Frank W. Taussig was the dominant figure in the Harvard economics department up to his retirement in 1935, having been a member of the faculty for over a half century. This posting contains the course announcement for Taussig’s core graduate economic theory course from 1914-15, enrollment figures, and the final examination questions (for both semesters!). The information comes from four different sources, three of which are available on-line. Over the next few weeks, I’ll be posting corresponding material from the twenty economics courses at Harvard during the 1914-15 year for which the final examination questions had been printed and subsequently published.
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Course Announcement
Primarily for Graduates
Except by special vote of the Department the courses for graduates are open to those undergraduates only who are in their last year of work and are candidates for the degree with distinction in the Division of History, Government, and Economics; but students of good standing may, in their last year of study, be admitted to Course 32, if they can show that they have special need of the subject. [p. 67]
I. Economic Theory and Method
Economics 11. Economic Theory. Mon., Wed., Fri., at 2.30. Professor Taussig.
Course 11 is intended to acquaint the student 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 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. [p. 67]
Source: Division of History, Government, and Economics 1914-15. Official Register of Harvard University, Vol. XI, No. 1, Part 14 (May 19, 1914).
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Course Enrollment
[Economics] 11. Professor Taussig.—Economic Theory.
Total 34: 27 Graduates, 4 Seniors, 2 Juniors, 1 Other.
Source: Report of the President of Harvard College, 1914-15, p. 59.
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Final Examination (first term)
ECONOMICS 11
Arrange your answers in the order of the questions.
- “Given machinery, raw materials, and a year’s subsistence for 1000 laborers, does it make no difference with the annual product whether those laborers are Englishmen or East Indians?
… The differences in the industrial quality of distinct communities of laborers are so great as to prohibit us from making use of capital to determine the amount that can be expended in any year or series of years in the purchase of labor.”
Under what further suppositions, if under any, does this hypothetical case tell in favor of those holding that wages are paid from a wages fund? Under what suppositions, if under any, in favor of those holding views like Walker’s?
- (a) “The labourer is only paid a really high price for his labour when his wages will purchase the produce of a great deal of labour.”
(b) “If I have to hire a labourer for a week, and instead of ten shillings I pay him eight, no variation having taken place in the value of money, the labourer can probably obtain more food and necessaries with his eight shillings than he before obtained for ten.”
Explain concisely what Ricardo meant.
- What, according to Ricardo, would be the effects of a general rise of wages on profits? on the prices of commodities? on rents? the well-being of laborers?
- “The component elements of Cost of Production have been set forth in the first part of this enquiry. The principal of them, and so much the principal as to be nearly the sole, we found to be Labour. What the production of a thing costs to its producer, or its series of producers, is the labour expended in producing it. If we consider as the producer the capitalist who makes the advances, the word Labour may be replaced by the word Wages: what the produce costs to him, is the wages which he has had to pay.” J.S. Mill.
What would Ricardo say to the proposed substitution [of “Wages” for “Labour”]? Cairnes? Marshall?
- “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. In other words the normal wage represents the expenses of production of the labor according to the ruling standard of comfort.” Marshall.
On these suppositions, would value depend in the last analysis on cost or utility?
- (a) “Were it not for the tendency [to diminishing returns] every farmer could save nearly the whole of his rent by giving up all but a small piece of his land, and bestowing all his labor and capital on that. If all the labor and capital which he would in that case apply to it gave as good a return in proportion as that he now applies to it, he would get from that plot as large a produce as he now gets from his whole farm; and he would make a net gain of all his rent save that of the little plot that he retained.”
(b) “The return to additional labour and capital [applied to land] diminishes sooner or later; the return is here measured by the quantity of the produce, not by its value.”
(c) “Ricardo, and the economists of his time generally were too hasty in deducing this inference [tendency to increased pressure] from the law of diminishing return; and they did not allow enough for the increase of strength that comes from organization. But in fact every farmer is aided by the presence of neighbours, whether agriculturists or townspeople. . . . If the neighbouring market town expands into a large industrial centre, all his produce is worth more; some things which he used to throw away fetch a good price. He finds new openings in dairy farming and market gardening, and with a larger range of produce he makes use of rotations that keep his land always active without denuding it of any one of the elements that are necessary for its fertility.”
Have you any criticisms or qualifications to suggest on these passages from Marshall?
- “When the artisan or professional man has once obtained the skill required for his work, a part of his earnings are for the future really a quasi-rent. The remainder of his income is true earnings of effort. But this remainder is generally a large part of the whole. And herein lies the contrast. When a similar analysis is made of the profits of the undertaker of business, the proportions are found to be different: in this case nearly all is quasi-rent.”
Explain what you believe to be Marshall’s meaning, and why he considers undertaker’s profits not to be “true earnings of effort.”
Source: Harvard University Archives. Examination Papers in Economics, 1882-1935. Prof. F. W. Taussig. (HUC 7882). Scrapbook, p. 104.
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Final Examination (second term)
ECONOMICS 11
Arrange your answers in the order of the questions.
- Explain briefly what Walker meant by the “no-profits” business man; what Marshall means by the “representative firm”; what your instructor means by the “marginal product of labor.” How are the three related?
- Explain briefly whether anything in the nature of a producer’s surplus or a consumer’s surplus appears as regards (a) instruments made by man and the return secured by their owners; (b) unskilled labor and the wages paid for it; (c) business management and business profits.
- “Wages are paid by the ordinary employer as the equivalent of the discounted future benefits which the laborer’s work will bring him — the employer — and the rate he is willing to pay is equal to the marginal desirability of the laborer’s services measured in present money. We wish to emphasize the fact that the employer’s valuation is (1) marginal, and (2) discounted. The employer pays for all his workmen’s services on the basis of the services least desirable to him, just as the purchaser of coal buys it all on the basis of the ton least desirable to him; he watches the ‘marginal’ benefits he gets exactly as does the purchaser of coal. At a given rate of wages he ‘buys labor’ up to the point where the last or marginal man’s work is barely worth paying for. … If, say, he decides on one hundred men as the number he will employ, this is because the hundredth or marginal man he employs is believed to be barely worth his wages, while the man just beyond this margin, the one hundred and first man, is not taken on because the additional work he would do is believed to be not quite worth his wages.”
Does this seem to you in essentials like the doctrine of Clark? of your instructor?
- An urban site is leased at a ground rental of $2,000 a year; a building is erected on it costing $50,000; the current rate of interest is 4%.
Suppose the net rental of the property (after deduction of expenses and taxes) to be $8,000. What is the nature of this return, according to J. S. Mill? Marshall? Clark?
Suppose the net rental to be $3,000; answer the same questions.
- “That capital is productive has often been questioned, but no one would deny that tools and other materials of production are useful; yet these two propositions mean exactly the same when correctly understood. Capital consists primarily of tools and other materials of production, and such things are useful only in so far as they add something to the product of the community. Find out how much can be ‘produced without any particular tool or machine, and then how much can be produced with it, and in the difference you have the measure of its productiveness.”
What would Bohm-Bawerk say to this? What is your own?
- “Wages bear the same relation to man’s services that rent does to the material uses of wealth. . . . While rent is the value of the uses of things, wages is the value of the services of men. . . .The resemblance is very close between rent and wages.”
“The principles governing the rate of wages are, in a general way, similar to those governing the rate of rent. The rate of a man’s wages per unit of time is the product of the price per piece of the work he turns out multiplied by his rate of output. His productivity depends on technical conditions, including his size, strength, skill, and cleverness.”
Explain what is meant by “rent” in these passages and by what writers it is used in this sense; and give your opinion on the resemblance between such “rent” and wages.
- Bohm-Bawerk remarks that the theory which he has put forward bears “a certain resemblance” to the wages fund theory of the older English School, but differs from it in various ways, one of which is “the most important.” What are the points of resemblance? and what is this most important difference?
- “While the slowness of Nature is a sufficient cause for interest, her productivity is an additional cause. . . . Nature is reproductive and tends to multiply. Growing crops and animals make it possible to endow the future more richly than the present. By waiting, man can obtain from the forest or farm more than he can by premature cutting or the exhaustion of the soil. In other words, not only the slowness of Nature, but also her productivity or growth, has a strong tendency to keep up the rate of interest. Nature offers man, as one of her optional income-streams, the possibility of great future abundance at trifling present sacrifice. This option acts as a bribe to man to sacrifice present income for future, and this tends to make present income scarce and future income abundant, and hence also to create in his mind a preference for a unit of present over a unit of future income.”
What would Bohm-Bawerk say to this? What is your own view?
Whom do you believe to be the writer of the passage?
Source: 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 1915, pp. 52-54.
Image Source: Frank W. Taussig in Harvard Class Album, 1915.
