Examination questions spanning just over a half-century can be found in Frank Taussig’s personal scrapbook of cut-and-pasted semester examinations for his entire Harvard career. Until Schumpeter took over the core economic theory course from Taussig in 1935, Taussig’s course covering economic theory and its history was a part of almost every properly educated Harvard economist’s basic training. Taussig’s exam questions were posted for the academic years 1886/87 through 1889/90 along with enrollment data for the course; material from 1890/91 through 1893/94; 1897-1900 ; and 1904-1909 have been posted as well.
Sad backstory: The year gap in teaching that immediately preceeeded the years covered below was because Frank Taussig took a leave of absence in 1909-10 that he spent with his wife (Edith Thomas Guild, born 1861) in Saranac Lake, New York where she died on April 15, 1910.
Source: J. A. Schumpeter, A. H. Cole, and E. S. Mason “Frank William Taussig” in Quarterly Journal of Economics, vol. 44, No. 3 (May, 1941), p. 352.
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Enrollment Economics 2
1910-11
For Undergraduates and Graduates:—
[Economics] 2. Professor Taussig.— Economic Theory
Total 42: 16 Graduates, 15 Seniors, 5 Juniors, 2 Sophomores, 4 Others.
Source: Harvard University. Annual Reports of the President and Treasurer of Harvard College, 1910-11, p. 49.
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ECONOMICS 2
Mid-year Examination
Arrange your answers strictly in the order of the questions.
- Is there a vicious circle in F. A. Walker’s reasoning on the relation between wages and business profits?
- (a) “The railroads of the United States receive annually hundreds of millions for transporting passengers. These receipts come in day by day, yet the railroad company habitually pays its employees at the close of the week or the close of the month. Here we have a class of services where the employer receives the price of his product before he pays for the labor concerned in its production. . . . Hotel-keepers and, in less degree, boarding-house keepers collect their bills before they pay their cooks, chambermaids, and scullions. Nearly all the receipts of theatre, opera, and concert companies are obtained day by day, although their staff and troupes are borne on monthly or weekly pay-rolls.”
(b) “In very primitive life the work spent on capital goods and that spent on consumers’ goods are not always synchronous, but organization and the acquirement of a permanent fund of capital make them so. Work to-day, and you eat to-day food that is the consequence of the working. In point of time the canoe-makers are fed as promptly as the fishermen, and this fact is duplicated in every part of the industrial system. . . . The synchronization of labor and its reward does not appear in the industry of primitive beginnings, but is the fruit of organization.”
Explain what doctrine is attacked by these extracts; whether the reasoning is essentially the same in the two; whether you would accept it in either case; what authors you suppose to have written the passages. - (a) “Most commodities render several different kinds of service at the same time. A thing of this kind is to be regarded as a bundle of distinct utilities, tied together by being embodied in a common material object.”
(b) “A bundle, as a whole, is never a final unit of any one’s consumers wealth; but each element in it is a final utility to some class, and it is that class only whose mental estimate of it fixes its price. . . . There are, then, five prices in the canoe. Expressing the values of the five different services which the canoe renders, they are, respectively, twenty-five, twenty, fifteen, ten, and five dollars. The entire canoe, then, brings seventy-five dollars in the market.”
(c) “In every such commodity there is a marginal utility, and this is the only that counts in fixing the price of it. Every commodity, except the poorest and cheapest that can be made, is, in effect, such a bundle of service-rendering elements as we have just described. The marginal element in the bundle has a direct influence on prices, but the other elements have none.”
(d) “If the principle of final utility be applied to entire articles, it will give values that are, in most cases, many fold greater than are the actual values that the dealings of the market establish. . . . Goods of fine quality would then be, as a rule, many times dearer than they are.”
Consider which of these statements, if any, you would accede to; and whether they are consistent with each other. - A limited edition of Roosevelt’s “African Travels,” bound in pigskin, each copy inscribed by the author, is published at $20 a copy. What economic principles are illustrated?
- Explain the equilibrium of demand and supply, for short periods and for long, in case of a sharp decline in the demand for a commodity made with much fixed capital, under conditions of constant return.
- Is there quasi-rent, and if so, how do you measure it, in the following cases: —
(a) A manufacturing plant, whose gross earnings more than cover prime costs, but do not suffice to cover supplementary costs.
(b) A deep-water harbor site, provided with piers and docks, and let on a long lease at a rental bringing a liberal return on the expense for improvements.
(c) A handsome dwelling, in a neighborhood deserted by fashion, whose rental is less than interest on the cost of the dwelling. - (a) Suppose a tax to be levied at four per cent on the capital value (i.e. on the selling price as it was before the tax) of urban sites used for business purposes. What would be the effect on the rentals of the buildings on the sites, on the prices of things made or sold in the buildings, on the profits of tenants?
(b) Suppose owners of urban real estate to be prohibited by law from collecting in rentals more than four per cent (net) on the cost of buildings alone; what would be the effect on the prices of things made or sold in the buildings, on the tenants, on the effective utilization of the property?
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ECONOMICS 2
Final Examination
1910-1911
Arrange your nswers in the order of the questions
- Explain concisely the theories of wages (general wages) set forth by
A. Walker,
J. B. Clark,
A. Marshall,
E. Böhm-Bawerk,
Your instructor, —
and indicate what you consider the weakest point in each.
- Wherein is there similarity, wherein dissimilarity, between the views of Böhm-Bawerk and Clark on the productivity of Capital?
- Quasi-rent;
derived utility;
the incidence of taxes on building sites and on buildings, —
among the trains of reasoning suggested by these phrases, which tend to support the doctrine that rent is a return essentially different from interest, which run counter to that doctrine? - “That part of a man’s income which he owes to the possession of extraordinary natural abilities is a free boon to him; and from an abstract point of view bears some resemblance to the rent of other free gifts of nature, such as the inherent properties of land. But in reference to normal prices, it is to be classed rather with the profits derived by free settlers from the cultivation of new land, or again with the find of a pearl-fisher.” Why? or why not? Whose doctrine do you suppose this to be?
- “There is a constant tendency towards a position of normal equilibrium, in which the supply of each of these agents [of production] shall stand in such a relation to the demand for its services, as to give those who have provided the supply a sufficient reward for their efforts and services. If the economic conditions of the country remained stationary sufficiently long, this tendency would realize itself in such an adjustment of supply to demand, that both machines and human beings would earn generally an amount that corresponded fairly with their cost of rearing and training, conventional necessaries as well as those things which are strictly necessary being reckoned for.”
Whom do you believe to be the writer of this passage? and do you infer that he holds value to be determined in the end by utility or by cost? - Under what circumstances, if under any. —
(1) Will the imposition of an import duty cause the domestic price of the taxed commodity to rise permanently by the amount of the duty.
(2) Will it cause the price to rise permanently, but by an amount less than the duty;
(3) Will it cause the price to fall;
(4) Will it cause the prices of other commodities to fall? - After the passage of the tariff act of 1890, a Bohemian firm of pearl button makers transferred their business to the United States, sending over the working people and erecting a factory in the U. S. Was this to the advantage of the people of the U. S.? If so, wherein? If not, why not?
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Enrollment Economics 2
1911-12
For Undergraduates and Graduates:—
[Economics] 2. Professor Taussig.— Economic Theory
Total 54: 23 Graduates, 11 Seniors, 16 Juniors, 2 Sophomores, 2 Others.
Source: Harvard University. Annual Reports of the President and Treasurer of Harvard College, 1911-12, p. 63.
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ECONOMICS 2
Mid-year Examination
1911-12
- Define concisely: —
(1) Consumer’s surplus,
(2) Producer’s surplus,
(3) Saver’s surplus.
Is Saver’s surplus analogous to the first or to the second?
- Suppose all persons to have the same income; would it be easier or more difficult to measure consumer’s surplus?
- (a) “It has sometimes been suggested that if all land were equally advantageous and all were occupied, the income derived from it would partake of the nature of a monopoly rent; but this seems to be an error.” Do you think it an error?
(b) “Suppose, for instance, that all the meteoric stones in existence were equally hard and imperishable; and that they were all in the hands of a single authority; further, that this authority decided, not to make use of its monopolistic power to restrict production so as to raise the price of its services artificially, but to work each of the stones to the full extent it could be profitably worked (that is up to the margin of pressure so intensive that the resulting product could barely be marketed at a price which covered, with profits, its expenses without allowing anything for the use of the stone),” — would there be “rent”? would there be “monopoly rent”? - “There are many infra-marginal savers. As to these, the appropriation of part of their income by the state would not lessen accumulation. The same principle is applicable as in the case of rent proper. A tax on rent falls definitely on the owner, and has no further effect on the supply or the utilization of the source of rent. From this point of view there may be ground for progressive taxation of large funded incomes.” Do you think this well-reasoned?
- Draw diagrams illustrating (1) the effects of a bounty on a commodity produced under conditions of increasing returns; (2) the effects of a tax on a commodity produced under the same conditions; and consider whether, taking account of consumer’s surplus, there is likely to be a net gain or loss in either case.
- Explain the distinction between external and internal economies; and consider wherein a tendency to increasing returns has different consequences according as it is due to external or to internal economies.
- Explain what is meant by “two-sided competition,” and the determination of price by the subjective valuations of marginal pairs; and consider the significance of the following passage: “In the present conditions of industry, most sales are made by men who are producers and merchants by profession. . . . For them, the subjective use-values of their own wares is for the most part nearly nil. . . . In sales by them, the limiting effect which, according to our theoretical formula, would be exercised by the valuation of the last seller, practically does not come into play.”
- Wherein is there resemblance, wherein difference, between Böhm-Bawerk’s analysis of “two-sided competition” and Marshall’s reasoning concerning the equilibrium of demand and supply?
- An eminent German economist has written: “As against Thornton, George, and the apostles of trade-unions, I believe that the wages-fund doctrine, rightly stated and rightly understood, is at bottom true; but I should add the qualification, to which Hermann called attention, that the payments by those who demand the finished goods from the source from which, in the long run, the capitalists are enabled to employ labor, or to maintain a demand for labor, from their wages-fund.”
What do you say of the mode of dealing with the wages-fund doctrine involved in this qualification?
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ECONOMICS 2
Final Examination
1911-12
Arrange your answers strictly in the order of the questions.
- “Suppose that society is divided into a number of horizontal grades, each of which is recruited from the children of its own members, and each of which has its own standard of comfort, and increases in number rapidly when the earnings to be got in it rise above, and shrinks rapidly when they fall below that standard. Suppose, then, that parents can bring up their children to any trade in their own grade, but cannot easily raise them above it and will not consent to sink them below it. . . . On these suppositions the normal wage in any trade is that which is sufficient to enable a laborer, who has normal regularity of employment, to support himself and a family of normal size according to the standard of comfort that is normal in the grade to which his trade belongs; it is not dependent on demand except to this extent, that if there were no demand for the labor of the trade at that wage, the trade would not exist. In other words the normal wage represents the expenses of production of the labor according to the ruling standard of comfort.”
Does Cairnes reason on these suppositions? Does Marshall? Granting them, would you conclude that value in the end was determined by utility or by cost? - Explain briefly (50 words under each head), in which of the following cases, if in any, you think there is reasoning in a circle:
(a) The residual theory of wages, as stated by Walker;
(b) The proposition that the value of commodities produced by a particular grade (non-competing group) of laborers depends on the rate of wages paid in that grade;
(c) The proposition that general wages depend on the marginal product of labor discounted at the current rate of interest.
- Does “quasi-rent” form a constituent part of supply-price? Does “supplementary cost” form a constituent part of supply-price?
- “‘Rent is not an element in price’ — such is the classical statement on the subject. It even expresses a view that is now prevalent. The expression itself, however, is vague. It seems to mean that the fact of rent plays no part in the adjustment of values, and that things would exchange for one another in exactly the ratios in which they now do, if there were no such thing as rent. But, if one defines rent as product imputable to a concrete agent, the impossibility of maintaining such a claim becomes apparent. Even if one were to restrict the term rent to the product created by the land, the claim that it is not an element in adjusting market values would be absurd; for it would amount to saying that a certain part of the output of every kind of goods has no effect on their market value. The ‘price’ referred to in the formula is, of course, the market value expressed in units of currency.”
What do you think? - “Goodwill taken in its wider meaning comprises such things as established customary business relations, reputation for upright dealing, franchises and privileges, trademarks, brands, patent rights, copyrights, exclusive use of special processes guarded by law or by secrecy, exclusive control of particular sources of materials. All these items give a differential advantage to their owners, but they are of no aggregate advantage to the community. They are wealth to the individual concerned, — differential wealth; but they make no part of the wealth of nations.” Why? Or why not?
- “The workmen have a natural right to the value which their work, of itself and aside from the aid furnished by others, imparts to the material that is put into their hands, and when they sell their labor, they are really selling their part of the product of the mill. In like manner, paying interest is buying the share which capital contributes to the product. The owners of the capital have an original right to what the machines, the tools, the buildings, the land, and the raw materials, of themselves and apart from other contributions, put into the joint product.”
Whom do you believe to be the writer of the passage? What would Böhm-Bawerk say to it? Veblen? - “It is not true that the spinning of yarn in a factory, after allowance has been made for the wear-and-tear of the machinery, is the product of the labor of the operatives. It is the product of their labor, together with that of the employer and subordinate managers, and of the capital employed; and that capital itself is the product of labor and waiting: and therefore the spinning is the product of labor of many kinds, and of waiting. If we admit that it is the product of labor alone, and not of labor and waiting, we can no doubt be compelled by inexorable logic to admit that there is no justification for interest, the reward of waiting; for the conclusion is implied in the premises.”
Whom do you think the writer of this passage? What would be said of the conclusions by Clark? By Böhm-Bawerk? What is your own view? - “The English theory has it that the rate of wages is simply got by dividing the wage fund by the number of existing workers. This is entirely wrong. In any event the laborers get the wage fund wholly and entirely as wage: but that does not say wage for what time; for one year, or two years, or three years, or more. . . . The English Wage Fund theory has thus a core of truth, but it is wrapped up in a quite overpowering mass of error.”
Explain what Böhm-Bawerk means; and give your opinion on the question involved.
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Enrollment Economics 11
1912-13
For Undergraduates and Graduates:—
[Economics] 11 (formerly 2). Professor Taussig.— Economic Theory
Total 31: 20 Graduates, 4 Seniors, 5 Juniors, 2 Others.
Source: Harvard University. Annual Reports of the President and Treasurer of Harvard College, 1912-13, p. 57.
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ECONOMICS 11
Mid-year Examination
1912-13
- “If there really were a national fund, the whole of which must necessarily be applied to the payment of wages, that fund could be no other than an aggregate of smaller similar funds possessed by the several individuals who compose the employing part of the nation. Does, then, any individual employer possess any such fund? Is there any specific portion of any individual’s capital which the owner must necessarily expend upon labor? . . . May he not spend more or less on his family and himself, according to his fancy — in the one case having more, in the other less, left for the conduct of his business? And of what is left, does he or can he determine beforehand how much shall be laid out on buildings, how much on materials, how much on labor? . . . It sounds like mockery or childishness to ask these questions, so obvious are the only answers that can possibly be given to them; yet it is only on the assumption that directly opposite answers must be given that the Wages-fund can for one moment stand.”
What answers would Mill have given to such questions? What would be your own answer? - “On the ranches of Montana cattle are breeding, among the forests of Pennsylvania hides are tanning, in the mills of Brockton shoes are finishing; and, if the series off goods in all stages of advancement is only kept intact, the cow-boy may have today the shoes that he virtually creates by his efforts. . . . With sheep in the pastures, wool in the mills, cloth in the tailoring shops, and ready-made garments on the retailers’ counters the labor of the people can, as it were, instantaneously clothe the people.”
“It is not necessary to the production of things that cannot be used as subsistence, or cannot be immediately utilized, that there should have been a previous production of the wealth required for the maintenance of the laborers while the production is going on. It is only necessary that there should be, somewhere within the circle of exchange, a contemporaneous production of sufficient subsistence for the laborers, and a willingness to exchange this subsistence for the thing on which the labor is being bestowed. . . . The subsistence of the laborers engaged in production which does not directly yield subsistence comes from the production of subsistence in which others are simultaneously engaged.”
Do you see any difference between the propositions stated in these extracts?
By whom do you think they were written?
Do you accept the conclusions?
- “Though there are few commodities which are at all times and for ever unsusceptible of increase of supply, any commodity whatever may be temporarily so; and with some commodities this is habitually the case. Agricultural produce, for example, cannot be increased in quantity before the next harvest; the quantity of corn already existing in the world is all that can be had for sometimes a year to come. During that interval corn is practically assimilated to things of which the quantity cannot be increased. In the case of most commodities, it requires a certain time to increase their quantity; and if the demand increases, then, until a corresponding supply can be brought forward, that is, until the supply can accommodate itself to the demand, the value will so rise as to accommodate the demand to the supply.”
Wherein, if at all, is this way of dealing with the temporary equilibrium of demand and supply different from Marshall’s? - Is it true that the first effect of increased demand for a commodity is to raise its supply price, and that the ultimate effect is to lower its supply price? If so, under what conditions in either case?
- Explain briefly: —
(a) internal economies,
(b) external economies,
(c) increased returns.
It has been said that the tendency to increase of effectiveness because of large-scale production should be distinguished from the tendency to increasing returns. Why, or why not?
- “The last three chapters examined the relation in which cost of production stands to the income derived from the ownership of the ‘original powers’ of land and other free gifts of nature, and also to that which is directly due to the investment of private capital. There is a third class, holding an intermediate position between these two, which consists of those incomes or rather those parts of incomes, which are the indirect result of the investment of capital and labour by individuals for the sake of gain.”
What is the third class? and why does it hold an intermediate position? - Explain what Clark means by the “extensive margin of indifference” and the “intensive margin of indifference”; and give your opinion on the significance of the conception in both aspects.
- “That part of a man’s income which he owes to the possession of extraordinary natural abilities is a free boon to him; and from an abstract point of view bears some resemblance to the rent of other free gifts of nature, such as the inherent properties of land. But in reference to normal prices, it is to be classed rather with the profits derived by free settlers from the cultivation of new land, or again with the find of the pearl-fisher.”
Why? or why not?
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ECONOMICS 11
Final Examination
1912-1913
[Arrange your answers strictly in the order of the questions]
- Explain the connection between
(a) the rent of mines;
(b) Carey’s doctrine that the total rent received by landowners is less than interest on the total investment for improving land;
(c) the earnings of barristers or opera-singers;
(d) the earnings of “successful” business men.
- “Men are not equal. . . . Those capable of organizing and leading industrial enterprise are in a minority, and are indeed few; hence they can put a price on their services which would be impossible if there were many. Their services are not worth more on this account, but they can get more for them. Because the community needs their services, and cannot perhaps get along without them, they can, if they like, put “famine prices” on the commodity (organizing and directing talent) which they have to sell; while, on the other hand, those who have only labor or physical skill, though they are just as necessary, are many, and hence can about as readily be taken advantage of as the others can take advantage.”
What have you to say? Can the “famine prices” be justified? - (a) “There are, in fact, few no-rent men in actual employment; and the reason for this is clear, since work involves a sacrifice, and it does not pay to incur the sacrifice unless the earnings be a positive quantity. In those times and places in which child labor has been employed, with little regard for the welfare of the victims, labor that was not at the no-rent point, but very near it, has been pressed into service. But, where the sacrifice entailed by labor is, in some way, neutralized by a benefit that work confers, labor which created literally nothing may sometimes be employed. Lunatics and prisoners may be kept at work, in order that they may secure fresh air and exercise, even though the amount of capital that they use, if it were withdrawn from their hands and turned into marginal capital, would produce as much as it does when it is used by them. In such a case the product imputable to their labor is nil.
The existence of any no-rent labor enables us to make the rent formula general and to apply it to every concrete agent of production.”
(b) “The productivity of any capital, whether human or external, will differ with the capital. Men differ in quality, i.e., in productive power, as truly as lands or other instruments differ. Some men have a high degree of earning power and some have not. Some men can work twice as fast as others. Some men can do higher grades of work than others. The result is that we find men classified as common manual laborers, skilled manual laborers, common mental workers, superintending workers, and enterprisers. Just as we can measure the rent of any land by the difference in productivity between that and the low-rent, or no-rent, land, in exactly the same way we can measure the difference in productivity between men. There is no grade of workmen called the “no-wages men,” but there would be such a grade if it were customary for their employer to pay for their cost of support (as the employer of land pays for its cost), so that only the excess above this cost were to be called wages.”
Compare the two trains of reasoning; give your opinion; and state by what authors the passages were written. - “If the proprietor of superior land were to say, ‘I will take no rent for it,’ this would not make wheat cheaper. The supply would not be changed; for the same quantity would be raised, the marginal amount raised on the no-rent land would be needed and would be bought at the former price, and all other parts of the supply would command the same rate. . . . It is a striking fact — but one hitherto much neglected — that similar conclusions apply to the product of every other agent” [capital and labor].
Do similar conclusions apply? Who do you think is the author of this passage? - What three grounds explain, according to Böhm-Bawerk, the preference for present goods over future? Which of them does he conclude to be the most important? State Fisher’s criticism; and give your own opinion on the controverted question.
- “In the present condition of industry, most sales are made by men who are producers and merchants by profession. . . . For them, the subjective use value of their own wares is, for the most part, very nearly nil. . . . In sales by them the limiting effect which, according to our theoretical formula, would be exerted by the valuation of the last seller, practically does not come into play.” — BÖHM-BAWERK.
What is the “theoretical formula”? and what is the importance of the qualification here stated? - In what sense are the terms “demand” and “increase of demand” used in the following passages: —
(a) “The democratization of society and the aping of the ways of the well-to-do by the lower classes have greatly increased the demand for silk fabrics.”
(b) “The lower price of sugar after 1890, when sugar was admitted free of duty, at once caused an increase of demand.”
(c) “The cheapening of a commodity may mean an increased demand such that the total sum spent on it will be as great as before, even greater than before.”
- Explain the essentials of Veblen’s theory of crises, and state wherein you think it most tenable, wherein least so.
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Course Announcement: Economics 11
1913-14
Primarily for Graduates
I
ECONOMIC THEORY AND METHOD
[Economics] 11. Economic Theory. Mon., Wed., Fri., at 2.30. Professor Taussig.
Course 11 is intended to acquaint the studeent with some of the later developments of economic thought, and at the same time to train him in the critical consideration of economic principles and the analysis of economic conditions. The exercises are accordingly conducted mainly by the discussion of selected passages from the leading writers; and in the discussion of selected passages from the leading writers; and in this discussion the students are expected to take an active part. The writings of J. S. Mill, Cairnes, F. A. Walker, Clark, Marshall, Böhm-Bawerk, and other recent authors, will be taken up. Attention will be given chiefly to the theory of exchange and distribution.
Source: Division of History, Government, and Economics 1913-14 in Official Register of Harvard University, Vol. X, No. 1, Part X (May 19, 1913), p. 65..
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Enrollment Economics 11
1913-14
For Undergraduates and Graduates:—
[Economics] 11. Professor Taussig.— Economic Theory
Total 39: 23 Graduates, 11 Seniors, 2 Juniors, 2 Others, 1 Radcliffe.
Source: Harvard University. Annual Reports of the President and Treasurer of Harvard College, 1913-14, p. 55.
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ECONOMICS 11
Mid-year Examination
1913-14
Arrange your answers in the order of the questions. One question may be omitted.
- “The distinction, then, between Capital and Not-capital, does not lie in the kind of commodities, but in the mind of the capitalist — in his will to employ them for one purpose rather than other; and all property, however ill adapted in itself for the use of labourers, is a part of capital, so soon as it, or the value to be received from it, is set apart for productive reinvestment. The sum of all the values so destined by their respective possessors composes the capital of the country.”
What is to be said for this doctrine, what against it? By whom was it maintained? - “Prices of commodities in great measure are fixed by supply and demand, but, except temporarily, they cannot be less than all costs, including wages and taxes, entering directly or indirectly into their production and distribution, together with some profit for the use of the capital employed. Hence an increase of the wages or cost of labor usually must be paid by consumers. A general increase of the wages of all labor would cause an equivalent increase of the price of nearly every product of labor and a general increase of the cost of living. The increased wages of the laborers then would not buy more than did their former wages and they would be no better off than before the increase. For this reason the economic welfare of the masses in the aggregate cannot be materially improved by the simple expedient of raising generally the wages of labor.”
What would Ricardo say to this? J. S. Mill? Your own view? - Marx’s doctrine, that value is embodied labor, has been said to be essentially the same as Ricardo’s doctrine that value rests on the labor given to producing an article. Why or why not?
- Suppose an increase in the demand for a commodity, in the schedule sense: —
(a) For short periods, under what conditions, if under any, would you expect supply price to rise? to fall?
(b) For long periods, under what conditions, if under any, would you expect supply price to rise? to fall?
Note whether your answer differs in any particular from that to be expected from Marshall.
- “The part played by the net product at the margin of production in the modern doctrine of distribution is apt to be misunderstood. In particular many able writers have supposed that it represents the marginal use of a thing as governing the value of the whole. It is not so; the doctrine says we must go to the margin to study the action of those forces which govern the value of the whole; and that is a very different affair.”
Explain. - “It has sometimes been argued that if all land were equally advantageous and all were occupied, the income derived from it would not be a true rent, but a monopoly rent.”
Under what conditions, if under any, would there be true rent in such a case? Under what conditions, if under any, would there be a monopoly rent? - “The derived supply price [of one of a group of things having a joint supply price] is found by a rule that it must equal the excess of the supply price for the whole process of production over the sum of the demand prices of all the other joint products.”
Explain, illustrating by diagram.
State the corresponding rule for the derived demand price of one of a group of commodities for which there is a joint demand. - (a) “In hundreds and thousands of suburban homes the question is asked every day, “How much milk shall we take in today, ma’am?” or “How much bread?” and the housewife knows without consideration that if she ordered one loaf of bread and one pint of milk, the marginal significance of bread and milk would be higher than their price, and if she said six loaves and five quarts of milk, the marginal loaf and pint would not be worth their price. Such orders, therefore, never enter into her head. But she deliberates, perhaps, whether she will want three loaves of bread or four, or three loaves and a twist, or three white loaves and a half-loaf of brown, and whether she shall take three quarts of milk or a pint more or less. Thus, whatever the terms on which alternatives are offered to us may be, we detect in conscious action at the margin of consideration the principles which are unconsciously at work in the whole distribution of our resources.”
Do you find anything to criticize in this?
(b) “When the supply (of a given commodity) is limited, the diminishing utility of each increment will be arrested at a point below which the consumer will prefer to abandon the use of an increment for something else. The margin here is a margin of indifference between an increment of one commodity and an increment of another commodity. Since these increments are not necessarily the same, the margin of indifference may be reached at a point where the tenth increment of one commodity balances the twentieth of another, where, in other words, the marginal utility of the first commodity is twice that of the second.”
Explain what you think is meant; and give your opinion on the conclusion stated in the last clause of the final sentence. - “An English ruler who looks upon himself as the minister of the race he rules (say in India) is bound to take care that he impresses their energies in no work that is not worth the labor that is spent on it; or, to translate the sentiment into plainer language, that he engages in nothing that will not produce an income sufficient to defray the interest on its cost.”
Would Marshall question this principle? On what grounds, if at all? Would you?
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ECONOMICS 11
Final Examination
1913-14
Arrange your answers in the order of the questions.
Answer all questions.
- “What about the ‘supply curve’ that usually figures as a determinant of price, coördinate with the demand curve? I say it boldly and baldly: there is no such thing. When we are speaking of a marketable commodity, what is usually called the supply curve is in reality the demand curve of those who possess the commodity; for it shows the exact place which every successive unit of the commodity holds in their relative scale of estimate.”
Is this criticism just if directed to (1) the temporary equilibrium of supply and demand, as analyzed by Marshall for a grain market; (2) the “price zone determined by marginal pairs,” as analyzed by Böhm-Bawerk; (3) the long period equilibrium of supply and demand, as analyzed by Marshall. - “The rent of land is no unique fact, but simply the chief species of a large genus of economic phenomena; and the theory of rent is no isolated economic doctrine, but merely one of the chief applications of a particular corollary from the general theory of demand and supply.”
Explain this statement of Marshall’s; mention other species which he assigns to the large genus; and consider wherein, if at all, the general doctrine differs from that of Clark, and from that of Böhm-Bawerk. - “As is true of good will and credit extensions generally, so with respect to the good will and credit strength of these greater business men: it affords a differential advantage and gives a differential gain. In the traffic of corporation finance this differential gain is thrown immediately into the form of capital and so added to the nominal capitalized wealth of the community. . . . This capitalization of the gains arising from a differential advantage results in a large ‘saving’ and increase of capital.”
Does this resemble in essentials Walker’s doctrine? If so, wherein? If not, why not?
In what sense, if in any, is it true that the differential gains lead to an increase of capital? - “It may be conceded that if a certain class of people were marked out from their birth as having special gifts for some particular occupation, and for no other, so that they would be sure to seek out that occupation in any case, then the earnings which such men would get might be left out of account as exceptional, when we are considering the chances of success or failure for ordinary persons.”
Consider whether, given the premise, the conclusion here stated would follow; what the bearing of the reasoning is on Walker’s theory of business profit; what Marshall would say of premise and conclusion. - In what sense, if in any, is a “productivity” theory of wages put forth by Walker? by Clark? by your instructor?
- “All apital goods — tools, machines, and the like — were explained [by the economists of the British School] as merely so much stored-up labor, or as the stored-up wages paid for it; the capitalist, as a laborer gone to seed; and thereby the product of capital as indirectly the product of the earlier wage-paid labor; interest being thus mere indirect wages. It was implied in this that the interest payments are for mere wear-out of the principal invested, and that the sum of all the interest payments upon a given investment can normally or regularly equal only the original capital sum invested in wages; and that sometime a given capital investment must cease its career of earning interest.”
Consider whether this was the doctrine of the British economists; whether it is the doctrine of Böhm-Bawerk; of your instructor; and give your own opinion. - “In the main, the way in which the increase of savings can find escape from its difficulties is through the parallel advance in the arts, calling for more and more elaborate forms of capital. . . . Given continued improvements calling for more and more elaborate plant, — more of time-consuming and roundabout applications of labor, — than savings can heap up, and a return will be secured by the owner of capital.”
What are the “difficulties” here referred to? What should be said of this way of escape by Böhm-Bawerk? by your instructor? by Veblen?
Sources:
Harvard University Examinations, Papers Set for Final Examinations in History, History of Science, Government, Economics, Philosophy, Psychology, Social Ethics, Education, Fine Arts, Music in Harvard College, June 1913, pp. 50-53.
Harvard University Examinations, Papers Set for Final Examinations in History, History of Science, Government, Economics, Philosophy, Psychology, Social Ethics, Education, Fine Arts, Music in Harvard College, June 1914, pp. 51-52.
Harvard University Archives. Prof. F. W. Taussig, Examination Papers in Economics 1882-1935 (Scrapbook).
Image Source: Frank W. Taussig in Harvard Class Album, 1915.
