Analysis of the interaction of a policy objective, specifying what is desired, with a policy model, stipulating what is feasible, is the nub of the theory of economic policy. This chapter illustrates the operation of this interaction and some of its more important features in the context of a review of the well-known static theory of policy. The theory itself stems principally from the work of Tinbergen, Hansen, Meade and Theil, and the chapter's task therefore is more expository than exploratory. By carefully reviewing familiar territory with an anticipatory eye on the sequel, some basic insights and issues can be identified which will guide the imposition of structure in the less familiar territory to follow.

Chapter 1 falls into two halves. The first half reviews the fixed objective theory of policy, the second half the flexible objective theory of policy. Whereas the focus of the former theory is the idea of hitting a target point exactly, the focus of the latter is the idea of approaching a target point closely. Because this is a difference of degree, and not of kind, it is not too surprising that major similarities will be found in the analyses of both problems.

Sections 1.1–1.5 refer to the fixed objective problem. Section 1.1 specifies the static policy model in its various guises, and Section 1.2 identifies the fixed policy objective as used by Tinbergen and Theil.