Four out of the five times that the first term of the macroeconomics sequence at M.I.T. (Theory of Income and Employment) was taught in the second half of the 1960’s, it was taught by Evsey Domar . Earlier posts with materials for Domar’s course include the reading list and final exam for 1960-61, reading list and exams for 1965-66 , the exams for 1968-69, and the course evaluations for 1967/68-1969/70.
Responsible for the course section in 1967-68 was the assistant professor John Rees Harris (b. 1934, d. 2018, 1967 Northwestern Ph.D. in economics) [copy of his c.v. archived 14 February 2019]. Here is link to a video lunchtime talk by Harris at the Boston University conference “Development that Works” (March 11, 2011). The picture is a screen-capture from the video.
______________________
M.I.T.
THE THEORY OF INCOME AND EMPLOYMENT
14.451
1967-68
[first session]
I. ADMINISTRATIVE QUESTIONS
-
- Course number, my and Harris’s name, our office numbers, office hours Tu 2:30-3:30.
- Sitting chart. No compulsory attendance.
- Reading list. First part only. Required and recommended or optional. Responsible for all required reading, but not for the details. I don’t know them myself. Lectures are the skeleton of the course. Reserve in Dewey. Inform me if some books are absent.
- The National Income problem. It is due….
- Midterm exam in November. Final exam.
- Other administrative problems?
II. THE PURPOSE AND NATURE OF THE COURSE
To fill in the gaps and bring everyone to a common denominator, without pulling anyone down. Hence, some will find it a bit boring. Attendance is not compulsory.
It is an introductory course. Almost everything will be discussed in other courses, except National Income, Index of Industrial Production, etc. Growth and fluctuations; monetary economics, consumption function, investment decisions, etc.
III. COMMENTS ON MACROECONOMICS
At the beginning, was a very hot subject—the most interesting part of economics. Two reasons: (1) it was new: (2) the greatest deficiency was in the macro area. Emphasis in those days was on full employment, not growth. Growth came in after the second world war.
The close connection between macro economics and governmental policies.
Three [sic] aspects:
(1) understanding of macro problems by economists
(2) persuading the public—easy in England, very difficult here.
(3) Forecasts of the future—improvement
(4) The effectiveness of methods—also part of forecasts.
On the whole macro-policy has been very successful, sometimes by design, sometimes by luck. The tax reduction of 1964 was the first one for fiscal policy specifically. Less fear of a deficit—witness the present situation. But the tax rise is still a test.
Next step—economic growth. First models—macro type with one kind of goods, and investment with capital coefficients. Still being used, but they don’t get us far.
Growth is to a considerable extent a micro-problem, or at least a mixture of the two. Much more difficult for the government to legislate. How does one improve efficiency? Evaluation of investment projects, of economic effects of education, etc.
Some exaggeration—but the traditional macro theory suffers from its own success.
PART I NATIONAL INCOME AND RELATED ITEMS
First—to state the objectives, such as welfare (whose?), capacity to produce (what?), national prestige, evaluation of policies, curiosity about growth, etc.
How to bring order out of the chaos? Which goods and services, which transactions are to be recorded?
Define the purpose of economic activity:
(1) Welfare of all people (or citizens) of a given area
(2) Welfare of some people only (slaves or relatives excluded). Weights?
(3) Welfare of animals? The old lady and her cat?
The definition of welfare may lead to a definition of activities to be included.
Special activities: warfare (Sparta), capital formation, police protection, etc.
Market vs. non-market goods. Imputed items.
Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Evsey D. Domar Papers. Box 17, Folder “Macroeconomics. Theory of National Income and Employment”.
_________________________
THEORY OF INCOME AND EMPLOYMENT
14.451
Fall Term 1967-68
E.D. Domar
J.R. Harris
READING LIST
The purpose of this list is to suggest to the student the sources in which the more important topics of the course are discussed from several points of view. His objectives should be the understanding of these topics and not the memorization of opinions and details.
The “optional” reading has been included for those students who wish to pursue some of the subjects in greater detail. Some of the items on the optional list may be more effective in their exposition, at least for some individuals, than those on the required list.
There exists a good (if a bit obsolete) textbook on macroeconomics—Gardner Ackley, Macroeconomic Theory (The Macmillan Company, New York, 1961). Its knowledge is necessary but not sufficient for passing the course. While several copies are on reserve at Dewey, the acquisition of private copies is recommended.
Students may also find it convenient to acquire the following books: Readings in Macroeconomics edited by M.G. Mueller (which contains a number of relevant articles) and possible the three National Income volumes published by the U.S. Department of Commerce and listed in Section I.
I. NATIONAL INCOME AND RELATED ITEMS
(September 19 – October 12)
REQUIRED
Ackley, Chapters 1-4.
Kuznets, S., National Income and Its Composition, Vol. I (New York, 1941), Chap. 1.
National Income 1954 Edition, A Supplement to the Survey of Current Business, U.S. Department of Commerce (Washington, D.C., 1954), pp. 27-60, 153-58.
U.S. Income and Output, A Supplement to the Survey of Current Business, U.S. Department of Commerce (Washington, D. C., 1958), pp. 50-105.
The National Income and Product Accounts of the United States, 1929-1965. U.S. Department of Commerce (Washington, D.C., 1966). Browse through the statistics tables of the three volumes to find out what is available where.
Bergson, A. The Real National Income of Soviet Russia since 1928, Ch. 3 on “Methods and Procedures”, (Cambridge, Mass., 1961).
Griliches, Z. “Notes on the Measurement of Price and Quality Changes”, in Models of Income Determination, Studies in Income and Wealth, Vol. 28 by the Conference on Research in Income and Wealth, National Bureau of Economic Research, 1964, pp. 381-418.
Leontief, W. W., “Output, Employment, Consumption and Investment,” Quarterly Journal of Economics, Vol. 58 (February, 1944), pp. 290-314.
Leontief, Studies in the Structure of the American Economy (New York, 1953), pp. 27-35.
Dorfman, R., “The Nature and Significance of Input-Output,” Review of Economics and Statistics, Vol. 36 (May, 1954), pp. 121-33.
Domar, E. D., “On the Measurement of Technological Change,” The Economic Journal, Vol. 71 (December, 1961), pp. 709-29. [Read only pp. 709-14, 726-29.]
Board of Governors of the Federal Reserve System, Industrial Production 1959 Revision (Washington, 1960), pp. iii-41. [Look for the method, not for statistical details.]
Domar, E. D., “An Index-Number Tournament,” The Quarterly Journal of Economics, Vol. LXXXI (May, 1967), pp. 169-88.
Sigel, S. J., “A Comparison of the Structures of Three Social Accounting Systems,” National Bureau of Economic Research, Input-Output Analysis: An Appraisal, The Conference on Research in Income and Wealth, Studies in Income and Wealth, Vol. 18 (Princeton, 1955), pp. 253-89.
OPTIONAL READINGS:
Jaszi, G., “The Statistical Foundations of the GNP,” Review of Economics and Statistics, Vol. 38 (May, 1956), pp. 205-14.
Lewis, Wilfred, Jr., “The Federal Sector in National Income Models,” and comments by Hickman and Pechman, in Conference on Research in Income and Wealth, Models of Income Determination (Princeton, 1964), Vol. 28, pp. 233-78.
Bailey, M. J., National Income and the Price Level (New York, 1962), pp. 269-300.
Kuznets, S., National Income and Its Composition (New York, 1941).
Ruggles, R. and N., National Income Accounts and Income Analysis (New York, 1956).
Ruggles, “The U.S. National Accounts,” American Economic Review, Vol. 49, (March, 1959), pp. 85-95.
National Bureau of Economic Research, The National Economic Accounts of the United States, Review, Appraisal and Recommendations, General Series 64, (Washington, 1958).
Organization for European Economic Cooperation, A Standardised System of National Accounts, (Paris, 1952).
Gilbert, M. and I. B. Kravis, An International Comparison of National Products and the Purchasing Power of Currencies, A Study of the United States, the United Kingdom, France, Germany and Italy, Organization for European Economic Cooperation (Paris, 1954).
Gilbert, M., Comparative National Products and Price Levels, A Study of Western Europe and the United States, Organization of European Economic Cooperation, (Paris, 1958).
United Nations, Yearbook of National Accounts Statistics, the latest issue.
United Nations, National Income Statistics, the latest issue.
United Nations, World Economic Survey and other Economic Surveys.
Studenski, The Income of Nations. Theory, Measurement, and Analysis: Past and Present (New York, 1958). [A wealth of information, particularly of historical character.]
Nove, A., “The United States National Income A La Russe,” Economica, Vol. 23, 1956.
Bergson, A. The Real National Income of Soviet Russia Since 1928 (Cambridge, Massachusetts, 1961). (The rest of the book).
Kravis, I. B., “Relative Income Shares in Fact and Theory,” American Economic Review, Vol. 49 (December, 1959), pp. 917-49.
Samuelson, P. A., “Evaluation of Real National Income,” Oxford Economic Papers (New Series), 1950, pp. 1-29.
Samuelson, “The Evaluation of ‘Social Income’: Capital Formation and Wealth,” in F. A. Lutz and D. C. Hague, editors, The Theory of Capital (London, 1961).
Leontief, W. W., The Structure of American Economy (New York, 1941).
Leontief, Studies in the Structure of the American Economy (New York, 1953).
Taskier, C. E., Input-Output Bibliography 1955-1960, United Nations (New York, 1961).
Evans, W. D., and M. Hoffenberg, “The Interindustry Relations Study for 1947,” Review of Economics and Statistics, Vol. 34, (May, 1952), pp. 97-142.
Stewart, I. G., “The Practical Uses of Input-Output Analysis,” Scottish Journal of Political Economy, Vol. 5, (February, 1958).
Dosser, D. and A. T. Peacock, “Input-Output Analysis in an Under-Developed Country: A Case Study,” Review of Economic Studies, Vol. 25 (October, 1957).
Input-Output Analysis: An Appraisal, Studies in Income and Wealth by the Conference on research in Income and Wealth, Vol. 18 (Princeton, 1955).
Solow, R. M. “Technical Change and the Aggregate Production Function,” Review of Economics and Statistics, Vol. 39 (August, 1957), pp. 312-20.
Abramovitz, M., “Resources and Output in the United States Since 1870,” American Economic Review, Papers and Proceedings, Vol. 46 (May, 1956), pp. 5-23, reprinted as National Bureau of Economic Research, Occasional Paper 52 (New York, 1956).
Kendrick, J. W., Productivity Trends in the United States (Princeton, 1961).
Denison, E. F., Sources of Economic Growth in the United States and the Alternatives Before Us (New York, 1962).
Abramovitz, M., “Economic Growth in the United States,” American Economic Review, Vol. 52 (September, 1962), pp. 762-82. [This is a review of Denison’s Book.]
Moorsteen, R. H., “On Measuring Productive Potential and Relative Efficiency,” Quarterly Journal of Economics, Vol. 75 (August, 1961), pp. 451-67.
Fabricant, S., The Output of Manufacturing Industries, 1899-1937 (New York, 1940), particularly Chapter 1.
United Nations, Statistical Office, Index Numbers of Industrial Production, St/Stat/ Ser/ F1 (New York, 1950).
Board of Governors of the Federal Reserve System, Flow of Funds in the United States 1939-53 (Washington, D. C., 1955).
Powelson, J. P., National Income and Flow-Of-Funds Analysis (New York, 1960).
Measuring the Nation’s Wealth, National Bureau of Economic Research, Studies in Income and Wealth, Vol. 29 (Washington, D. C., 1964).
READING LIST—SECOND INSTALLMENT
II. GENERAL AGGREGATIVE SYSTEMS—FIRST APPROXIMATION
(October 17 – October 31).
REQUIRED:
Ackley, Parts II and III.
Keynes, J. M., The General Theory of Employment, Interest and Money (London and New York, 1936). [Omit the appendixes to Chapters 6 and 19.]
Note: Neither book is arranged in the order of this reading list. Hence these two assignments apply to other sections of it as well.
Wells, P., “Keynes’ Aggregate Supply Function: A Suggested Interpretation,” The Economic Journal, Vol. 70 (September, 1960), pp. 536-42.
Johnson, H. G. and the discussants, “The General Theory After Twenty-five Years,” American Economic Review Papers and Proceedings, Vol. 60 (May, 1961), pp. 1-25.
Klein, L. R., “The Empirical Foundations of Keynesian Economics,” in K. K. Kurihara, ed., Post Keynesian Economics(New Brunswick, N. J., 1954), pp. 277-319.
OPTIONAL READINGS:
Lekachman, Robert, Keynes’ General Theory: Reports of Three Decades, (New York and London, 1964).
Patinkin, D., Money, Interest, and Prices, Second Edition, (New York, 1965).
American Economic Association, Readings in Business Cycle Theory (Philadelphia, 1944), Essays 5, 7, 8.
American Economic Association, Readings in the Theory of Income Distribution (Philadelphia, 1946), Essay 24.
Metzler, “Three Lags in the Circular Flow of Income,” in Income, Employment and Public Policy, Essays in Honor of Alvin H. Hansen (New York, 1948), pp. 11-32.
Harris, S. E., The New Economics (New York, 1947), Essays 8-19, 31-33, 38-46.
Lerner, A. P., Economics of Control (New York, 1944), Chapters 21-23, 25.K
Kurihara, K. K., Post Keynesian Economics (New Brunswick, N. J., 1954).
Klein, L. R., The Keynesian Revolution, (New York, 1947), Chapters 3-5.
Ellis, H. S., A Survey of Contemporary Economics, Vol. 1, (Philadelphia, 1948), Chapter 2.
Burns, A. F., “Economic Research and the Keynesian Thinking of Our Times,” in his The Frontiers of Economic Knowledge, (Princeton, 1954), or in the Twenty-Sixth Annual Report of the National Bureau of Economic Research, Inc.(New York, 1946). See also the discussion by Hansen and Burns in the Review of Economic Statistics (November, 1947).
Dillard, D., “The Influence of Keynesian Economics on Contemporary Thought,” American Economic Review, Papers and Proceedings, 1957.
Hutt, W. H., Keynesianism: Retrospect and Prospect (Chicago, 1963).
Friedman, Milton, and G. S. Becker, “A Statistical Illusion on Judging Keynesian Models,” Journal of Political Economy, Vol. 55 (February, 1957), pp. 64-75.
III. PRICE FLEXIBILITY AND EMPLOYMENT
(November 2-9)
REQUIRED:
Patinkin, D., Money, Interest, and Prices, Second ed., (New York, 1965), Chapters 9-11.
Pigou, A. C., “The Classical Stationary State,” Economic Journal (December, 1943).
Power, J. H., “Price Expectations, Money Illusion and the Real Balance Effect,” Journal of Political Economy, Vol. 67 (April, 1959).
Mayer, T., “The Empirical Significance of the Real Balance Effect,” Quarterly Journal of Economics, Vol. 73 (May, 1959).
OPTIONAL READINGS:
Readings in Monetary Theory, Essay 13.
Schelling, T. C., “The Dynamics of Price Flexibility,” American Economic Review (September, 1949).
Lange, O., Price Flexibility and Employment (Bloomington, Indiana, 1944). [Get the main idea and omit the details.]
Friedman, M., “Lange on Price Flexibility and Employment,” American Economic Review (September, 1946).
Patinkin, D., Money, Interest, and Prices (Evanston, Illinois, 1956).
Hicks, J. R., “A Rehabilitation of ‘Classical Economics’,” Economic Journal, Vol. 47, (June, 1957).
IV. The Theory of Interest and the Demand for Money
Required:
Keynes, General Theory, Chapters 13-17.
Hansen, A., Monetary Theory and Fiscal Policy, Chapters 3,4.
Hicks, J. R., Value and Capital, Chapters 11, 12.
Friedman, M., “The Quantity Theory of Money—A Restatement,” Studies in the Quantity Theory of Money.
Patinkin, D., Money, Interest and Prices, 2nd ed., Chapters VIII, XV.
Tobin, J., “Liquidity Preference as Behavior Towards Risk,” The Review of Economic Studies, February 1958, pp. 65-86.
Optional:
American Economic Association, Readings in the Theory of Income Distribution (Philadelphia, 1946), Essays 22, 23, 26.
American Economic Association, Readings in Monetary Theory, (New York, 1951), Essays 6, 11, 15.
Friedman, M. and A. J. Schwartz, A Monetary History of the United States 1867-1960 (Princeton, 1963).
Gurley, J. G., and E. S. Shaw, “Financial Aspects of Economic Development,” AER, vol. 65, September 1955, pp. 515-38.
Gurley, J. G., and E. S. Shaw, Money in a Theory of Finance (Washington, 1960).
Hart, A. G., and P. B. Kenen, Money, Debt and Economic Activity, Third Ed., (Englewood Cliffs, N. J., 1961).
Lydall, H., “Income, Assets, and the Demand for Money,” Review of Economics and Statistics, vol. 40, February 1958, pp. 1-14.
Lutz, F. A., “The Interest Rate and Investment in a Dynamic Economy,” AER, December 1945).
Matthews, R. C. O., “Liquidity Preference and the Multiplier,” Economica, vol. 28, February 1961, pp. 37-52.
Patinkin, D., “Liquidity Preference and Loanable Funds: Stock and Flow Analysis,” Economica, Vol. 25, November 1958.
Review of Economics and Statistics Supplement, vol. 45, February 1963, on “The State of Monetary Economics.”
Wright, A. L., “The Rate of Interest in a Dynamic Model,” Quarterly Journal of Economics, vol. 72, August 1958, pp. 327-50.
Reading List—Third Installment
V. Consumption and Saving
Required:
Clower, R.W., “The Keynesian Counterrevolution: A Theoretical Appraisal,” in Hahn and Brechling (eds.), The Theory of Interest Rates (Macmillan, 1965).
Davidson, P., “A Keynesian View of Patinkin’s Theory of Employment,” E.J., September 1967.
Leijonhufvud, A., “Keynes and the Keynesians: A Suggested Interpretation,” AER, May 1967.
Ackley, Chapters 10, 11, 12.
Keynes, General Theory, Chapters 8, 9, 10.
Hagen, E.,”The Consumption Function: A Review Article,” Review of Economics and Statistics, XXXVII, Feb. 1955, pp. 48-54.
Duesenberry, J. S., Income, Saving, and the Theory of Consumer Behavior, Chapters 3, 4.
Friedman, M., A Theory of the Consumption Function, Chapters 1, 2, 3, 9.
Ando, A. and Modigliani, F., “The ‘Life Cycle’ Hypothesis of Saving,” AER, March 1963, pp. 55-85; March 1964, pp. 111—113.
Farrell, M. J., “The New Theories of the Consumption Function,” E.J., vol. 69, December, 1959, pp. 678-96.
Lintner, J., “The Determinants of Corporate Saving,” Savings in the Modern Economy (W. Heller, ed.), pp. 230-55.
Lintner, J. and discussants, “Distribution of Income of Corporations Among Dividends, Retained Earnings, and Taxes,” AER, vol. 46, May 1956, pp. 97-118.
Friend, I., and Kravis, I.B., “Entrepreneurial Income, Saving and Investment,” AER, vol. 47, June 1957, pp. 269-301.
Lubell, H., “Effects of Redistribution of Income on Consumers’ Expenditures,” AER, vol. 37, March 1947, pp. 157-170.
________, “A Correction,” AER, vol. 37, December 1947, p. 930.
Domar, E. D., Essays in the Theory of Economic Growth (New York, 1957), pp. 154-67, 195-201.
Bronfenbrenner, Yomana and Lee, “A Study in Redistribution and Consumption,” Review of Economics and Statistics, May 1955, pp. 149-59.
Tobin, J., “Asset Holdings and Spending Decisions,” AER May 1952, pp. 109-23.
Crockett, Jean, “Income and Asset Effects on Consumption: Aggregate and Cross Section,” and comments by D. B. Suits, in N.B.E.R., Models of Income Determination, pp. 97-136.
Tobin, J., “On the Predictive Value of Consumer Intentions and Attitudes,” The Review of Economics and Statistics, vol. 41, February 1959, pp. 1-11.
Optional
Bailey, M. J., “Saving and the Rate of Interest,” Journal of Political Economy, vol. 45, August 1957, pp. 279-305. Reprinted in Landmarks in Political Economy, edited by E. J. Hamilton, A. Rees, and H.G. Johnson (Chicago, 1962), pp. 583-622.
Brown, B., and F. M. Fisher, “Negro-White Savings Differentials and the Modigliani-Brumberg Hypothesis,” Review of Economics and Statistics, vol. 40, February 1958, pp. 79-81.
Brown, E. C., Solow, R. M., Ando, A., and J. Karekan, “Lags in Fiscal and Monetary Policy,” in Commission on Money and Credit, Stabilization Policies (Englewood Cliffs, 1963), pp. 1-165.
Clark, J.M., “Note on Income Redistribution and Investment,” AER, vol. 37, December 1947, p. 931.
Dennison, E. F., “A Note on Private Saving,” Review of Economics and Statistics, August 1958.
Dobrovolsky, S. P., Corporate Income Retention 1915-43 (New York, 1951). (Omit the details.)
Domar, E.D., Essays in the Theory of Economic Growth (New York 1957), pp. 154-67, 195-201.
Ferber, R., “The Accuracy of Aggregate Savings Functions in the Post-War Years,” Review of Economics and Statistics, vol. 37, May 1955, pp. 134-48.
Friedman, M., and G. Becker, “A Statistical Illusion in Judging Keynesian Models,” JPE, vol. 65, February 1957.
Friend, I., and S. Schor, “Who Saves?,” The Review of Economics and Statistics, vol. 41, May 1959, pp. 213-45.
Goldsmith, R. W., A Study of Saving in the United States, three volumes (Princeton, 1952).
Gordon, M. J., “The Optimum Dividend Rate,” presented at the sixth Annual International Meeting of the Institute of Management Sciences, Paris, September 1959. (On library reserve.)
Heller, W. W., Boddy, F. M., and C. L. Nelson, Savings in the Modern Economy, a Symposium (Minneapolis, 1953).
Katona, G., and E. Mueller, Consumer Expectations 1953-56 (Ann Arbor, Michigan, 1956).
Rees, and Johnson, H. G., (Chicago, 1962), pp. 583-622.
Klein, L. R., “The Friedman-Becker Illusion,” JPE, vol. 66, December 1958.
Klein, L. R., (ed.), Contributions of Survey Methods to Economics (New York, 1954).
Morgan, J. N., Consumer Economics (New York, 1955).
Modigliani, F., and R. Brumberg, “Utility Analysis and the Consumption Function: An Interpretation of Cross-Section Data,” in Kurihara, K. K., (ed.), Post Keynesian Economics (New Brunswick, N. J., 1954), pp. 388-436.
Mincer, J., “Employment and Consumption,” Review of Economics and Statistics, vol. 42, February 1960, pp. 20-26.
Zellner, Arnold, “The Short-Run Consumption Function,” Econometrica, (October, 1957).
VI. Investment
Required
Ackley, Chapter 17.
Keynes, General Theory, Chapters 11, 12.
White, W. H., “Interest Inelasticity of Investment Demand,” AER, vol. 46, September 1956, pp. 565-587.
Knox, “The Acceleration Principle and the Theory of Investment,” Economica, August 1952, pp. 269-97.
Meyer, J., and E. Kuh, The Investment Decision, Chapters 2, 8, 12.
Eisner, R., “Investment: Fact and Fancy,” Jorgenson, D.W., “Capital Theory and Investment Behavior,” Kuh, E., “Theory and Institutions in the Study of Investment Behavior,”: all three in AER, May 1963, pp. 237-268.
Lovell, M.C., “Determinants of Inventory Investment,” in N.B.E.R., Models of Income Determination, pp. 177-216.
Solomon, E., ed., The Management of Corporate Capital, pp. 48-55, 67-73.
Witte, J. G., “The Microfoundations of the Social Investment Function,” Journal of Political Economy, vol. 71, October 1963, pp. 441-56.
Optional
Andrews, P.W.S., “Further Inquiry into the Effects of Rates of Interest,” Oxford Economic Papers, February 1940, pp. 32-73.
Brockie, M.D., and A.L. Grey, “The Marginal Efficiency of Capital and Investment Programming,” Economic Journal, vol. 46, December 1956.
Cunningham, N.J., “Business Investment and the Marginal Cost of Funds,” Metroeconomica, vol. 10, August 1958.
Cunningham, N.J., “Business Investment and the Marginal Cost of Funds,” Part II, Metroeconomica, December 1958.
Duesenberry, J., Business Cycles and Economic Growth (New York, 1958), Chapters 4-7.
Ebersole, J.F., “The Influence of Interest Rates,” Harvard Business Review, vol. 17, 1938, pp. 35-39.
Foss, M.F., “Manufacturers’ Inventory and Sales Expectations—A Progress Report on a New Survey,” Survey of Current Business, August 1961.
Foss, M.F., and V. Natrella, “Ten Years’ Experience with Business Investment Anticipations,” Survey of Current Business, January 1957.
Foss, M.F., “Investment Plans and Realizations—Reasons for Differences in Individual Cases,” Survey of Current Business, June 1957.
Friend, I., and J. Bronfenbrenner, “Business Investment Programs and Their Realization,” Survey of Current Business, December 1950.
Grey, A.L., and M.D. Brockie, “The Rate of Interest, Marginal Efficiency of Capital and Net Investment Programming: A Rejoinder,” Economic Journal, June 1959.
Heller, W.W., “The Anatomy of Investment Decisions,” Harvard Business Review, March 1951, pp. 95-103.
Henderson, H.D., “The Significance of the Rate of Interest,” Oxford Economic Papers, October 1938, pp. 1-13.
Hirschleifer, J., “On the Theory of Optimal Investment Decision,” The Journal of Political Economy, vol. 66, August 1958, pp. 329-352. (An excellent but difficult paper.)
James, E., A Reconsideration of the Theoretical Criteria for Optimum Investment Planning (M.I.T. doctoral dissertation 1961).
Lerner, A.P., “On the Marginal Product of Capital and the Marginal Efficiency of Investment,” Journal of Political Economy, vol. 51, February 1953, pp. 1-14. Reprinted in Landmarks in Political Economy edited by E.J. Hamilton, A. Rees, and H.G. Johnson (Chicago, 1962), pp. 538-58.
Lovell, M.C., “Determinants of Inventory Investment,” in Conference on Research in Income and Wealth, Models of Income Determination (Princeton, 1964), vol. 28, pp. 177-232.
Lutz, F.A., and V., The Theory of Investment of the Firm (Princeton, 1951).
Lydall, H.F., “The Impact of the Credit Squeeze on Small and Medium Sized Manufacturing Firms,” Economic Journal, vol. 47, September 1957.
Meade, J.E., and P.W.S. Andrews, “Summary of Replies to Questions on Effects of Interest Rates,” and “Further Inquiry into the Effects of Rates of Interest,” Oxford Economic Papers, No. 1, 1938 and No. 3, 1940.
N.B.E.R., The Quality and Economic Significance of Anticipations Data, A Conference of the Universities—National Bureau Committee for Economic Research (Princeton, 1960).
Penrose, E.T., The Theory of the Growth of the Firm (Oxford, 1959).
Penrose, E.T., “Limits to the Growth and Size of Firms,” AER Papers and Proceedings, vol. 45, May 1955, pp. 531-43.
Pitchford, J.D. and A.J. Hagger, “A Note on the Marginal Efficiency of Capital,” Economic Journal, vol. 48, September 1958, pp. 597-600.
Robinson, J., The Accumulation of Capital (London, 1956). (Wish we had time for it.)
Sayers, R.S., “Business Men and the Terms of Borrowing,” Oxford Economic Papers, February 1940, pp. 23-31.
Spiro, A., “Empirical Research and the Rate of Interest,” Review of Economics and Statistics, vol. 40, February 1958.
Lintner, J., “Corporation Finance: Risk and Investment,” in N.B.E.R., Determinants of Investment Behavior (Robert Ferber editor), pp. 215-54.
Jorgenson, D.W., “The Theory of Investment Behavior,” in N.B.E.R., Determinants of Investment Behavior, pp. 129-55.
Miller, M.H. and F. Modigliani, “Estimates of the Cost of Capital Relevant for Investment Decisions under Uncertainty,” in N.B.E.R., Determinants of Investment Behavior, pp. 179-214.
Miller, M.H. and F. Modigliani, “Reply,” in N.B.E.R., Determinants of Investment Behavior, pp. 260-70.
Lovell, M.C., “Sales Anticipations, Planned Inventory Investment, and Realizations,” in N.B.E.R., Determinants of Investment Behavior, pp. 537-80.
Reading List—Fourth Installment
VII. Multiplier and Accelerator
Required
Kahn, R.F., “The Relation of Home Investment to Unemployment,” Economic Journal, 1931. Republished in Hansen and Clemence, Readings in Business Cycles and National Income (New York, 1953), Essay 15.
Readings in Business Cycle Theory, Essays 9-12.
Haavelmo, T., “Multiplier Effects of a Balanced Budget,” Econometrica, 1945, reprinted in Readings in Fiscal Policy, pp. 335-343.
Salant, William A., “Taxes, Income Determination, and the Balanced Budget Theorem,” The Review of Economics and Statistics, May 1957. Reprinted in Gordon and Klein (eds.) A.E.A. Readings in Business Cycles (1965).
Tsiang, S.C., “Accelerator, Theory of the Firm, and the Business Cycle,” Quarterly Journal of Economics, vol. 65, 1951.
Optional
Tinbergen, “Statistical Evidence on the Acceleration Principle,” Economica, vol. 5, 1938.
Eisner, R., “Capital Expenditures, Profits, and the Acceleration Principle,” and comments by G.H. Hickman, in Conference on Research in Income and Wealth, Models of Income Determination, (Princeton, 1964), vol. 28, pp. 137-176.
Peston, M.H., “Generalizing the Balanced Budget Multiplier,” and “Comment” by W.A. Salant, The Review of Economics and Statistics (August, 1958).
Bowen, W.G., “The Balanced-Budget Multiplier: A Suggestion for a More General Formulation,” The Review of Economics and Statistics, May 1957.
Goodwin, R.M., “The Multiplier” in Seymour E. Harris, ed., The New Economics (New York, 1947), pp. 482-99.
Chenery, H.B., “Overcapacity and the Acceleration Principle,” Econometrica, vol. 20, January 1952, pp. 1-28.
Caff, J.T., “A Generalization of the Multiplier-Accelerator Model,” The Economic Journal, vol. 69, March 1961, pp. 36-52.
Kuznets, S., “Relation Between Capital Goods and Finished Products in the Business Cycle,” in Economic Essays in Honor of Wesley Clair Mitchell, (New York, 1935).
Knox, A.D. “The Acceleration Principle and the Theory of Investment: A Survey,” Economica, vol. 19, 1952.
Harrod, R.F., Towards a Dynamic Economics (London, 1948).
Hicks, J.R., A Contribution to the Theory of the Trade Cycle (Oxford, 1950).
Goodwin, R.M., “Problems of Trend and Cycle,” Yorkshire Bulletin, vol. 5, August 1953.
Ott, A.E., “The Relation Between the Accelerator and the Capital Output Ratio,” Review of Economic Studies, vol. 25, June 1958.
Minsky, H., “Monetary Systems and Accelerator Models,” American Economic Review, vol. 47, 1957.
Friedman, M. and D. Meiselman, “The Relative Stability of Monetary Velocity and the Investment Multiplier in the United States, 1897-1958,” Stabilization Policies, Commission on Money and Credit (New Jersey, 1963), pp. 165-268.
Hester, D.D., “Keynes and the Quantity Theory: A Comment on the Friedman-Meiselman CMC Paper,” the reply by Friedman and Meiselman, and the rejoinder by Hester, The Review of Economics and Statistics, vol. XLVI, November 1964, pp. 364-377.
VIII. Employment and Inflation
Required
Ackley, Chap. XVI.
Bronfenbrenner, M. and F.D. Holzman, “Survey of Inflation Theory,” American Economic Review, LIII (Sept., 1963), pp. 593-661.
Higher Unemployment Rates, 1957-60, “Structural Transformation or Inadequate Demand,” Subcommittee on Economic Statistics of the Joint Economic Committee, Washington, 1961.
Hines, G.G., “Trade Unions and Wage Inflation in the United Kingdom,” R.E. Studies (October 1964).
Killingsworth, C.L., “Automation, Jobs and Manpower,” from Nation’s Manpower Revolution, Hearings before the Subcommittee on Employment and Manpower of the Committee on Labor and Public Welfare, 88th Congress, 1stsession, Washington, D.C., part 5, pp. 1461-1480.
Lipsey, Richard, “The Relation Between Unemployment and the Rate of Change in Money Wage Rates in the United Kingdom, 1862-1957: A Further Analysis,” Economica N.S. 27 (Feb. 1960). Reprinted in Klein and Gordon (eds.), Readings in Business Cycle Theory (1965).
Perry, George L., Unemployment, Money Wage Rates and Inflation (1966).
Phillips, “The Relation Between Unemployment and the Rate of Change of Money Wage Rates,” Economica (Nov., 1958), pp. 283-99.
Samuelson, P.A. and R. Solow, “Analytical Aspects of Anti-Inflation Policy,” American Economic Review (May 1960), pp. 177-94.
Solow, R.M., “The Case Against the Case Against the Guidelines,” in G. Schultz (ed.), Guidelines (1966).
Optional
Smithies, A., “The Behavior of Money National Income Under Inflationary Conditions,” Readings in Fiscal Policy, pp. 121-36.
Machlup, F., “Another View of Cost-Push and Demand-.Pull Inflation,” Review of Economics and Statistics, XLII, (May 1960), pp. 125-39.
Galbraith, J.K., “Market Structure and Stabilization Policy,” Review of Economics and Statistics (May 1957), pp. 124-33.
Hicks, J.R., “Economic Foundations of Wage Policy,” Economic Journal, (Sept. 1955), pp. 389-404.
Morton, W.A., “Trade Unionism, Full Employment and Inflation,” American Economic Review, (March 1950), pp. 13-39.
Slichter, S., “Do Wage-Fixing Agreements Have an Inflationary Bias,” American Economic Review, (May 1954), pp. 332-46.
Berman, B., “Alternative Measures of Structural Unemployment,” Employment Policy and the Labor Market, A.M. Ross, ed.
Joint Economic Committee, Higher Unemployment Rates, 1957-60, U.S. 87th Congress.
Galloway, “Labor Mobility, Resource Allocation and Structural Unemployment,” American Economic Review (Sept. 1963), pp. 694-716.
Gordon, R.A., “Has Structural Unemployment Worsened,” Industrial Relations (May 1964), pp. 53-77.
Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Evsey D. Domar Papers. Box 15, Folder “Macroeconomics. Old Reading Lists”.
______________________
The Theory of Income and Employment
14.451
E. D. Domar [and] J. R. Harris
Midterm Examination
November 30, 1967
(One hour and fifteen minutes)
Please answer all questions. Use a separate book for each question.
- (25%) After the discovery that an hour of dancing a day increases a person’s efficiency, a hitherto unemployed dancing teacher was hired (to teach dancing to their employees or themselves) by the following units, one at a time;
- A beginning sculptor
- The Ford Foundation
- Sears, Roebuck & and Co.
- The Town of Concord
- The Head of the Mafia
- The Embassy of South Vietnam in Washington
Disregarding any indirect effects (such as the multiplier), indicate and explain how national income and product and the relevant subdivisions in money and in real terms are affected by this act on the assumption that (1) dancing is really effective, and (2) that it is not. Your reasoning is at least as important as your answer.
- (20%) “The Federal Reserve-type index is a poor numerator for the measurement of the Residual (Total Factor Productivity), or of any other productivity.”
Comment fully.
- A visitor to M.I.T. has suggested recently that if the Federal Reserve Board buys bonds in the open market in periods of unemployment, then real output, prices and the interest rate—all three—will increase.
Are these predictions consistent with those of Patinkin and Keynes? How would their predictions and your own results (you may or may not agree with those sages) be changed under conditions of full employment? Explain fully. (35%)
- (20%) A Russian economist once stated that Keynes’ variables were as follows:
| Independent variables |
Dependent variables |
| 1. Propensity to consume |
1. Savings |
| 2. Marginal efficiency of capital |
2. Investment |
| 3. Rate of interest |
3. Level of employment |
| 4. Liquidity preference |
|
Comment. Be specific
Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Evsey D. Domar Papers. Box 17, Folder “Macroeconomics. Examinations (1 of 3)”.
______________________
THE THEORY OF INCOME AND EMPLOYMENT
14.451
E. D. Domar [and] J. R. Harris
FINAL EXAMINATION
January 23, 1968
Three Hours
PLEASE ANSWER ALL QUESTIONS. THEY CARRY EQUAL WEIGHTS. USE A SEPARATE BOOK FOR EACH QUESTION.
- (A) National Product is defined by the U.S. Department of Commerce as the sum of all final goods (and services), each multiplied by its price.
(B) National Income is defined by it as the sum of all net incomes of certain recipients.
Discuss the following questions:
-
- What is a final good (or service) in (A)? What is the reason for this definition?
- What is the rationale for multiplying each good (or service) by its price? What assumptions are implied in this procedure? Are they realistic?
- Whose net incomes are aggregated? Why? What is a net income? What assumptions does this procedure imply? Are they realistic?
- Could you suggest changes or improvements in the above procedures? Justify them.
-
- “A high ratio of depreciation to investment is a sign of old age.”
- Why is a special definition of money required in the “Price Flexibility and Employment” problems? What is the definition? What assumptions does it rest on?
- “If the Balanced-Budget Multiplier is correct, isn’t Say’s Law also correct?
- Assume that this country is being threatened by inflation and discuss the pros and cons of the following measures allegedly directed against it. Whenever you can, indicate the positions which several economists whose theories were discussed in the course would take on these measures:
- (i) A temporary Federal sales tax on all goods and services, or
(ii) a permanent tax of the same kind.
- (i) A redistribution of income from wages to profits, or
(ii) a more equal distribution of income.
- Setting the rate of growth of labor productivity in each industry as the limit for the rate of increase of wages in that industry.
- (i) Remitting domestic taxes on American exports, or
(ii) a reduction in import duties.
- A tax on all capital goods.
-
- Define and discuss the applicability to investment decisions of the marginal efficiency of investment (also called marginal efficiency of capital, or the internal rate of return) and the discounted present value. Can they give different ranking of investment projects? Why? Which measure would you use?
- What major modifications of investment criteria would be required if the investment was done by the U.S. Government in times of unemployment?
- Same, if the investment was done by the government of some underdeveloped country?
- Attempts to estimate the parameters of an aggregate consumption function for the U.S. have yielded the following results:
- Cross-section and short-term series analyses estimate a marginal propensity to consume somewhere in the range of .55-.70, this magnitude being lower than the average propensity to consume.
- Long-run time series analyses estimate a marginal propensity to consume equal to the average propensity of about .88.
Compare and contrast the assumptions, rationale and implications of the “Previous Peak Income”, “Permanent Income”, and “Lifetime Cycle” hypotheses, each of which purports to reconcile the above observations.
Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Evsey D. Domar Papers. Box 17, Folder “Macroeconomics. Final Exams (2 of 3)”.
Image Source: Evsey D. Domar at the MIT Museum legacy website.
approaches zero the C.E.S. production function has an elasticity of substitution equal to unity.