The S,s and production smoothing models prevalent in macroeconomic research on inventories are examined from the perspective of the behavior of firms with respect to inventory management and control. It is suggested that unit of analysis - the individual inventory item - is inappropriate since the inventory stream is composed of at least five categories with different functions. Evidence is offered that, at the firm level, inventory levels are not changed because of short term interest rate changes. It is recommended that future research be focused on the five categories of inventory, with appropriate assumptions for each.