cashless society
A modern economy which uses credit cards and direct debiting of bank accounts to make payments, instead of notes and coins.
cash limit
A method of controlling government spending in the UK which replaced a constant-prices system. From 1974 to 1976, cash limits were used for several public sector building programmes and from 1976 for about 60 per cent of central government expenditures. Originally, the government calculated the real value of current programmes and then added an amount to compensate for some or all of inflationary increases. From 1981, the system was simplified by expressing public expenditure targets entirely in cash terms.
cash management account
A bank deposit of US commercial banks, a checking account that pays a return linked to investments. Originally designed by Merrill Lynch (with the processing done by Bank One, Columbus, Ohio) in 1977 to evade the strictures of regulation q.
Cash Management Bill
US treasury bill with very short maturity that is sold occasionally by the US Treasury to boost the Treasury’s cash balance.
cash nexus
Human relationships based on monetary transactions. Thomas Carlyle in Chartism wrote: ‘Cash payment had not then grown to be the universal sole nexus of man to man’.
cash positive
A surplus in cash but not necessarily profits; a positive cash flow.
cash price-earnings ratio
A modified version of a price-earnings ratio, with earnings measured as post-tax earnings + non-cash provisions (e.g. depreciation). This ratio removes some of the effects of conservative accounting, making international comparisons more meaningful. But as depreciation reflects the capital intensity of an industry, the cash price-earnings ratio will undervalue service industry shares.
cash transfer
An income or grant by a government to a person or firm in the private sector, e.g. a pension, an educational bursary, a training grant, which is made to implement a government’s redistribution policy. Unlike the alternative, in-kind transfer, the recipient has more freedom to determine consumption.
Cassel, Karl Gustav, 1866-1945
After studying mathematics at Uppsala University, Sweden, he became a professor of economics at Stockholm University in 1902. He was a founder of modern Swedish economics, especially noted for Theory of Social Economy (originally published in 1918) and monetary writings. He rejected both labour and marginal utility theories of value in favour of a price theory which he also applied to his study of the rate of interest. He relied on the quantity theory of money in his monetary economics and was anti-Keynesian. His pupils included OHLIN and MYRDAL.
casualization
The process of changing employment from regular and permanent to occasional and part-time forms. This is done to increase the flexibility of a labour force.
catallactics
The study of all market phenomena, i.e. of actions conducted on the basis of monetary calculation.
catalytic policy mix
A mixture of major and subsidiary policies: the latter are used as a catalyst to avert the undesired effects of a major policy.
catastrophe theory
The applied mathematical study of discontinuities which states how many stable equilibria exist given a choice of control variables but does not indicate which of them will be in a particular system. A ‘catastrophe’ occurs when transition from one equilibrium to another produces instability in the system.
catching-up hypothesis
1 The view that in the post-1945 period the countries which had lost a great deal of their capital stock in the Second World War, and had to renew it, experienced higher growth and productivity through having modern plant and machinery.
2 More generally, the way the national income of any low-productivity country is raised. Thus, gross investment (including replacement investment) has been regarded as a more important determinant of economic growth than net investment.
categorical grant
A grant from a central or federal government to a lower level of government to be spent on only a particular category of expenditure. Such grants can be based on a formula (e.g. reflecting the size and age distribution of the population) or on a project (e.g. introducing a new educational curriculum). They usually require matching funds by state or local government.
cats and dogs
Speculative stocks and shares with a poor history of sales and earnings.
CAT standard
The standard a product has to meet in Charges, Access and Terms. This approach to quality management was introduced in the UK in the 1990s.
ceiling
A peak in economic activity; the maximum level of production in a business cycle or trade cycle after which there is a downturn in output, employment and prices. The peak is often associated with full employment of the factors of production: shortages of skilled labour and bottlenecks in production bring about a decline from peak activity.
ceiling price
Maximum price set under a system of price control. if, as is often the case, this price (oc in the figure) is less than the market equilibrium price oE, there will be excess demand MN and some need for rationing to allocate goods.
Celler-Kefauver Antimerger Act 1950
This US federal statute, amending the sherman and clayton Acts, limited the expansion of firms by merger by making it illegal for major firms to acquire their competitors’ assets or stock if the effect is a substantial reduction in competition or a contribution to the creation of a monopoly.
Celtic tiger
Ireland, because of its exceptional economic and employment growth among OECD countries. GDP growth averaged over 9 per cent annually in the 1994-8 period and unemployment fell by nine percentage points. There was labour force and labour productivity growth. Merchandise trade grew to 25 per cent of GDP and the fiscal surplus to 1.75 per cent of GDP. Although European Union funds and foreign inward investment contributed to economic growth, there was no overriding policy plan which drove the economy forward.
Census of Manufactures
A regularly published statistical account of the economic activities of the firms of the manufacturing sector of a national economy. In the USA, this census was first conducted in 1809 and has been published every five years since 1967.
Census of Retail Trade
A survey of the economic activities of retailing establishments and firms. In the USA, it was first published in 1929; since 1967 there has been a census every five years.
Center for International Studies
Founded in 1951 at the Massachusetts Institute of Technology.
Central Arbitration Committee
UK body established in 1975 with the concerns of sexual discrimination, collective bargaining agreements and pay structures, as well as making awards if employers refuse to disclose information for collective bargaining purposes.
central bank
The bank of any country which ultimately guarantees the liquidity of the banking system as a whole. It is usually owned by the government (in the USA, the Federal Reserve System is owned by the member banks). By setting interest rates for discounting the short-term bills of the banking system and by open market operations, a central bank is able to exert a powerful influence over the size of the money supply. Other methods of control over the banking and financial systems include the prescribing of reserve assets ratios, the issuing of directives and the examination of the accounts of banks and other financial institutions.
Although the oldest central bank is Sweden’s Riksbank (founded in 1668), the Bank of England was the first central bank to specialize as a central bank, i.e. largely to abandon its private functions and to concentrate on issuing banknotes, acting as the government’s bank in managing the national debt and controlling the money supply and the exchange value of the pound sterling. In the nineteenth century, England’s example influenced France, the Netherlands, Austria, Norway, Denmark, Belgium, Spain, Germany and Japan to set up their own national banks. The USA’s Federal Reserve System of twelve district banks was set up in 1913.
central bank independence
The conduct of monetary policy by a central bank, independent of governmental control through its Treasury. This has long been true of the USA with its federal reserve system, and of the UK since 1997.
central limit theorem
An attempt to explain why so many distributions of independent variables are close to the normal distribution.
centrally planned economy
1 An economy whose investment and production is co-ordinated by a central governmental body.
2 A command economy. Inspired by the celebrated Soviet five-year plans of the 1930s, many countries in Eastern Europe and in the Third World used this alternative to the market economy but found it impossibly inefficient, with the result that in the late 1980s it was largely abandoned. In this type of economy information is regularly collected to form the basis of a forecast of economic activity and to construct proposals for the future development of production. There is an annual issue of targets for subordinate state enterprises. Some economies of this type tried to reform their planning procedures, e.g. Hungary with its major economic reform of 1 January 1968.
central occupation
The main occupation which characterizes an industry and is essential to its working, e.g. doctors and nurses in medical services, farmworkers in agriculture.
central place theory
An account of the way a continuous hierarchy of economic activities determines the optimal locations of cities. It takes into account threshold population size and the ideal limit of consumers’ travel to trading enterprises. The central place is the settlement in a region complementing it, offering goods and producing services for consumers at dispersed points. This key settlement is often located at the geographical periphery because of factors such as marketing and traffic
Centre for Policy Studies
An independent London-based economics research institute founded in 1975 with the aims of research and education in economic and social affairs. It is noted for applying market solutions to economic problems.
centre-periphery system
A system of international economic relations consisting of active world industrial centres and a passive periphery. The periphery produces and exports raw materials to the centre; the centre receives a disproportionate share of income and is slow to transmit technical knowledge to the periphery – it does so mainly in exporting industries.
certainty equivalent
The amount of money definitely available that will give a decision-maker the same utility as that from a more risky course of action.
certificate of deposit
A marketable bank deposit receipt which has the advantage of allowing the holder to gain the higher rate of interest associated with fixed or long-term deposits. Certificates of deposit (CDs) were introduced in the USA in 1961 and grew in volume after 1973 when regulation q no longer insisted that there had to be a ceiling to the rate of interest. Dollar CDs have had to be registered securities from 1983 onwards. The Eurodollar CD was introduced in London in 1966 and the sterling CD in 1968. Companies, and even banks, depositing surplus funds short term and obtaining CDs both increase their investment income and maintain their liquidity.
Certification Officer
UK official whose post was established in 1975 with the particular remit of certifying that trade unions are independent; also concerned with the political funds of trade unions.
ceteris paribus
Latin expression meaning ‘other things being equal’. A term popular from the mid-nineteenth century, especially in partial equilibrium analysis when the relationship between two variables is investigated, all other variables which might be influential being assumed to have unchanging values. This is a useful concept in microeconomics as a demand curve shows the relationship between price and quantity demanded with income, tastes and the prices of other goods held constant.
chaebol
Korean group of giant companies controlled by a family-owned holding company.
chain bank
A bank linked to others through common stockholding. Banks of this kind were present in Chicago as early as 1893.
chain index method
A measure proposed by Champernowne to enable a conventional production function to be built which is compatible with marginal productivity theory. All alternative production techniques are arranged in a ‘chain’ for some predetermined rates of profit.
chain migration
A sequential process of migration with one phase of migration linked to subsequent phases of migration. A major example is when the first cohort of migrants induces subsequent flows of migrants consisting of their relatives and friends who have been persuaded to move because of the information sent back by the ‘pioneers’.
Chamberlin, Edward Hastings, 1899— 1967
Educated at the Universities of Iowa, Michigan and Harvard where his PhD, supervised by Allyn young, formulated the theory of monopolistic competition, his principal achievement. Although Joan robinson produced a theory of imperfect competition in the same period, Chamber-lin was always keen to differentiate his theory from hers.
Chancellor of the Exchequer
UK finance minister who is the ministerial head of the Treasury. The Chancellor is responsible for proposing changes in public expenditure and taxation, the conduct of monetary policy nationally (apart from the independent setting of interest rates) and internationally and all currency matters
change in demand or supply
An increase or decrease (e.g. of income) which causes a shift in the demand or supply curve. A shift in the demand curve from DD to D’D’ raises prices for each quantity, e.g. from OP to OP’ at OQ. An increase in supply from SS to S’S’ leads to more being supplied at each price level, e.g. from OQ to OQ’ at OP. This is not caused by a price change, which would result in a movement along the particular curve, but by a change in the ceteris paribus conditions.
change point analysis
An attempt to determine whether and when a change has occurred. Changes are detected by cumulative sum charts and by calculating the number of bootstraps. A 90 per cent or 95 per cent confidence is needed to establish a change.
chaos theory
An analysis of random movements applied to the price data of stock and currency markets, as well as to meteorology. Chaotic behaviour appears random in that changes in prices or other economic variables show no regular periodicity and are not part of a structure detectable by statistical tests. However, more sophisticated tests offer a chance of identifying underlying non-linear mathematical structures.
Chapter l7
The authority for the bundesbank to provide temporary liquidity to financial markets using the funds deposited with it.
characteristics theory of consumer demand
consumer theory based on the assertion that consumers demand the characteristics of goods rather than the goods themselves. For example, instead of there being a demand for housing, there is a demand to live in a house with certain amenities located in a pleasant area. Kelvin Lancaster proposed this alternative to traditional utility-based consumer theory.
charge
1 The price of a service.
2 A right over property given to a creditor in return for a loan.
charge card
A plastic card issued by a financial institution, such as a bank or a retailer, which allows the holder to charge the sum due for the purchase of goods or services to an account. This reduces the need to hold cash for transactions purposes and provides the holder with credit until the account is payable. Major examples of such cards include those issued by American Express and the Diners’ Club.
chartered company
A UK company established by a Royal Charter. Several, in particular the East India Company and the Hudson’s Bay Company, were set up in Elizabethan England in the early seventeenth century.
chartism
1 A technique of market analysis which predicts prices by extrapolating future price movements from a chart of previous price fluctuations. This has been applied to the study of stock and foreign exchange markets. It is argued that prices represent all influences on demand and supply, including information. Recurrent patterns, e.g. a ‘head and shoulders’ shape, are used to predict changes in trends.
2 A political movement in England and Scotland of the 1830s and 1840s for the reform of the franchise, named after a charter presented to parliament.
chart point
A significant point on a graph of price movements, especially of a currency, which usually prompts intervention in that market.
cheap money
A policy of keeping interest rates low to encourage capital accumulation and economic development. In the UK, this policy was launched by the War Loan Conversion of June 1932 and continued until 1951: under it the bank rate was only 2 per cent. In the USA, this policy was used to ease the cost of servicing the national debt during the Second World War and in the immediate post-war years. Also some Latin American countries followed it. A policy of this kind has its problems. Real interest rates can become negative, generating an excess demand for credit, with the consequence that finance has to be rationed rather than allocated by interest rates.
checking account
A US commercial bank deposit available for immediate use by the writing of a check (cheque). These deposits are part of the M1 money supply: until 1980 they did not bear interest. In the UK, they are known as current accounts.
check-off provision
A clause in an employment contract requiring an employer to deduct trade union subscriptions from workers’ pay. This arrangement lowers the cost of trade union administration and stabilizes trade union membership as many persons will remain in the union through inertia.
Chenery, Hollis Burnley, 1918
A prominent US development economist.
A graduate in mathematics, engineering and economics from Arizona, Oklahoma, Virginia and Harvard Universities. Professor at Harvard from 1965 to 1970 and from 1983; economic adviser to the president of the world bank in 1970-2 and the bank’s vice-president in charge of development policies in 1972-82. His quantitative approach to development economics views self-sustaining economic growth as a function of industrialization, which is itself associated with a switch from agricultural to industrial products in the commodity structure of a country’s exports. In 1959, he published a widely used input-output text. He collaborated with arrow and others in 1961 to produce the CONSTANT ELASTICITY OF SUBSTITUTION PRODUCTION function which substantially replaced the popular cobb-douglas PRODUCTION FUNCTION.
