The archive.

When an economist calls a country's troubles 'structural,' Machlup suspects he is more often excusing a policy than analyzing a problem, and here he puts the word on trial. He sorts its economic uses into three piles: clear senses worth keeping, such as the structure of production or econometric structural equations; vaguer senses better avoided, where structure means the slow-moving or the merely institutional; and a crypto-apologetic group in which structural imbalance props up cartels, price controls, exchange restrictions, and import barriers. Diagnosing a situation as structural disequilibrium, he argues, usually substitutes terminology for analysis. In a candid postscript he concedes that his least favorite examples happen to be policies he dislikes, an admission that his own politics may color which meanings he finds clear.

Structure, I am afraid, is often a weaselword used to avoid commitment to a definite and clear thought.

Neither instant copying nor a permanent monopoly serves an economy: some delay rewards the innovator who bore the sunk costs, but prompt competitive imitation is what turns one firm's advance into a general rise in productivity. From that premise Machlup builds a spare model of quasi-rents discounted over an expected imitation lag, and uses it to doubt that patents earn their keep. Long fixed terms, he argues, are a blunt instrument, too generous for cheap innovations, too weak for costly ones, and undercut anyway by circum-invention, substitutes, and discounting. The strongest case for a patent system, he suggests, is that it fosters a socially useful illusion of protection; the true optimum lag lies far closer to an innovator's natural head start than to sixteen years of statutory delay. The essay honors Fredrik Zeuthen.

To buy innovation by paying with unnecessarily long delays of imitation is a poor bargain for society to make.

Machlup gathered definitions of statics and dynamics from Comte through Patinkin and laid them side by side, only to find the terms pulling in incompatible directions: social order versus progress, stationary states versus growth, undated versus lagged variables. His mischievous observation is that economists tend to call their own theories dynamic and their rivals' static. Rather than legislate a single meaning, he builds a six-part typology that lets a theory like Schumpeter's qualify as dynamic under half a dozen headings at once, and shows how the supposed war between equilibrium and evolutionary economics dissolves once the labels are unpacked. His practical advice: retire the two words where possible in favor of exact ones, growth theory, sequence analysis, period analysis, trend analysis.

The trouble, as I see it, is not that the division of economic analysis into Statics and Dynamics makes no sense, but that it makes too many senses.

By the late 1950s American economists were split over whether rising consumer prices sprang from excess demand or from the wage and price decisions of unions and corporations, and Machlup thought both camps were arguing with blunt concepts. He rebuilds the vocabulary, separating autonomous demand from the induced and supportive kinds, and responsive cost increases from defensive and aggressive ones, then shows that cost-push cannot persist without monetary accommodation while demand-pull can stall against fully administered prices. Reading the postwar record through these lenses, he classes 1945 to 1952 as demand-pull and 1955 to 1959 as cost-push, with aggressive wage-push a likelier culprit than profit-push. His remedy is unfashionable: stable prices require that industries enjoying productivity gains be allowed to cut prices rather than pocket them.

A search of the learned literature would yield scores of definitions of inflation, differing from one another in essentials or in nuances.

Macroeconomic reasoning did not begin with Keynes: in this German-language essay Machlup runs the pedigree back through Quesnay, Ricardo, Cournot, Böhm-Bawerk, and Wicksell, then asks what really separates macro- from microtheory. Rejecting viewpoint and aggregation as the decisive test, he favors the absence of relative prices as the mark of a macro model, and insists that macro-relations like the consumption function rest on hidden micro-relations and unstable aggregations. He punctures the claims made for macrotheory's superiority, that it is more measurable, more dynamic, closer to policy, and warns against wringing causal conclusions from ex post identities. The firm of price theory, he reminds readers, is an ideal type, not a real enterprise. His verdict on the contest is deliberately anticlimactic: neither side wins, though microanalysis keeps a philosophical primacy.

Dennoch muß mein Urteil so lauten: kein Sieger und kein Unterlegener.

English translation: “Nevertheless my verdict must be as follows: neither victor nor vanquished.”

Einstein's definition of simultaneity, and Bridgman's attempt to turn it into a general rule that a concept means nothing more than the operations measuring it, set the stage for Machlup's defense of the unobservable. Physics itself, he shows, cannot do without freely invented constructs, from mass and inertial frames to Schrödinger's wave function, and neither can economics. Supply and demand curves, price, output, the industry are idealizations no statistic cleanly captures, muddied by heterogeneous goods, discounts, and quality changes; a model's weak fit with the data often indicts the data, not the model. Drawing on Menger's contrast of exact and empirical-realistic analysis, he defines a mental construct precisely and argues that a theory's concepts need not be realistic to be relevant, only its deduced consequences testable.

A mental construct is a concept designed for purposes of analytical reasoning that cannot be adequately defined or circumscribed in terms of observables or in terms of operations with recorded data derived from observation.

Does spending more on research simply buy more inventions? Machlup's answer is a patient no, or rather, much less than proportionately more. Inventive talent is scarce and its supply inelastic; drawing in extra researchers means paying rents to every incumbent and recruiting steadily less able hands, so marginal costs climb fast. Treating invention as an industry with a production function, he traces diminishing returns as more workers crowd a fixed stock of problems and knowledge, and catalogs ten reasons a swelling flow of raw ideas yields a rising share of rejects. The result is his four shrinkages, each thinning the passage from money spent to inventions actually put to work, a sober correction to any faith that funding alone accelerates technical progress.

These shrinkages are independent of one another; but they may add up with a vengeance.

Mounting fear that the gold-exchange standard might buckle under an overhang of dollar claims frames this pedagogical survey of the leading blueprints for remaking the world's monetary order. Machlup sorts the proposals into five families—extending the gold-exchange standard, mutual central-bank assistance, centralized reserve creation, raising the price of gold, and freely flexible exchange rates—and weighs each against the charges of balance-of-payments strain, inadequate reserve growth, and fragility. He walks through the Keynes Clearing Union with its bancor, Triffin's plan to convert the IMF into a world central bank, and Maxwell Stamp's certificates for development aid, using balance-sheet T-accounts to separate genuine reserve creation from mere credit transfer. He declines to crown any single plan, offering analysis rather than verdict.

Gold and exchange reserves are needed only if exchange rates are not permitted to move to the level that would equilibrate the market at the moment.

Treating a schoolteacher's lecture, a corporate research memo, a television broadcast, and a patent application as outputs of a single vast industry, this survey builds the first full accounting of what Machlup calls knowledge production in America. He measures education, research and development, the communication media, information machines, and the professional services, then sorts every knowledge worker into transporter, transformer, processor, interpreter, analyzer, or original creator. The reckoning startles: total knowledge production reached roughly $136 billion in 1958, near 29 percent of adjusted GNP, while knowledge-producing occupations tripled their share of the labor force between 1900 and 1959. Along the way he argues that government itself produces knowledge when it frames and communicates rules, and that American schooling could be compressed into markedly fewer years.

The production of knowledge is an economic activity, an industry, if you like.

Can economists understand one another when a word like wealth, consumption, or competition shifts meaning from writer to writer? This slender essay answers that careful definition, though never a substitute for empirical research, is the precondition of coherent debate. Machlup traces a lineage of terminological housekeeping through Malthus, Nassau Senior, Richard Whately, and the quantitative pioneer Henry Moore, showing how each labored to strip ambiguity from the vocabulary of political economy. He endorses Senior's insistence that everyday terms be defined to match their ordinary educated use, while resisting Senior's extreme anti-empiricism. The result is a compact defense of semantic clarification as necessary but never sufficient: a discipline of language that clears the ground for knowledge without pretending to be knowledge itself.

Some people regard exercises in semantics as a waste of time. I consider them useful, if not indispensable, if we care to understand one another.

Paul Samuelson had argued that a theory resting on empirically false assumptions must be discarded; this short polemic answers that the rule would abolish theory as such, since every empirical test yokes a model to assumed occurrences. The sharpest thrust is turned against Samuelson himself. His celebrated factor-price equalization theorem, Machlup notes, derives illuminating conclusions from wildly unrealistic premises about countries, commodities, factors, and technology—precisely the abstract method Samuelson elsewhere condemns. Far from an embarrassment, that theorem exemplifies how strong simple cases point toward truths buried in complex situations. The essay thus enlists a leading formalist's finest work as evidence for the indispensability of unrealistic assumptions in economic reasoning.

What Samuelson does here is to reject all theory.

When Machlup rose to lecture at the University of Kiel's three-hundredth anniversary, he chose to turn the tools of economic calculation on higher education itself, in the German original preserved here. He confronts head-on the charge that pricing culture is materialistic, replying that the economist does not judge the intrinsic worth of universities but only makes explicit the valuations already buried in public budgets and private choices. Separating research, teaching, and learning, he shows that students bear the heaviest learning costs through fees and forgone earnings, cites Becker's estimates of private returns near ten to twelve percent, and then adds the external benefits to families, employers, and future generations. The social return on university capital, he calculates from American data, may reach twenty-four percent—roughly double the yield on industrial capital.

Ob die mit einer Million bezahlten Leistungen kulturelle oder materielle Werte darstellen, ist vom Gesichtspunkt der Rationalität gleichgültig.

English translation: “Whether the services paid for with a million represent cultural or material values is, from the standpoint of rationality, immaterial.”