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Merijn Knibbe
First published 2020
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
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Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2020 Merijn Knibbe
The right of Merijn Knibbe to be identified as author of this work has
been asserted by him in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
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or registered trademarks, and are used only for identification and
explanation without intent to infringe.
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ISBN: 978-0-8153-5334-8 (hbk)
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Typeset in Galliard
by Apex CoVantage, LLC
Contents
List of tablesix
List of graphsx
List of figures and diagramsxii
Prefacexiii
1 Introduction 1
Introduction 1
1.1 Why this book? 2
1.2 Conceptual differences extend to the cores of neoclassical
macro theory and statistical macro-measurement 5
1.3 The two very different meanings of ‘micro-founded’ 9
1.4 The differences between macro-models and macro-statistics
have a history 10
1.5 Macroeconomic events outside the framework of neoclassical
macroeconomic models as well as macroeconomic
statistics 12
1.6 The changing boundary of our idea of ‘the (macro)
economy’ and the immensely measurable nature of monetary
transactions 14
1.7 Hey, national accounts are political accounts 22
1.8 Overarching integration: the modern flow of funds /
national accounts 23
1.9 An overview of the key differences between DSGE macro-
models and macro-measurements 25
1.10 Mitchell-style business cycle indicators, the accounts and
DSGE models 28
1.11 The conceptual model of the book (1): five interrelated phases
of development of a macro-statistical variable 30
1.12 The conceptual model of the book (2): cases 31
1.13 The conceptual model of the book (3): meta-formulas 32
vi Contents
2 Money, prices and pricing 38
2.1 Introduction 38
2.2 Transactions 38
2.3 Prices and pricing 41
2.4 Money 42
2.5 The nature prices and pricing in a monetary society 47
2.6 The nature of the statistical production boundary 59
2.7 National accounts as an instrument of control 68
6 Consumption 177
6.1 Introduction: the concept 177
6.2 Consumption in the national accounts: definitions
and operationalizations 178
6.3 Consumption in the DSGE models 185
6.4 A comparison 194
Epilogue251
Index254
Tables
A book like this, comparing theoretical and empirical concepts and definitions
of (neoclassical) macroeconomic variables with the concepts and definitions of
the (macro-)statisticians had to be written. As there isn’t one while considerable
differences do exist. Which leads to misunderstandings. To be able to do write
such a book, one has to be a ‘Jack of all trades’. I qualify. But as this proverb goes
there is a trade-off to this: I’m a master of none. I’m not professionally occupied
either with labor statistics or data on consumption, capital or, investment or with
constructing ‘real’ variables (although I have constructed and estimated such
estimates). For all these subjects there are people better equipped to write about
the concepts and definitions, even when the economic history approach I use in
this book does add value to the often technocratic analyses of the specialists. Also,
I did not publish any DSGE model (and do not intend to do so. A systematic
comparison of the statistical and the theoretical concepts is, however, lacking – so
somebody had to bite the bullet. As far as I know, this book is the most system-
atic and in-depth overview available of the differences between the concepts and
definitions of theoretical, neoclassical macro-economics and the macro-statistics
as embedded in the National Accounts, the Flow of Funds and the Labor Statis-
tics. As knowledge about the differences between the theoretical and statistical
concepts is pivotal to the interpretation of the data as well as the models, it fills a
void – it is for instance important to know that, generally, the neoclassical macro
concept of consumption deals only with non-durable, non-government goods
and services. My endeavor will often be wanting, shallow or even plain wrong,
but it does show that such differences can and have to be pointed out if we want
to move to a better science of economics. It is a call to arms.
Not many economists share an interest in comparing basic traits of the statistics
to those of neoclassical macro-theory even when many are interested in either the
statistics or the theory. Some, however, do. Nathan Tankus provided me, unwit-
tingly but intentionally, via his Twitter account, with invaluable links to articles
and authors. The ideas of the economist Means, which are pivotal if one wants
to move from a theory based on market prices only to statistics based on market
but also on administered and regulated prices, would not be in this book without
him. Early attempts of several of the chapters in this book have been read and
criticized by Josh Mason and Dyane Coyle, while an early draft of the chapters
xiv Preface
on money has been presented to Daniel Mügge, Professor of Political Arithme-
tic, and colleagues at the University of Amsterdam. I owe a debt of gratitude to
all of them. The ideas of Frits Bos, long ago a fellow student as well as a former
colleague at the Centraal Bureau voor de Statistiek, permeate the book. The idea
that rigorous quantification of social processes does not exclude a genuine and in
depth interest in the fate of real ‘common people’, and even is a necessary part of
investigating their lives, which is one of the guiding principles behind this book,
is a clear consequence of long term contacts with the Economic History group at
the University of Groningen.
1 Introduction
Introduction
This book discusses the complex conceptual differences between macroeconomic
measurements and neoclassical macroeconomic theory, which this chapter out-
lines in three parts:
• First part of Chapter 1. Paragraph 1.1 The ‘why’ of the book, the three
basic questions as well as some sources and methods of investigation.
• Second part of Chapter 1. Paragraphs 1.1–1.10. Theoretical backgrounds to
the framing, discussion and interpretation of the results of the investigation.
• 1.2 Conceptual differences extend to the cores of neoclassical macro
theory and statistical macro-measurement;
• 1.3 The two very different meanings of ‘micro-founded’;
• 1.4 The differences between macro-models and macro-statistics have a
history;
• 1.5 Macroeconomic events outside the framework of macro-models as
well as macro-statistics;
• 1.6 The changing boundary of our idea of ‘the (macro) economy’ and
the immensely measurable nature of monetary transactions;
• 1.7 Hey, national accounts are political accounts;
• 1.8 Overarching integration: the modern flow of funds (FOF) / national
accounts;
• 1.9 An overview of the key differences between DSGE macro-models
and macro-measurements;
• 1.10 Mitchell-style business cycle indicators, the accounts and DSGE
models.
• Third part of Chapter 1. Paragraphs 1.11–1.13 Elements of the structure
of the story.
• 1.11 The conceptual model of the book (1) – five interrelated phases of
development of a macro-statistical variable;
• 1.12 The conceptual model of the book (2) – cases;
• 1.13 The conceptual model of the book (3) – meta-formulas.
2 Introduction
It was one of the reasons for him to coin the phrase ‘neoclassical’ for this
kind of economic discourse; this book can be understood as an endeavor to
check if this Veblen quote still has truth to it, over one hundred years later.
Anyway, this lack of precision and the often implicit nature of assumptions
makes it quite complicated to investigate the concepts of the variables used in
the neoclassical models. The all-important concept of consumption which is at
the heart of neoclassical macro has to be gleaned from occasional remarks in
papers, footnotes and by reading between the lines. Macro-statisticians, to the
contrary, take great care to define their variables. When it comes to consump-
tion, Eurostat states:
This ‘utility’ of the ‘representative consume’, who stands for society, is somehow
related to the variable with the same name in the microeconomic models of the
homo economicus, a variable which pervades economic theory and which has done
6 Introduction
so for quite some time (Marshall 1920), even when no mechanism for adding
individual utility of individual people is provided.1 But ‘social’ utility is why neo-
classical DSGE economists equate unemployment with leisure. Optimizing util-
ity, and not money, makes the world go round in the models.
But ‘utility’ is not at the heart or even the fringe of economic measurement.
Far from it. An equally smart non-economist observer blessed with an even larger
amount of perseverance would answer the question ‘what are macro-statistics all
about?’, after reading tons of always bland and boring manuals about the NA
and the FOF and after investigating screen after screen of data and scores of press
releases, also with one word. But a quite different one:
Transactions! Whatever the statisticians measure, it’s not ‘utility’. They do not
even try. They measure transaction based monetary flows of income, production,
labor, all kinds of expenditure and also credit in a granular way. Hey, you
really should take a look at the data about domestic credit to the Irish construc-
tion sector before and after 2008, information which is routinely available in
the datasets of the Central Bank of Ireland!
They also measure stocks of financial assets (including different kinds of
money) and they measure sectoral debts and the monetary value of fixed assets.
And they also directly measure one non-monetary variable: paid labor. And
unemployment. And they measure prices and interest rates and, neat, the flows
are interconnected. A change in one flow is by accounting necessity connected
to offsetting changes in other flows. They do this by bottom up aggregating
120,000
100,000
80,000
60,000
40,000
20,000
–20,000
To explore further the problem raised by public expenditure would take us into
the mathematical domain of ‘sociology’ of ‘welfare politics’. . . . Political econ-
omy can be regarded as one special sector of this general domain, and it may
turn out to be pure luck that within the general domain there happened to be a
subsector with the ‘simple’ properties of traditional economics.
(Samuelson 1954, p. 389)
the task of adding together the total utilities of all commodities, so as to obtain
the aggregate of the total utility of all wealth, is beyond the range of any but the
most elaborate mathematical formulae . . . if the task be theoretically feasible,
the result would be encumbered by so many hypotheses as to be practically useless.
(Marshall 1920, p. 521)
This problem of measuring utility is still not solved: ‘utility’ in the models is not
aggregated from the bottom up but introduced in the models as a top down
unmeasured variable. A relation between individual utility of real persons and
utility of the representative consumer representing society is not specified or
mentioned. This circumvents but does not solve the aggregation problem already
mentioned by Alfred Marshall and more thoroughly analyzed by Kenneth Arrow,
an analysis which led him to coin the impossibility theorem (Arrow 1950). Now-
adays, these criticisms still stand (Morreau 2014). Unless everybody is exactly
equal it is not possible to aggregate individual preferences into consistent social
preferences. The statisticians to the contrary do not use utility but ‘monetary
transactions’ as their core variable. As every profit and loss account shows, there
is a clear and identifiable relation between individual and aggregated transactions
and, within the confines of a company or a person or an economic sector or even
a country, between different kinds of expenditure. Macro-measurement is as such
almost the antithesis of the models, while utility defies measurement and aggre-
gation, monetary transactions are immensely measurable and enable aggregation
in a big way. In the meanwhile the concept of micro-utility has regressed to the
purely psychological variable already criticized by Thorstein Veblen and has not
become a more advanced version of the ‘use-value’ related variable defined by
12 Introduction
Alfred Marshall and dear to modern marketeers. It still defies measurement.3
While the NA are by now measured as a matter of routine, on a quarterly basis
and the world over. In a sense and when it comes to macroeconomics, economic
science has come full circle since the criticisms of Veblen. Albeit, when it comes
to the models, on a more sophisticated level of mathematical description. And
when it comes to measurement, on a much higher theoretical as well as practical
level of statistics and measurement.
The differences between models and measurement also extend to the social
realm. Modelers often work at universities, are pressured to ‘make a name’ and
do not have the same publication avenues as the often anonymous statisticians.
‘Heroes’, to borrow a phrase from the analysis of corporate culture, are people
who published a lot in prestigious journals and who get cited a lot. But who are
our statistical heroes? I’ve lauded Wesley Mitchell, an economist-statistician who
in his age was very well known. But while lesser contemporaries like John Bates
Clark, Alfred Marshall and Irving Fisher are still well known he is all but forgot-
ten. John Bates Clark, one of the neoclassical economists starting to tinker with
the concept of a classless, genderless and race less society modelled with the con-
cept of the representative consumer even has a very prestigious price named after
him. A Wesley Mitchell prize of economic measurement is lacking. . . . It’s not
just that there is no such price. It’s also that economic statisticians do not seem
to feel the need for it. Their culture is not aimed at making a name or becoming
a scientific hero. But it’s aimed at measuring the economy in an anonymous way,
while theoreticians literally need to make a name to keep their job and are part of
a culture which glorifies individual honor bestowed upon them by society. The
highest honor, TSRPiESiMoAN, is not awarded to institutes. Statistical work
for various reasons often requires anonymity while main results are often anony-
mously published by institutions. As stated: differences are huge – even when
TSRPiESiMoAN winners like Jan Tinbergen, Milton Friedman, Simon Kuznets
and George Stigler started out as economist-statisticians – the last three of these
at the national Bureau of Economic Research (the total number of prize winners
associated with the NBER is 27). But the social and cultural world of the statisti-
cians is not the same as that of the theoreticians.
Bubbles and busts and ‘class’ are, as yet, not an integrated part of the accounts or
the models, let alone of an integrated science of economics were measurements
and theory tally, even when Wesley Mitchell pioneered the estimation as well as
the dating of business cycles while ‘class’ as an economic category was prevalent
in the writing of many 19th-century economists. At present, monthly measure-
ments of producer of consumer sentiment or industrial production are used to
measure cycles while the work of Bokan et all. and Fessler and Schürz show that
the class gap can be tackled, too. But class and the swings of the business cycle
data are not yet well tied to either the national accounts or the models. Next to
mending a rift there is a road to travel, too.
In dealing with the product of government, the same criterion is used that has
been applied in the industrial fields previously studied; namely what book or
money income do individuals, as such, derive therefrom. Evidently, govern-
mental units expend great amounts for wages and salaries, but they pay no
dividends. Large sums are, however, disbursed in interest, mostly to private indi-
viduals, but to no inconsiderable extent to banks.
Clearly, the government was included in the first major national accounts study of
what already was the major economy in the world, based upon a purely monetary
criterion: government employees are paid a wage. Including the government in
the ‘national dividend’ was – contrary to the remarks of Mitra-Kahn – not an
invention of Keynes. More important: actual measurement forced economists
to be much more precise and clear about what they were talking about than
Smith and Marshall ever were forced to be, which eventually led to concepts like
18 Introduction
‘actual individual consumption’, which includes the consumption of individually
consumed goods and services provided by the government, like large chunks of
education. Excluded are the depletion of stocks of natural assets as a negative and
also excluded household work (King et al. 1921) but this omission is explicitly
mentioned and a very rough estimate of the importance of household work is
provided. Inclusion of the depletion of stocks of natural resources as a negative
still has to be incorporated in the accounts.
The influence of people like Mitchell but also Bowley and Colin Clark (who
estimated integrated accounts for the UK (Clark 1937) can also be witnessed
in the work of Keynes himself. The Economic Consequences of the Peace (Keynes
1919) still used a large amount of not well integrated data to prove Keynes’s point
about the state of an (admittedly fragmented) national economy. Eighteen years
later, in the autumn of 1939 when he published the articles which would become
his ‘How to pay for the war’ in the London Times, he used national accounts
data based upon the work of Colin Clark but (guided by Keynes) extended and
updated by Rothbarth (Keynes and Rothbarth 1939). There are several inter-
esting parts to this epoch making piece. First, it showed the power of national
accounting as a tool for policy. Second, it contained income estimates per income
group, a mayor advancement and a deliberate goal. As Keynes (1940) stated in
the acknowledgments: ‘I have been assisted throughout on the statistical side by hlr.
E. Rothbarth of the Statistical Department, Cambridge University, who is respon-
sible, in particular, for the estimated division of total income between the income
groups’. Third, it rightly envisioned government expenditure as expenditure with
the same main goals as private expenditure: consumption and investment. This
enabled Keynes to provide a much more systematic analysis of the economy than
he could provide in ‘The economic consequences of the peace’: his work was finally
up to the standard of King et al. (1921). He was well aware of the distributional
effects of high wartime inflation: the poor would suffer most. Eager to prevent
this he was able to state, with some quantitative precision, how much disposable
income of different groups of consumers had to be restrained to lower consump-
tion expenditure to be able to free resources for the war effort while keeping the
purchasing power of the lower income group afloat at least to an extent. Impor-
tantly, he used the three basic national account approaches (income, expenditure
and production) in combination. Nowadays, such data are a staple of GDP press
releases in the shape of the ‘supply and use tables’ (Eurostat 2018a) though it has
to be stated that the standard national accounts do not contain data on different
income groups – Keynes’ main national income innovation has been discarded!
See also Tily (2009). There is a nasty twist to this. Patnak (2018) argues that,
at least inspired if not guided by John Maynard Keynes, during World War II
the British government pursued a policy of ‘profit inflation’ in India, increasing
profits and decreasing the purchasing power of the poor to free resources for the
war effort – a policy which led to the Bengal famine of 1943–1944 which claimed
the live at least three million people (though Keynes might not be ‘credited’ with
rejecting the free grain offered to the British government for use in Bengal by the
USA and Canadian governments).
Introduction 19
Mitra-Kahn is right to point out the flabbergasting feat that, while not a gov-
ernment employee, Keynes managed to establish an entirely new government
office to measure the data he needed, and to stress his influence on the devel-
opment of the national accounts in the USA in the same period. His catch that
Keynes himself admitted that it was only in 1939 that he, according to his own
testimony, really figured out why the models of Colin Clark were not fit for his
purpose of designing a non-inflationary war effort – they left out ‘supply and use’
by the government but also, not mentioned by Mitra-Kahn and probably more
important, the distribution of income – should be in the textbooks (Mitra-Kahn
2011, p. 211). But Mitra-Kahn misunderstands why Keynes shed his last Mar-
shallian feathers. He assumes, that Keynes did not want to show an estimate of
private sector GDP which declined because of the war effort and hence opted for
a definition of GDP including the rapidly growing war effort of the government –
which would show an increase of GDP. This really is of the mark. The entire
goal of Keynes was to estimate how much private consumption and investment
could and had to shrink. Part of his calculations implied that, as the government
produces output and uses resources, too, a reduction of private expenditure of
10 percent won’t lead to a reduction of total expenditure with 10 percent as
private expenditure is less than 100 percent of total expenditure. His analysis was
no doubt influenced by his memories of the inflation of 1917–1920, which must
have taught him that any model used to analyze the situation had to be coherent
and consistent and hence to cover aggregate expenditure and total final demand
instead of only private expenditure of it or the amount of money going around.
And the logic of the model required him to estimate the total tax base in the UK,
including government employees, and total investments, including investments of
the government. Mitra-Kahn is also not right that the more welfare oriented GDP
definitions of Simon Kuznets were ‘sidelined’ by Keynes. Hirschman mentions
that Kuznets himself had a decisive influence on the planning of the US war effort
with an analysis which, tough production and not income oriented, was highly
reminiscent of ‘How to pay for the war’ (Hirschman 2016, pp. 82–83) and basi-
cally a kind of input-output analysis. And tough Kuznets (a student of Mitchell)
indeed tried to engineer a more welfare oriented concept of GDP the production
oriented approach was not a new concept. Actually, the first chapter of Kuznets
National Income and Its Composition, 1919–1938, Volume I (assisted by Lillian
Epstein and Elizabeth Jenks) is called ‘concepts, classifications and procedures’ and
contains a whole taxonomy of different kinds of concepts of ‘national income’
based upon basically the same accounts (see also Bos 2003, pp. 9–16, 2013) for
more extensive analysis of such points) while Kuznets (1955) includes military
equipment in its definition of fixed capital. The idea that Smith and Marshall
influenced statistics is right. But it is not right to state that their ideas decisively
influenced the accounts. The development of the accounts knew an own, transac-
tion and measurement based logic while there surely was an international and not
just a UK community of economists and statisticians developing national account-
ing. The very fact of measuring ‘the economy’ forced economists to grapple with
concepts and definitions in a way they had never done before. This development
20 Introduction
gained momentum when measuring national accounts became institutionalized.
Hirschman (2016) states that, before the 20th century, no country published
national accounts data even when economists were tinkering with the concepts.
This would, however, soon change. A non Anglo-Saxon example: between 1939
and 1941 Jan Derksen published as an employee of the Dutch Centraal Bureau
voor de Statistiek (CBS) and no doubt inspired by Jan Tinbergen, a whole string
of national account studies for the Netherlands which tackled conceptual and
measurement questions (CBS 1939; Derksen 1940, 1941). After the war he
would go on to become the head of the national accounts division of the United
Nations, coordinating the international discussion about what should be meas-
ured and what shouldn’t. The already mentioned literature in Bowley (1942)
is arranged by country, which abundantly shows the international character of
developments in national accounting and the many persons influencing this devel-
opment. The point was that ‘the economy’ was defined not just by a limited num-
ber of well-known Anglo-Saxon economists but also by an international group of
economist-statisticians who defined but also discovered the transactional macro-
economy. It were these statisticians who added rigor, coherence and precision to
the concepts and definitions and Keynes could clarify his concepts only after grap-
pling with these statistics. It has to be noted that these statisticians and economists
often were no students of neoclassical economists like Marshall but of institutional
economists like Veblen and Mitchell (Kuznets got a training as an institutional
economists at the Institute of Commerce in Kharkiv, Ukraine). And the most
prominent (neo)classical educated economist playing a decisive role in establish-
ing the (measurement) of the national, Keynes himself, put ample emphasis on
the time and trouble it took him to get rid of old ideas. As a consequence of such
actions and consistent with ideas of those like Samuelson (1954), which were very
widely accepted, separate accounts for the government were established. Also,
concepts like government consumption (i.e. consumption of individual house-
holds of government produced goods or services like education) and AIC were
developed. It was a clean sweep. The government produces value, however con-
ceptualized and measured and was included in the production and consumption
boundary which were increasingly measured by specialized institutes. Even neo-
classical models of the government became more explicit and rigorous. But for
one exception. The DSGE models for whatever reason and without discussion
purged the idea of a productive government from the models and stuck to the
ideas and methods of what Samuelson called ‘traditional economics’. The govern-
ment was excluded or at least the idea that the government was any good was
denounced. Even if several authors showed that government production can be
included as a positive. Excluding the government was, and is, a conscious choice.
So, the macroeconomic production and consumption boundary changed. On the
side of measurement it became much clearer and precise. On the side of theory
the government was also was increasingly included in the neoclassical models.
Until the rise of DSGE models after around 1970. A major regression.
At this point it is necessary is necessary to dwell on the nature of the logic of
the national accounts which, unlike the logic of the periodic table, evolves over
Introduction 21
time as economies evolve over time. These accounts are, despite a multitude
of imputed posts, deeply rooted in the monetary nature of our economy. This
monetary nature of the economy does not only consists of monetary prices but
also and by accounting necessity of the social nature of transactions and flows of
income and spending, which enables aggregation. This leads to the possibility
to classify and measure household income, consumer credit provided by banks,
investment expenditure of manufacturing or agricultural production. Monetary
transactions – the ‘money economy’ of Wesley Mitchell – are by their very nature
eminently and immensely measurable and show, when aptly classified, relations
between sectors. The whole point of an individual price is its public and sticky
nature. In a market the seller and the buyer both need to know the fixed money
price, quality (including delivery conditions and transport) and quantity of a
transactions (or at least the procedure how these are decided) ex-ante. In the case
of taxes, which are more one-sided than market transactions, the way taxes are
set also has to be known in advance. Any transaction enters into at least two sets
of sometimes informal but more often formal accounts; the account of the seller
and the account of the buyer and, in case of income taxes and VAT, also into the
accounts of the government. Three sets of accounts measuring one transaction!
In the case of companies, the value of sales is of course decisive for the ability
to pay contractual factor incomes and purchased inputs. Bos (2003) shows that
there are in fact eight accounts which, on the aggregate level, have to match.
And although delineating sub-sectors like ‘transport’, ‘construction’, ‘education’
or ‘agriculture’ is not always as easy as boundaries shift over time it is possible
to do this. The same holds a fortiori for the sectors – households, companies,
non-profits, financial institutions and the government – and economic categories
(wages, profits, interest, rent). These change over time but surely stay recogniz-
able in the short, medium and often also in the long term. Economic actors are
interconnected by the flows and stocks of incomes and sales denominated in the
unit of account: like wages, profits, interest, sales, credit, debts. The ‘empirical
discipline’ of measuring this economy forced economists to think more deeply
about this economy than they had ever done before – the issue of actual indi-
vidual consumption which raises its head once international or historical compari-
sons of household consumption are made being only one example. Also, all the
actors had to be included in the model. Leaving out criminal organizations would
yield, by accounting necessity, a black hole in the system. This transaction based
logic of the measurements has been pivotal to the development of the national
accounts and even more so to the flow of funds and has its implication for scien-
tific economic theory. As Haavelmo stated:
About the circuit flow of payments and its relation to national income and out-
put, our knowledge is exceedingly vague. We do know, however, that the flow of
payments does not adjust itself automatically to the flow of goods men are able to
produce and need to consume. Indeed, several theorists have argued that cyclical
fluctuations in business activity are due primarily to recurring changes in the
relative size of these two flows. The findings this investigation promise should put
us in a far better position to diagnose our recurrent chills and fevers, and to:
seek remedies.
(Mitchell 1945, pp. 61–62)
Copeland successfully accomplished the task, and only about a decade after
Mitchell’s statement was made central banks all over the world started to
estimate monetary statistics with the FOF as the overarching framework. The
agenda set out by Mitchell still is the agenda of the flow of funds, as shown by
a recent quote of the Office for National Statistics (ONS) in the UK which,
even when less eloquent, conveys the same message as the Mitchell quote
above:
An example of how these accounts are used can be found in the monthly mon-
etary press releases of the ECB. These show the creation of money as a function
of sectoral growth of credit: how much money is lent by the banks, how much is
borrowed by households, non-financial companies, the government of financial
companies as well as how much of this money ends up ‘abroad’. The credit data
shown in Figure 1.1 are part of these statistics on the national level: the money
borrowed by Irish construction companies from money creating banks or, as
they are called in the accounts, ‘Monetary Financial Institutions’ (MFIs) adds to
money growth in the Eurozone. This is however not just about the flow of credit
to Irish construction companies and the ‘GDP economy’. An example are data
on balance sheet of banks. Mortgages have become by far the largest asset on
the balance sheet of the consolidated banking sector and quite often also by far
the largest debt on the balance sheet of households. As sales of existing houses
do not add to the flow of new goods and services (aside from fees for real estate
brokers and the like) and are hence not included in the national accounts, even
when they are central to vulnerabilities and might readily lead to economic ‘chills
and fevers’, as also argued by the ONS (2018). Interestingly, estimating the flow
of funds forces the statistician to use a quite broad concept of money. Many trans-
actions, especially between businesses, are initially financed by payables/receiva-
bles, not by commercial credit or direct payments. These payables/receivables
are promises to pay with legal tender or deposit money and are a legal way to buy
something: a change in ownership takes place. They are a means of exchange.
They are also an asset, as they are a classical item on company balance sheets and
hence a store of value. The flow of funds by necessity treats these promises to
pay as money, which shows that the FOF are not just about money as we pay it
but also about other money-like items like payables and receivables or long-term
savings and a host of other financial instruments. Another example: when entities
like shadow banks are not included in the FOF, ‘black holes’ will appear. In fact,
the whole apparatus to measure credit bubbles is available, while the statements
of Mitchell in 1944 as well as the more recent statements of the ONS indicate
that measuring such bubbles is a prime goal of the FOF. Unfortunately, there still
are no official bubble measurements (see however Borio 2012).
The modern national accounts have at present incorporated large parts of the
flow of funds, which has quite some consequences for economics 101, whose
textbooks state that
{Income = Expenditure};
modern national accounts to the contrary state that;
{Income plus net credit = Expenditure of goods and services plus net acquisi-
tion of real and financial assets}.
Introduction 25
These assets include changes in cash and deposits which clearly shows that if peo-
ple save more money and channel this to savings accounts expenditure on goods
and services has to fall, unless net debt increases. Analyses using this framework
are for instance Keen (2016) and Ryan-Collins, Werner and Castle (2017). But
it has to be stressed that it is included in the basic framework of the modern
national accounts and also wealth inequality statistics as these, recently, have been
added to the flow of funds by the US Federal Reserve (Batty et al. 2019). This
all leads to the next general comparison of the models and the measurements.
Table 1.1 An overview of the key differences between DSGE models and the flow of
funds/national accounts
(Continued)
Table 1.1 (Continued)
Graph 1.2 Real private consumption, real private investment and real government
consumption plus investment, USA: year on year change (%) by quarter,
chained 2012 USD, seasonally adjusted annual rate
Source: U.S. Bureau of Economic Analysis, retrieved from FRED, Federal Reserve Bank of
St. Louis; https://fred.stlouisfed, GCEC1, GPDIC1 and LB0000031Q020SBEA, accessed 12
May 2019
sectors (Lucas 1977), which means that the theme of this book – comparing
the concepts of DSGE variables with the variables of the national accounts –
might be perceived as somewhat dishonest: the DSGE project did not start out to
explain national accounts and flow of funds developments in the first place. The
recent models however do use the national accounts terminology (consumption,
investment etc.) and the authors of the models often calibrate the models using
national accounts variables as well as, in the background, the national accounts
identities that production is equal to the different kinds of expenditure. But in the
beginning Lucas focused on another item: business cycles as identified by Wesley
Mitchell. Though not all of the variables included in these cycles. It is, at prima
vista, not clear why he left employment and involuntary unemployment – key
variables of Keynesian theory and macro-measurement – out of his description
of the stylized facts of the ‘Mitchell’ cycles. He also only focused on the minor
cycles as identified by Friedman and Schwartz (who used an explicit Mitchellian
framework as shown by Rockoff 2006) and left the mayor cycles identified by
these authors and at present better known as financial cycles outside of his scope.
The 2008 crisis did not fit the DSGE research agenda for a reason, DSGE models
were not meant to explain or encompass such events. But only to explain smaller
30 Introduction
up and downturns. On the other hand, the graph does show that Mitchellian
business cycle indicators do correlate with the national accounts data on, for
instance, private investment even when these have been thoroughly deflated, sea-
sonally adjusted and changed into growth rates. In Chapter 7, we will return to
the deflation procedures used.
Note, again, the importance of government goods and services but also the fact
that not all consumption has to be purchased by households. Even then, it is
about the acquisition of goods and services, not about their actual use.
The second phase: definitions. A shorter, more practical summary of the
concept with often clearer delineations:
An example from the ESA 2010, lemma 3.94:
Title: The Radio Girls at Forest Lodge; or, The Strange Hut in
the Swamp
Language: English
BY
MARGARET PENROSE
AUTHOR OF “THE RADIO GIRLS OF ROSELAWN,” “THE RADIO
GIRLS ON STATION ISLAND,” “DOROTHY DALE
SERIES,” “MOTOR GIRLS SERIES,” ETC.
ILLUSTRATED
NEW YORK
CUPPLES & LEON COMPANY
PUBLISHERS
BOOKS FOR GIRLS
By MARGARET PENROSE
12mo. Cloth. Illustrated.
I. Great Expectations
II. The Counterfeit Bill
III. Henrietta
IV. An Accusation
V. To the Rescue
VI. The Start
VII. The Wrecked Bridge
VIII. Risky Business
IX. On the Hunt
X. Ghosts
XI. Phrosy
XII. Queer Actions
XIII. The Race
XIV. In the Mud
XV. Lost in the Woods
XVI. From the Swamp
XVII. Payment of a Debt
XVIII. Alarmed
XIX. In Danger
XX. The Fire
XXI. A Terrible Battle
XXII. The Escape
XXIII. Suspicion
XXIV. Imprisoned
XXV. A Capture by Radio
THE RADIO GIRLS AT FOREST LODGE
CHAPTER I
GREAT EXPECTATIONS
“I don’t know much about your Aunt Emma, Burd, but I am quite
certain I shall adore her.”
Burd Alling, pudgy and good-natured, looked at Amy Drew and
slowly grinned.
“Good for you, Amy,” he said, returning to his plate of ice cream
with renewed vigor. “People either hate Aunt Emma or love her. I am
glad you have decided on the latter.”
“She must be a strange sort of person, your Aunt Emma,” said
Jessie Norwood, the third of the little party seated around the table
at the Dainties Shop. “I like people who have positive characters.”
“Oh, Aunt Em is positive enough, if that is what you like,”
chuckled Burd. “The worst thing about her is that she doesn’t seem
to approve of that characteristic in others.”
“You say this Aunt Emma of yours owns this place called Forest
Lodge?” Jessie interrupted eagerly. “Where is it, Burd?”
“In a forest, I suppose,” murmured Amy Drew.
“How bright you are,” scoffed Burd. “Forest Lodge is on Lake
Towako, about forty miles from New Melford,” he added to Jessie.
“Aunt Em wants to spend a week or two up in the woods, and she
was bemoaning the fact, by letter, that she had no one to go with
her. I mean, no ladies. Of course, I’m already booked to go.”
“How about us?” interposed Amy, smiling her sweetest. “Wouldn’t
we do?”
“Would you like to?” cried Burd, his face lighting up over the idea.
“Amy, how could you propose such a thing!” interposed Jessie,
demurely. “Don’t you know you practically asked for an invitation?”
“Leave out the practically and you will have it,” returned Amy,
unabashed. “Besides, didn’t you hear Burd say his poor dear aunt
would be lonely away up there in the woods by herself? Be
charitable, Jessie! Be charitable.”
“But, say, if you girls really think you would like to go, I know
Aunt Em will be more than glad to have you,” said Burd. “She will
greet you as gifts from heaven.”
“Well, Jess may look like an angel, but I am sure I don’t,”
remarked Amy, paying fond attention to the remaining portion of her
George Washington sundae. “Never mind the compliments, Burd.
Tell us more about your aunt.”
“Do you think Nell Stanley could go too?” broke in Jessie, eagerly.
The prospect of a two weeks’ added vacation at Forest Lodge was
becoming alluring.
“Sure thing! The more the merrier,” Burd answered, heartily. He
finished his ice cream and motioned to Nick, the clerk, to bring more
George Washington sundaes. “She is a jolly old soul and never is
happy unless completely surrounded by young folks.”
“Oh, is she so very old?” asked Amy.
“We-ell, not so old as to be exactly decrepit,” said Burd, judicially,
though his eyes were merry. “She can still hop around pretty lively
when occasion requires. But I will not tell you another word,” he
added, his round face as severe as so habitually merry a
countenance could ever become. “Whatever else you learn about the
lady, you will have to learn from her personally. I refuse to give away
a blood relative.”
“But, Burd, all this is so very wonderful!” cried Jessie. “I never
dared hope we would have another chance for fun this summer
before school opens.”
“Oh, Jess, remind me not,” commanded Amy, with a groan. “As
Miss Seymour would say, ‘Why intrude so gloomy a thought upon
this joyous hour?’”
The Miss Seymour of whom Amy spoke was a teacher of English
in the high school which Jessie and Amy and their friend, Nell
Stanley, attended.
The Radio Girls had returned from a wonderful vacation on Station
Island only a few days before this story opens. And now had come
this possibility of spending the short remainder of their school
vacation at a typical hunting lodge in the heart of a forest. Small
wonder that with this alluring prospect before them they could not
bear the mention just then of school and studies, for to their eager
minds the possibility of the visit looked like certainty.
“Have you told Darry yet?” Jessie asked, and Burd favored her
with a look that was almost pitying. Darry, or Darrington Drew, to
give him the benefit of his full name, was Amy’s brother and Burd
Alling’s closest chum. The two boys, though utterly unlike in looks
and disposition, were inseparable.
“Sure, I’ve told Darry,” he said, in reply to Jessie’s question. “His
enthusiasm over the project knows no bounds. Says it has been his
lifelong ambition to get in close contact with the forest rangers and
study their methods of fighting forest fires.”
“Oh, do they have fires up there, too?” queried Amy.
“Wherever there is a forest, there are bound to be fires once in a
while,” Burd informed her, from the heights of his superior wisdom.
Darry and Burd, being in college, were several years older than the
high school girls, and it was seldom that they missed an opportunity
to impress that fact upon Jessie and Amy. “That’s where the forest
rangers come in. And, believe me, sometimes they have their work
cut out for them, too.”
“Oh, Burd, please tell me more about it,” begged Jessie.
“I can’t tell you much,” replied Burd, modestly, “because I don’t
know a great deal about the work of the forest rangers—nothing, in
fact, except what I have read. But I know there is one thing that will
interest you girls mightily.”
“Bet you another George Washington sundae I know what it is,”
said Amy, quickly, and when Burd laughingly took her up she
pronounced the one word “Radio!” with proud emphasis.
“Oh, I know,” broke in Jessie, before Burd could speak. “I heard
Daddy Norwood talking about it one night to Momsey, and it was
awfully interesting, even though at that time I was not particularly
interested in radio. They use it—radio, I mean—fighting fires and
things, don’t they?”
“Especially things,” agreed Burd, with a grin. Then, becoming
suddenly conscious of the check at his elbow, he looked up and
found Nick’s worried gaze upon him. The Dainties Shop was filling up
and their table was needed.
The girls took in the situation at a glance and rose laughingly
while Burd went over to settle with Nick, much to the relief of the
latter.
Burd seemed to be having some trouble getting his change, and
while they waited for him outside the door of the Dainties Shop the
girls gayly discussed this new prospect.
“I am dreadfully anxious to meet Aunt Emma,” Amy was saying
when she felt a slight touch on her arm and turned sharply about.
A tall, slender girl was standing there, and on her face was a dead
white pallor that amazed and shocked the robust girls.
She was holding toward them a five-dollar bill and Amy, the
irrepressible, laughed suddenly as her gaze fell upon it.
“Thanks, so much,” she murmured; “but I don’t happen to need it
just now.”
“Oh, Amy, hush!” cried Jessie, as she saw the mouth of the
strange girl set in a thin straight line and her eyes grow hostile.
“I wanted to ask you if you would change this for me,” said the
stranger in a colorless voice that matched the pallor of her face. “But
if you don’t care to——”
She turned away, but Jessie caught her quickly by the sleeve.
“Oh, wait a minute, please,” she said. “I am sure I can change the
bill for you.”
She fumbled in her bag, but Amy, instantly regretting her flippant
speech, found the money first in her own small bag and handed it
with an apologetic smile to the girl.
“I’m sorry I was rude,” she said. “I didn’t understand.”
This apology meant a great deal, coming, as it did, from Amy, but
the tall, pale girl seemed scarcely to notice. She accepted the five
one-dollar bills, giving her own five-dollar note in exchange. Amy
stuffed the bill in her pocket, and with a muttered word of thanks
the stranger turned and walked off swiftly. She did not turn back,
and in another moment a street corner hid her from view.
“I must say she isn’t very polite,” grumbled Amy, as Burd joined
them. “After humbling my perfectly good pride in the dust and
everything. Imagine me apologizing!”
“If I had not seen it I certainly would not have believed it,” agreed
Jessie, cheerfully, and Amy shot her an injured look.
“You mean heard it,” she corrected frigidly. “If I cared to be
unkind, my dear, I might remind you that an apology can never be
seen!”
Burd went with them as far as the Norwood place in Roselawn.
There he left them, intimating that he and Darry had important
business in town and would not see them till later.
“Make it as much later as you like,” Amy told him cheerfully. “We
shan’t pine away and die in your absence.”
As a matter of fact, the girls were far too busy for the remainder
of that afternoon to give the boys more than a passing thought.
They chattered like magpies of the possible trip to Forest Lodge
while, with skilful fingers, they overhauled the radio set which Jessie
and Amy themselves had set up in the pretty and spacious living
room of Jessie’s own suite of rooms in the Norwood house. Jessie
had brought a new detector from town and was bent upon trying the
effect of it upon her set without delay.
“We must be ready for the special radio concert to-night,” Jessie
reminded her, when Amy protested against the “hard labor” her
friend imposed. “It wouldn’t do to miss it, and you know this
detector is working badly.”
Mrs. Norwood, known fondly to her daughter, and to most of her
daughter’s intimate friends as well, as “Momsey,” was away from
home that afternoon—a matter of great regret to Jessie, who had
hoped to talk over with her at once the invitation for Forest Lodge
and ask her consent to the project.
It was late before she returned, and by that time the girls had
“jacked up” the radio set until it was working perfectly. They fell
upon Mrs. Norwood simultaneously, bombarding her with facts and
questions until Mrs. Norwood laughed in helpless bewilderment and
begged them to begin all over again from the beginning and “go
slowly.” This they did, and had hardly finished when the telephone
bell rang.
“Miss Alling would like to speak to you, Mrs. Norwood,”
announced the maid, coming into the room.
The girls could hardly wait for the telephone conversation to come
to an end, and, in their eagerness, did no more than stutter their
questions when Mrs. Norwood returned, a smile on her face.
They were overjoyed to find Mrs. Norwood pleasantly willing to
give her consent to the Forest Lodge project, especially now that
Emma Alling had given them her personal invitation to accompany
her. It seemed that at some former time Mrs. Norwood and Miss
Alling had worked together in some benefit scheme, and Mrs.
Norwood had been strongly attracted to the rather eccentric but
good-hearted woman.
“All of which is very lucky for us,” remarked the irrepressible Amy.
“Though I must say,” Mrs. Norwood added, with a smile, “I don’t
particularly envy Emma Alling her present undertaking!”
Jessie’s eyes twinkled as she said reproachfully: “Don’t you think
that is rather hard on us, Momsey?”
Amy hastened home to gain permission to make the visit at Forest
Lodge, but was persuaded without much difficulty to return for
dinner, and as soon as the meal was over, the girls ran up to Jessie’s
room to “listen in” on the special concert that was scheduled for that
evening.
They tuned the set to the wave length of the broadcasting station
of the Stratford Electric Company and almost immediately heard a
man’s voice speaking. The first words were sufficiently unusual to
catch and hold their attention.
“Before proceeding with the program, we wish to make a special
announcement,” said the voice. “There is positive evidence that a
counterfeit five-dollar bill is in circulation in this locality. The bill has
a small v-shaped notch in one corner of it and the marking on the
under side is indistinct. We wish all who hear this announcement to-
night to be on the lookout for the counterfeit money, so that any one
finding it in his possession may report it to the authorities.” That was
all.
The girls removed their head phones and stared at each other
intently for a moment. It was evident that they were both thinking of
the same thing. That five-dollar bill which the strange girl had asked
Amy to change that afternoon!
Amy reached for her purse and opened it.
“If that girl wished a counterfeit five-dollar bill on me,” she
declared, “I will pursue her to the ends of the earth and get it back.”
“Quick! Let me see that bill,” urged Jessie.
Together, heads almost touching, they examined the greenback
which had come so strangely into their possession. To their
inexperienced eyes there was nothing wrong with the marking. Then
Jessie suddenly uttered an exclamation. She pointed to a tiny, v-
shaped notch in one corner of it.
“Amy, it is, it must be, one of the counterfeits!” she breathed.
CHAPTER II
THE COUNTERFEIT BILL
Eagerly Jessie and Amy scrutinized the bill again and, with the v-
shaped notch to help them, they saw, or thought they saw, that the
marking on the under side of the bill was a trifle blurred and
indistinct.
Even then they were not satisfied, but must run down to show the
note to Mr. Norwood, who sat chatting with Momsey in the living
room.
“Daddy Norwood, if you tell me this bill is a counterfeit, I will
never forgive you,” was Jessie’s greeting to her father, as she
dropped on the arm of his chair and thrust the bill into his hand.
“What’s this, what’s this?” exclaimed Mr. Norwood, smiling at the
two girls. “What is all this talk about counterfeits? Am I to
understand, my daughter, that you have turned criminal?”
“And she is so young, too,” murmured Amy, beneath her breath.
“Please look at it, Daddy Norwood,” urged Jessie, indicating the
bill which dangled carelessly from her father’s hand.
“Well,” said the latter, mildly, “I am looking at it. Now suppose you
tell me what all the excitement is about.”
Between them the girls told him of the announcement by radio of
the dangerous counterfeit five-dollar bill that was in circulation.
As they proceeded, the lawyer’s face became grave and he
examined the bill carefully and with a sudden intense interest.
“Hm! I have heard about this counterfeit money,” he said, after a
pause during which the girls, and Mrs. Norwood, too, regarded him
expectantly. “And it is a very serious matter, let me tell you.”
“But is this bill counterfeit?” asked Jessie, impatiently.
Mr. Norwood looked up at her with a peculiar smile, then down at
the note again.
“It certainly is a remarkably clever imitation,” he said.
“Then it is a counterfeit!” declared Jessie, and turned to face Amy,
whose expressive face was a mirror of conflicting emotions.
“Now I will have to keep my vow,” wailed the latter, “and follow
that wretched girl all over the world!”
“What for?” asked Mrs. Norwood, with an indulgent smile, for she
was well used to Amy’s extravagances.
“To recover my perfectly good five dollars, of course! Oh, dear,
what a bore!”
“Oh, so a girl palmed this off on you! Suppose you tell me some
more about it,” said Mr. Norwood. “I am intensely interested.”
Jessie and Amy told him about the strange girl who had accosted
them before the Dainties Shop and gave as faithful a description as
they could of her. Then they suddenly remembered the interrupted
radio concert and dashed off to Jessie’s room to enjoy what was left
of it.
Madame Elva, a great favorite of the girls, at the broadcasting
station of the Stratford Electric Company, gave several charming
selections and the remainder of the program was so unusually fine
and interesting that the girls became completely absorbed and
forgot for the time all such matters as tall thin girls and troublesome
five-dollar bills.
It was not till the following morning that Jessie revived the
subject. The four of them, Jessie, Amy, her brother Darry, and Burd
Alling were sitting on the Norwood veranda talking over plans for the
trip to Forest Lodge. The girls had already, earlier in the day, talked
with Miss Alling over the telephone.
It was a fine morning and the handsome Norwood estate had
never looked pleasanter and more luxurious than it did in the full
glare of the morning sunlight.
The smooth sweep of lawn, sloping down to the broad, shaded
boulevard, was dotted with flowering shrubs. Beside the house and a
little to the rear, began the beautiful rose gardens which were the
pride of Mrs. Norwood’s heart, and of all Roselawn as well.
In fact, this section where the Norwoods and the Drews lived had
been dubbed Roselawn by reason of the beautiful and gorgeous rose
gardens that abounded in that district.
On the farther side of Bonwit Boulevard was the home of the
Drews, a rambling old house which had once been a farmhouse but
had been remodeled by Mr. Drew into an up-to-date and handsome
building. There dwelt Wilbur and Sarah Drew, the parents of Amy,
Amy, herself, and her brother Darrington—the latter, however, only
on those rare occasions when Yale “relaxed her grip on him.”
The four young people had had many good times together and
since Jessie and Amy had “discovered” radio their adventures had
been replete with thrills and excitement.
The two girls had astonished their friends and relatives by
successfully installing a radio set in Jessie’s room.
Then one day had come a mysterious call out of the air, and how
the girls went to the rescue of a girl wanted as a witness in an
important law case has been told in detail in the first volume of this
series, entitled “The Radio Girls of Roselawn.”
Since that time the girls had made the acquaintance of the owner
of a large sending station and through him had been permitted to
get “On the Program,” much to their satisfaction. Then they had
gone to “Station Island,” and later had taken a trip on board the
Marigold, a steam yacht willed to Darry by his uncle. The vessel took
fire, and how the young folks had to fight to escape in safety is
related in the volume before this, called “The Radio Girls on Station
Island.”
It was of this last adventure that they were thinking and talking
now as they sat in idle luxury upon Jessie Norwood’s porch.
“The poor old Marigold is almost a total loss,” Darry said,
regretfully. “I have laid her up for repairs, and, judging from the
amount of work there is to be done on her, it looks as if she would
be in dry dock a considerable time.”
“Oh, dear! No more chance to inspect the bottom of the sea!”
sighed Amy. “I think you are too mean, Darry Drew.”
“Well, say,” interrupted Burd, rising from the depths of a
comfortable chair and stretching luxuriously, “loth as I am to break
up this happy party, I fear I must be going.”
“He has a date and won’t let us in on it,” remarked Amy,
reproachfully.
“I sure have,” chuckled Burd, unabashed. “And wait till you see
the lady!”
Darry raised his eyebrows and grinned.
“Aunt Emma, Burd?” he asked.
Burd nodded and started for the steps.
“Promised to meet her at the train in the old bus,” he said. “And if
anything should make me late I should never hear the end of it.
Coming, Darry?”
The latter laughingly shook his head.
“Go ahead, old lad,” he said. “I am not looking for punishment
just yet.”
“Why, don’t you like Miss Alling?” asked Jessie, surprised.
“I do. She is the salt of the earth,” replied Darry, emphatically,
adding with a rueful smile: “The only trouble is, she doesn’t like me.
Has a fixed opinion that I am a bad influence for Burd, or something
of the sort.”
“Well, aren’t you?” asked his sister, maliciously, adding quickly, as
Burd seemed about to depart: “Oh, let me go along, Burd, I feel a
severe attack of curiosity coming on. I must meet Aunt Emma.”
“All right, come on—but your blood be upon your own head,”
warned Burd, with a grin.
After they had gone Jessie and Darry looked at each other and
laughed.
“I am almost as curious as Amy to meet Aunt Emma,” confessed
Jessie. “She must be a very unusual person.”
“She is kind-hearted and full of pep and fun, but as domineering
as they make ’em,” pronounced Darry. “Just the same, this trip to
Forest Lodge is a mighty fine idea. I prophesy we won’t have a slow
minute while we are up there.”
“How do we go, and when?” asked Jessie, with a mounting
impatience to start on this adventure.
“As soon as you girls are ready, I suppose,” returned Darry. “And
as for our means of transportation, I gather from what Burd has let
drop that we will drive up in Miss Alling’s car—Aunt Emma driving,”
he finished, with a chuckle.
“Well, as long as Aunt Emma doesn’t try to put up our radio set
for us, we won’t complain,” laughed Jessie.
CHAPTER III
HENRIETTA