earlier, a higher level of expenditure on pure and applied research would appear to be at least a partial cure for both deficiencies. This line of argument also supports the maintenance of high levels of expenditure on research as a cure for such hidden stagnation as may exist even when investment is ade quate to maintain a high level of income. O ur experience after major wars buttresses the belief th at govern mental research programs would stimulate the growth of the private economy. Many writers have given wartime research as a partial explanation of high postwar levels of capital formation. To the extent that the results of governmental research remain outside the patent system, there may be a uniquely stimulating effect. I t has often been remarked th at the abolition of the patent system, though probably unwise in the long run, would give a powerful immediate stimulus to investment and income. To a slight degree governmental research has some of the effects of freeing patents, though it is prob ably partially offset by reduced incentive in the private economy. Is it possible for productivity-increasing expenditures to be too large? Conceivably, technology could change so fast as to create uncertainty and temporarily slow down capital formation. I doubt that such a reaction will ever be very widespread. I have heard busi nessmen state th at their plants were obsolete the day they opened, but there must have been some foreknowledge of this possibility, and it did not prevent construction. Further, the stalemate effect is spawned by a spurt in the rate of technological change; a steady rate, however high, would not be the basis for postponing investment. Let us switch to the other side and ask whether productivity-in creasing expenditures can be so large as to cause secular exhilaration, a prolonged period of attempted overinvestment. The present period might be cited as an example, though the boom in capital formation does appear to be coming to an end. The possibility exists but I am not inclined to worry about it. F irst of all, too high a rate of intro duction of innovations can be checked by monetary controls supple mented, if need be, lay fiscal policy. Secondly, from the social point of view ideas will keep without deterioration, but they may not be ECONOMIC GROWTH AND STABILITY 317 producible when needed except after a long lag. Thus, if we have an excess of new scientific and technological ideas 10 years hence, we can slow down their use, but a deficiency of such ideas may be correctible only by having taken appropriate action 10 years earlier. Another line of argument is that a high rate of growth intensifies business cycles. I f so, the appropriate action is not to slow down the rate of growth but rather to apply monetary and fiscal counter measures. In other words, I favor shock absorbers but not a governor. There are also arguments against relying too heavily on the private economy for increases in productivity. The educational expenditures of individuals and the research expenditures by business and endowed colleges and foundations are obviously dependent on the level of na tional income. I t may also be that, apart from the greater availability of funds, prosperity has an unfavorable effect. In depression the re search expenditures of business suffer because funds are short and the range of vision narrows. In prosperity, there is an abundance of profitable short-range projects and the interest rate is high, so the longer range research projects may be slighted. A somewhat similar phenomenon is the bidding away of teachers and scientists doing pure research into private employment during prosperous times. A firm can appropriate to itself the gain in hiring an able scientist before others do. The loss is spread over all firms. Hence, even when na tional income is high, productivity-increasing expenditures of the p ri vate economy may be inadequate and out of balance. A different type of objection can be raised to heavy reliance on p ri vate productivity-increasing expenditures. A firm that devotes large sums to research must have fairly large earnings and be relatively free from short-run competitive pressures in order to plan for the more distant future. On both counts, the large firm is favored. The weak position of small firms is underlined by the fact that in agricul ture most of the research is done by Federal and State departments of agriculture. Furthermore, basic or pure research requires the great est freedom from short-run competitive pressures and may be justi fiable only for the most secure of monopolists. There may then be a basic conflict between enforcement of our antitrust laws and reliance upon private business for scientific research. I t is interesting to note that many corporations have been using their advertising in recent years to spread the message that only large firms can do sufficient research and bring the benefits to the public. I am inclined to think that even the largest firms are not likely to do enough basic or pure research to replenish the wellsprings of technological change. A p parently we have in the past been importers of pure science but prob ably cannot continue to be. C o n c l u s io n s I t seems desirable that productivity-increasing expenditures be high, stable, and growing with real income. Such expenditures by the private economy may be too low, too sensitive to income variation, and in some ways out of balance. To some extent, this may also be true of such expenditures by State and local governments. I t is im portant, therefore, that Federal productivity-increasing expenditures be relatively high, stable, and, where possible, designed to preserve balance in the total. The possible consequences of high levels of pro97735 — 57 22 318 ECONOMIC GROWTH AND STABILITY ductivity-increasing expenditures in the form of intensified cycles and inflationary pressure seem negligible beside the consequences of too little expenditure. Short-run stabilization measures can be used to cushion any such effects as may occur. Furthermore, increases in productivity are themselves a partial corrective to inflation. Because of the cumulative nature of the effects, productivity-in creasing expenditures are not suitable for countercyclical variation. In the event of prolonged depression or stagnation, raising the level of such expenditures would be justified as a short-run stimulus to in come and a possible long-run cure. I t is certainly to be hoped th at we will never permit such losses in education and research as occurred in the thirties.
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