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Chicago. Jacob Viner’s Price and Distribution Theory Course, 1941

 

 

Jacob Viner’s graduate course on price and distribution theory has become a legend in the history of economics. Milton Friedman (1932) [links to many of the course readings assigned by Viner found in the posting for 1932] attended Viner’s lectures as did Paul Samuelson (1935). During the Fall quarter of 1941, Norman M. Kaplan attended Viner’s price and distribution theory course. From Kaplan’s approximately 100 pages of handwritten class notes plus 150 pages of handwritten notes on the course readings, I am able to post today a transcription of his notes from the first week of the course along with a list of titles of readings that I have found referred to in his class notes and/or in his reading notes. In the folder with these notes one also find course examination questions together with Kaplan’s answers. I only include Viner’s examination questions today.

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Course Description

  1. Price and Distribution Theory.—A study of the general body of economic thought which centers about the theory of value and distribution and is regarded as “orthodox theory.” This course includes the critical examination of some modern systems of this character. Prerequisite: Economics 209 or equivalent and the Bachelor’s degree. Summer, 8:00, Knight; Autumn, 9:00, Viner.

Source: Announcements of the University of Chicago. Vol. XLI, No. 10. (April 25, 1941). The College and the Divisions for the Sessions of 1941-1942. p. 306.

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First Week: Introduction
Kaplan’s notes to Viner’s lectures

Oct. 7

I.   Changes in econ. theory in last 10 years.

  1. Increasing tendency now to general as vs. partial equilibrium analysis. (More than one variable permitted to vary as vs. Marshall,: ceteris paribus relaxed). You surrender usually the breadth of the generalization in the interest of reality, of closer approximation to facts. Since Walras-Pareto school, technical skill of economists has increased so that little is lost in way of generalization. Few now use Walras-Pareto method; Schultz last used Lausanne method preceded by Henry Moore.
  2. A more definite and thorough incorporation of monetary theory in general theory. In Marshall’s Principles, e.g., equilibrium is described with monetary theory & banking structure excluded. This stemmed from Classical Economists’ criticism of Mercantilists as exaggerating role of money; money was a “veil covering other things”. Since 1929, emphasis has been placed on monetary theory due to depression (depressions always yield concentration on monetary matters) and to special influence of Keynes.
  3. Increasing attention to cyclical phenomena (now on wane, thinks Viner)—depression is normal & prosperity an aberration.
  4. Greater attention paid to monopolisitic practices and to deviations from perfect competition.
  5. Substitution of production theory for distribution theory. Distribution theory in Marshallian sense is disappearing from theory.

Viner will give little of these changes; this is a course in Marshallian econ., primarily.

II. Most of econ. propositions are quantitative in nature, mathematical

(Includes “greater than”, and “less than” concepts; though qualitative may also be math.).

Criteria: (1) Have you been logically consistent; (2) If you have been logically consistent, where have you gotten in deduction from premises. Another important issue is selection of premises; here is where economists frequently fall down.

Premises must be examined: (1) what variables are you recognizing; (2) how many & nature of variables; (3) nature of preconceptions—what do you assume with regard to econ. rationality, e.g. Part of reason for controversial nature of econ. is wide range of possible choices as to premises due to wide range of variables in any situation as vs. physical sciences where there are few variables & laboratory control can reduce the no. of these. On the other hand, variables in econ. are too few to apply probability theory as in actuarial science or celestial mechanics where you don’t have to worry about nature of variables, since great no. of variables none of which has any intelligible significance.

III. Two types of analysis:

(1) Reduction of variables in any situation & particular scrutiny of variables; (2) Probability theory. Criteria of probability theory: (1) Population is large; (2) Population is homogeneous; (3) All members are roughly coordinate in effect. Economist uses probability in his statistical analyses; he selects dominant variables & leaves the rest to probability theory on grounds that none of these variables exert a very important influence on result. Leaving the rest to probability is an euphemism for neglecting them.

IV. Marshallian approach is a static equilibrium approach.

Changes & disturbances through time have been dealt with not through process analysis [illegible parenthetical insert here: perhaps “(time implicit)”)] but through comparative statics—no analysis of how you get from one place to another through time but a comparison of two static equilibriums with slight changes. Marshallian economics is a balanced aquarium system, with individual inhabitants undergoing cycles of life & death but with the equilibrium undisturbed by individual dynamics.

 

Oct. 8

I. We ordinarily assume a stationary economy in some sense (something not changing through time) in orthodox theory.

  1. Often you start out with “exchange economy”—no change in production; no consumption. All participants have commodities, swap; who has what & how much?
  2. Another type of assumption.—fixed quantity of resources or factors of production
  3. Another type of assumption.—fixed quantity of services
  4. Another type of assumption.—fixed supply functions of resources (not inconsistent with stationary state)
  5. Another type of assumption.—fixed supply functions of services (not inconsistent with stationary state)

II. [Meaning of stable equilibrium]

In assuming stable equilibrium, you may assume that all atoms are in equil. or that atoms may be in disequilibrium but over all equil. is possible because disequil. in one direction are offset by disequil. in other direction.[Note by Kaplan:

III. Theorists are tending to work from individuals to aggregate rather than vice versa.

IV. Neo-classical theory is criticized as being abstract.

  1. But abstraction is necessary to generalizations & generalization is the only thought we know.
  2. Such critics usually meant that it’s too abstract, if they mean anything.
    1. Complete absence of concrete detail is practically inconceivable. There always must be some factual or allegedly factual material or you wouldn’t know it was econ.
    2. Complete particularism (no generalization) can’t be found.
      1. Even an infant beginning to talk uses generalizations—“cat” as label
      2. Use of symbols is so tied with generalization it’s impossible to use words without generalization.

Walton H. Hamilton is a particularist; generalizations are dangerous because they lead to abstraction. His book on prices shows each industry has peculiarities of its own. Of course, but particularism is dangerous because it shows absence of thought; no inquiry into uniformities.

The degree of abstraction depends on the purpose of economic inquiry—eternal economic truths or problem solving.

V. 4 kinds of purposes in economic analysis.

  1. Intellectual exercise
  2. Cultural value—throwing light on history & nature of mankind
  3. Tool sharpening—to teach skill in use & invention of tools of analysis
  4. (Social) problem solving—most important for profession as a whole.

Degree of abstraction depends on purpose.

VI. Econ. is criticized for assuming the rationality of man

(Cf. Mitchell’s [word illegible: appears to be “Phillisipl”, probably a misspelling of “Felicific. See Wesley Clair Mitchell, “Bentham’s Felicific Calculus”. Political Science Quarterly (June, 1918), pp. 161-183.] Calculation of Bentham) Mitchell says we have now learned man is not dominated by rational behavior—thinking of Freud & Behaviorism.

But what is rational behavior? What proportion of time must a man spend so behaving (after rational is defined) to be dominated by such behavior? Sentence is meaningless. Habit may be rational in origin, habitual behavior does not mean irrational behavior.

  1. does assume rationality in some sense.
  2. To econ. rationality means:
    1. Correct use of means to attain desired ends, given the state of kg. [knowledge] of the actor.
    2. Substantial degree of reliable accurate kg. [knowledge]
    3. Immediate ends of behavior econ. is looking at are primarily economic—i.e., directed towards wealth, leisure, productive activity.

Testing rationality would be very difficult probably impossible.

  1. Classical economist believed that except for depraved & degraded persons the behavior of man was substantially close to the three criteria to constitute rationality. They were biased in favor of rationality because they were essentially democrats (politically) & equalitarians [sic]. They had a technological (professional) bias in favor of rationality because they were proficient in such an assumption, they had been taught that. (A professional bias, not a class bias, says Viner). That technological bias was for a priori deductive analysis because earlier classicals were deductive and it was easier & body of kg. [knowledge] was deductive. Deductive analysis is tied up with rationality because otherwise you would have to make observations to know how men would behave. Econ. even deductive econ., is not absolutely tied to rationality but only to some predictable pattern of human behavior (which may be irrational, but must be predictable if science is to be a priori.[)]

Oct. 9

I. Assumption of rationality.

  1. No reason why econ. couldn’t take account of irrationality if it could find such patterns, but that would take systematic observation. Rationality is easier.
  2. Economic man:
    1. Is he selfish? Unit is the family; it’s an economic family not an economic man; Ricardo, e.g., took it for granted that wife would be taken care of & children raised. Ends which economist treats are not final ends, though they may be final as far as economist analyzes. Assumption is only that in market place, man is economic. Whatever altruistic motives man may have are not directed towards other party to contract. Altruism or hostility to other bargainer disturbs economic theory; participant is neutral towards other. This is extent of selfishness. Such an assumption—indifference of party A in contrast to welfare of party B—may be unrealistic in some markets: hostility in Irish landlord-tenant and Negroe [sic] sharecropper relation and benevolence in English landlord-tenant relation. English landlord may be acting rationally, though not an economic man.
    2. Not synonymous with rationality.

II. [When the “means” themselves are “ends”]

You don’t get very far with definition of econ. as application of scarce resources to desired ends because one of the most difficult problems is to distinguish between means and ends. Adam Smith dealt with division of labor as allocation of scarce resources to desired ends but Ferguson criticized Smith for not seeing the values in the activities. What Smith thought were means may have been ends. Agriculture may be a means, but it may also be an end—agr. as a “way of life”.

III. What is rational attitude towards risk taking?

Value all risks which could be valued at actuarial values? But is abhorrence of risks & therefore undervaluing them or love of chance & therefore overvaluing any the less rational.[?]

IV. Even Classical did not always assume rationality:

  1. Dealt with ignorance factor—patterns of behavior due to misinformation or lack of it
  2. In connection with savings they said masses failed to make adequate provision for future, did not foresee needs of the future or hadn’t the will to so provide (former is ignorance; latter is irrationality)
  3. Population theory based on irrationality—family decisions not made on grounds of economic welfare.

We will assume rationality in this course, but in economics generally we must be flexible and willing to drop the assumption if necessary.

End of introduction

[Oct. 9 notes continue with a preliminary discussion of the Marshallian demand curve]

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 Suggested/Required Course Readings
Compiled from Kaplan’s notes
Notes on these readings ( made by Kaplan

Demand & Supply: Cost of Production

*Marshall, Book V, Ch. 1, 2, 3, 4, 5, 12, Appendix H
*Viner, Cost Curves & Supply Curves
*Chamberlin, Theory of Monopolistic Competition, Ch. II & Appendix B, pp. 190-93.
Harrod, Theories of Imperfect Competition (get article)

On Cobweb Adjustment

*M. Ezekiel “The Cobweb Theorem” QJE, Feb. 1938
*N. W. Buchanan “On the Cobweb Theorem” JPE, Feb 1939

Empirical Analysis

(Optional) Joel Dean, “Statistical Investigation of Costs with Especial Reference to Marginal Costs”, Supplement to 1936, U. of C. Journal of Business.
*Stigler, “The Limitations of Statistical Demand Curves,” J. of Am. Stat. Assn. Sept 1939, pp. 469-81

Austrian Theory of Value

*Smart, Intro. to Theory of Value, pp. 64-83
*Wicksteed, Commonsense of P.E. Robbins edition Intro. Vol. I p. XX, Vol. II, pp. 784-88

Joint Demand & Joint Supply.

*Marshall, Bk. V, Ch. 6 & Math Appendix H

Monopoly Value.

*Marshall Bk. V., Ch. 14

Distribution Theory

*Distribution theory. Marshall, Bk. VI, Ch’s 1 & 2
J.B. Clark, Dist. of Wealth. Preface & chapters 1, 7, 8.

Some items mentioned as suggested readings

Cf. A. L. Meyers. Elements of Modern Economics (1941 ed.), Ch. V on Indifference Curves.
or *Boulding Economic Analysis, [Ch. 30 Advanced Theory of Consumption]

Cf. Hans Staehle. Elasticity of Demand & Social Welfare. QJE, Feb. 1940.

Betterman, Elasticity of Supply Am. Ec. Rev. 1934, pp. 417 ff. Better: R. F. Fowler “The diagrammatical representation of elasticity of supply” Economica, May 1938.

Cf. p. 24 of Viner article on conflict between English & Austrian schools.

Cf. Ch. 23 Boulding

Halevy, Westminister Review

 

Not recorded as assignments in lecture notes,
but reading notes were taken by Kaplan

*F. H. Knight. “Demand” in Encyclopedia of Soc. Science.

Marshall

*Book III, Ch. I, II, III, IV, V, VI, Note III in math appendix. Ch. III A, Ch. IV B., Note IV
*Book V, Ch 1 Note A, B
*Book V, Ch. 2. Note A, B
*Book V, Ch. 3. Note A, B, C
*Book V, Ch. IV
*Book V, Ch. 5, Note A, B, C, D, E, F
*Book V, Ch. 6, Note. A, B, C, D, E, F, G, H, I, J, K
*Book V, Ch. VI, mathematical note XIV appended to note D.

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Course Exams

ECONOMICS 301
[Perhaps midterm: Kaplan answers only for 1-3]

Comment briefly on each of the following passages (explanation, justification, disproof, qualification, as may be appropriate).

  1. “It is not the case that an increased demand for mutton must in the long run necessarily operate to lower the price of wool. An increased demand for mutton will stimulate sheep farming, but it will also stimulate the substitution of crossbred [mutton type] for merino [wool type] breeds; and the resultant of these two opposite tendencies is logically indeterminate.”
  2. “When Consols are at 93½ , and business in in a tranquil state, it matters not how many buyers of these securities there are at 93, or sellers at 94. They are really off the market. Those only are operative who may be made to buy or sell by a rise or a fall of an eighth. The question is, whether the price shall remain at 93½, or rise to 93 5/8, or fall to 93 3/8. This is determined by a very few persons and by the sale or purchase of very small amounts.”
  3. “The degree of monopoly control by a seller equals the degree by which price exceeds marginal revenue.”
  4. “The degree of monopoly control by an employer as employer equals the degree by which the value of the marginal product of labor exceeds the marginal supply price of labor.”
  5. “Where it is the case that people would not give as large a total sum for a larger quantity of an article than for a smaller, this would be expressed geometrically by saying that the demand curve would cut negatively a rectangular hyperbola.” [negatively means cut from above]
  6. “The fact that supplying labor with better or more instruments results in an increase in output has sometimes led to the conclusion that capital is productive, a phrase which must be used with care. The strictly accurate statement is that labor applied in some ways is more productive than labor applied in other ways. Tools and machinery, buildings and materials, are themselves made by labor, and represent an intermediate stage in the application of labor. Capital as such is not an independent factor in production, and there is no separate productiveness of capital.”

 

 

ECONOMICS 301
Thursday [December 18, 1941]

Time: 1 hour.

  1. a. If elasticity of demand is unity, and original rate of sales is 1,000 per month, what will happen to the rate of sales if price falls 50 per cent?
    b. If elasticity of demand is two, and original rate of sales is 1,000 per month, what will happen to the rate of sales if price falls 25 per cent?
    c. “Since elasticity of demand measures variations in quantity demanded divided by variations in price, the elasticity of the demand for anything will be seven times as large for seven similar demanders taken together as it is for one.” Comment.
  2. Discuss the probable shapes for a particular plant of its short-run and its long-run average cost curves, and given these curves, explain the derivation of the corresponding marginal cost curves.
  3. On what grounds can it be held that in any important industry, increase in output is in the static long-run likely to be subject to conditions of increasing cost? Give and discuss the arguments which have been presented in support of different views.

 

ECONOMICS 301
Friday [December 19, 1941]

Time: 1 hour.

  1. Suppose that a single monopolist takes charge of an industry which has hitherto been in the hands of a large number of independent producers and which makes extensive use of a specialized type of labor. Give an account of the factors which will determine the effect of the change on (a) the industry’s output, and (b) the volume of employment of labor by the industry.
  2. A power monopoly, operating within the range where there are net internal economies of large-scale production sells current for both industrial and domestic use. The distribution costs on the latter are 20 cents per unit higher than for the former. Given: (a) the industrial demand schedule for current; (b) the domestic demand schedule for current; (c) the average cost schedule for generating current plus distributing it to industrial users.
    What rates should be charged to each type of customer to maximize the net income of the company?
  3. a. What conditions are necessary if the demand curves for particular firms in an industry are to have negative inclinations, but without any net monopoly profits?
    b. Are these conditions compatible with long-run equilibrium?

 

Source: The University of Chicago Archives. Norman M. Kaplan Papers, Box 4, Folder 1.

Image Source: Image Source: University of Chicago Photographic Archive, apf1-08490, Special Collections Research Center, University of Chicago Library.