The archive.

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.

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.

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.

For the seller who feels himself one among very many, rivals are colleagues rather than threats—and it is this state of mind, not the sheer count of firms, on which Machlup rebuilds the theory of selling. He coins pliopoly for the pressure of potential newcomers, setting it beside polypoly, oligopoly, and monopoly, and defines a true monopolist by the triple absence of all three. Against businessmen who claim they price by average or full cost, he reinterprets such rules as competitive responses to expected demand elasticity, treating cartel ethics and break-even charts as evidence rather than refutation. The analysis ranges across perfect and imperfect polypoly, artificial scarcity and monopoly rents, and the kinked demand curve, always parting the economist's objective calculus from the trader's rough feel for the market.

The concept of the industry is nothing but an expedient device for ruling out negligible or too uncertain interdependence.

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.”

First published in 1943 and reissued here, this technical study rebuilds foreign-trade theory around the money-income multiplier, discarding the instantaneous multiplier of textbook exposition for a period-by-period sequence in which time itself becomes a variable. Machlup traces how an autonomous export sets off successive rounds of income and induced imports, then layers in induced saving, foreign repercussions across two and three countries, and the capital account, all through numerical model tables and elementary algebra. Foreign trade, he shows, plays a double role—both multiplicand and determinant of the multiplier—so that imports lagging behind exports are what let income rise at all. He closes by refusing the neo-mercantilist temptation, since the multiplier offers no honest warrant for tariffs and quotas once price effects, retaliation, and the gains from international division of labor are admitted.

Only the lag of imports behind exports makes it possible that money income rises as a consequence of the exports.

European governments in the mid-1960s complained that the international monetary system compelled them to lend to America, piling up dollars they never wished to hold; de Gaulle charged that the dollar-exchange standard let the United States run up foreign debt almost for free. These two Wicksell Lectures test that grievance. In the first, Machlup weighs eight hypotheses for the persistent U.S. payments deficit—rejecting relative price inflation outright, crediting European devaluations and America's outsized transfer commitments—while insisting that a deficit is never a bare fact but an artifact of accounting convention. The second reconceives the holding of any foreign reserve, gold included, as an interest-free loan to the rest of the world without maturity, and compares fiduciary reserves, gold, and no reserves at all under freely flexible rates.

Receiving foreign currency implies foreign lending regardless of whether or not the recipient is conscious of his making a loan.

Two words—adjustment and financing—have been used in so many senses that the confusion hides genuine disagreement over what governments facing a payments imbalance should actually do. Machlup imposes order by carving out a third category. Real adjustment is narrowed to the classical mechanism of relative costs, prices, incomes, and resource allocation; financing is confined to short-term funds that tide over an imbalance; and between them sits what he names compensatory corrections—measures such as tariffs, subsidies, and lasting capital-flow shifts that reduce the need for adjustment without being either. The taxonomy carries a policy sting: because real adjustment is painful and financing a mere stopgap, authorities reach for corrective measures that so often fail through retaliation, offsetting trade effects, and induced import demand.

Rationing a scarce supply of foreign exchange under direct controls does not reduce the demand, but merely leaves part of it unsatisfied.

Recall the old "cloakroom theory" of banking, in which a bank merely stores money and hands it back like a coat checked at the door—a fiction long since exploded for commercial banks, which plainly manufacture deposits by lending. Machlup's essay asks why the same superstition still binds international institutions, keeping the IMF a warehouse of member currencies rather than a creator of reserve money. He recounts how the United States rejected Keynes's Clearing Union at Bretton Woods for fear that international money creation would siphon real resources from creditor nations to overspenders, then presses the question reserve creation cannot escape: whoever spends newly created money first commands real goods at others' expense. Costless reserve deposits, unlike gold mined at great cost, could hand that saving to developing countries—if the world will decide who ought to benefit.

In the opinion of an increasing number of experts, the required reform or necessary evolution will take the form of extending the functions of the IMF and, especially, of allowing its liabilities to become reserve assets for national monetary authorities.

Behind the Bretton Woods debates over how much gold and foreign exchange a country ought to hold lies a prior question Machlup insists economists have dodged: whether monetary authorities can be said to need reserves at all. Distinguishing need from desire and demand, he defines a need by the consequences of its absence — devaluation, deflation, exchange controls — and turns that test against the familiar ratios of reserves to imports, money supply, or past deficits, which he finds describe convention rather than requirement. Data from fourteen industrial countries between 1949 and 1965 show variation no single formula explains. His wife's-wardrobe analogy reframes the matter: what a growing world economy needs is not a particular stock but annual additions to reserves, enough to keep governments from lurching toward restriction.

This article will address itself to the question whether it is possible to find any objective criteria for the need of monetary reserves, either for individual countries or for the world at large.

Ten executives gather around the table of a fictional XYZ Corporation, and each proposes a different use for the same surplus — plant expansion, higher dividends, basic research, university gifts, worker bonuses, price cuts — while insisting that his preferred policy serves the company and the national interest alike. From this staged meeting Machlup builds a satirical assault on the doctrine of corporate social responsibility, showing that once profit maximization under competition gives way to an open-ended mandate to serve society, almost any managerial preference can be dressed as public duty. His remedy is competition, which narrows discretion and forces attention back to product and efficiency. The comedy also skewers behavioral theories of the firm, where a surplus of equally plausible motives makes any single corporate decision impossible to predict.

Perhaps they illustrate the enormous difficulties of “behavioral theories”: ten participants in corporate decision making propose ten different courses of action, and there is no warrant for any generalization as to what they are likely to decide after the coffee break.