Columbia. Friedman Course. Structure Neoclassical Economics 1939-40

In 1939-40 Milton Friedman taught the course Structure of Neo-classical Economics, Columbia University Extension ub-171/172. The outline and reading assignments from this course were later used as a foundation for the earliest version of Friedman’s Price Theory, Economics 300A, taught in the Autumn Quarter of 1946 at the University of Chicago. In a later posting and most recently we will see the obvious similarities but for now the following note found among the early Friedman papers for Economics 300A is sufficient to document that link.

Columbia University Extension
Course Outline
Course Reading Assignments

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Tuesday

Dear Nerlove:

The only thing I have on the theory course is the attached outline of a course I gave at Columbia. I shall depart from this at numerous points but, for the moment at least, plan to follow its broad outlines.

I should appreciate it if you would return this when you’re through with it, since I have only one other copy.

[signed]

Milton Friedman

Source: Hoover Institution Archives. Milton Friedman Papers. Box 76, Folder 9 (Ec 300a)

Note: From the location of this note in the folder and the fact that the outline to which is being referred was indeed returned, the note is most likely from 1946. The econometrician Marc Nerlove (b. 1933) would have been too young to be the addressee. Perhaps this was addressed to his father Chicago Business School professor, Samuel Nerlove, or a much older sibling.

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Columbia University Extension Courses

“With the beginning of the academic year 1910-1911 the financial responsibility for the work of Extension Teaching, as the movement was then known, was assumed by the Trustees of Columbia University…the development of Extension Teaching may be said to be an outgrowth of the striking success of the Summer Session of the University. After ten years’ experience, the Summer Session had more than justified itself, and it was proposed to extend the operation of the principles which had been successful in the Summer Session so as to provide classes and laboratory work at the University, both in the evening and during the day, in other parts of the city, and in neighboring parts of New Jersey, New York, and Connecticut, for the benefit of those who were not able to avail themselves of the regular courses of instruction. In 1921, by act of the trustees, the title of Extension Teaching was changed to University Extension.”

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Outline of Course Given at Columbia by M. Friedman
Entitled “Structure of Neo-classical Economics”

A. Pricing of Final Goods [“Pricing of Final Goods Sold on Market” in original]

The nature of economics; the concept of a free enterprise system; general outline of how free enterprise system solves economic problem.
Momentary price
1. Market demand for a product: demand curve, composite demand, joint demand, dealers’ [apostrophe placement as in original] demand, consumer’s [apostrophe placement as in original] demand
2. [Momentary] Supply of a product: supply curve, effect of time
3. Price as set by supply and demand
The demand curve
1. General
  1. Elasticity of demand
  2. Assumptions underlying demand schedule
  3. Generalization of mathematical school
  4. Statistical demand curves: from time series; from spatial data; [“Engel curves” crossed out in original] cobweb theorem
2. Demand curve of an individual consumer
  1. Utility analysis
  2. Difficulties with utility analysis
  3. Indifference curve analysis
  4. Difficulties with indifference curve analysis
3. Demand curve for the product of an individual firm [“Demand curve for the product of an individual producer” in original]
  1. Competitive vs. monopolistic
  2. Relevance of anticipations
  3. Marginal revenue
4. Short run supply
  1. Economics of individual firm
    1. [Crossed out in original “a. Production function. Law of diminishing returns”] Perfect competition: producer must decide what to produce, how to produce it, how much to produce
    2. Monopolistic conditions: producer must decide what to produce, how to produce it, price or how much to produce [In original last item reversed: “how much to produce or price”]
    3. Cost curves for individual firm
  2. Widespread importance of marginal concepts
  3. Relation of cost curves of individual firm to supply curve of industry under competition
  4. Different kinds of monopolistic conditions: monopolistic competition, oligopoly, duopoly
  5. Supply under monopolistic competition: impossibility of defining industry, or supply curve for industry; [following not in original] implications for practical usefulness of theory of monopolistic competition
  6. Law of diminishing returns
  7. Translation of physical law of diminishing returns into economic cost curves
  8. Statistical cost curves: how reconcile declining marginal cost curves with theoretical expectations? [Original: “Statistical cost curves: how can declining marginal cost curves be reconciled with theory?”]
5. Long run supply
  1. Implications of linear homogeneous production function: constant costs
  2. Effect of indivisibilities and discontinuities
  3. Pecuniary factors making for decreasing or increasing cost[s]
  4. Internal and external economies of scale
  5. Social and private economies and diseconomies of scale

[Crossed out “6. Joint Demand and Supply (Transition to Distribution)

1. Joint demand and supply; derived demand
2. Distribution theory if factors must be used in fixed proportions”]

B. Distribution Theory

General: pricing of factors special case of theory of market price [“market” added]
Demand for factors of production
1. Marginal productivity determines demand by individual firm
2. Relation between demand by individual firm and demand for factor
3. Determinants of marginal productivity
4. Ethical implications of marginal productivity theory: does it justify existing distribution of income? Meaning of exploitation
5. Relation of marginal productivity analysis to cost curve analysis
  1. Alternative ways of explaining equilibrium of individual firm
  2. Translation of marginal productivity curves into cost curves [Original: “Relation of cost curves to marginal productivity curves”]
  3. Influence of [“changing” in original] number of firms
6. Monopsony: impossibility of defining demand curve for factor
Supply of labor
1. Short run
2. Long run
Wages in different occupations
1. Equalizing differences
2. Non-competing groups
3. Frictional differences [“3. Frictional differences” was added.]
Capital theory
1. Why marginal productivity analysis not applicable to determination of interest rate [“to determination of interest rate” was added]
2. Alternative approaches adopted to explain demand curve
  1. Time preference
  2. Time period of production
  3. Knight’s simultaneous equation
  4. Keynes’ marginal efficiency of capital [“of capital” was added]
  5. Comparison of Keynes and Knight [Ordering in original: “Knight and Keynes”]
3. Supply of capital
  1. Sources of capital
  2. Difficulties in defining capital, in measuring and defining savings [“in defining capital,” not in original]
  3. Relation of savings to rate of interest
4. Relation between functional distribution of income and personal distribution.

C. General Equilibrium

Concept of interdependence: direct and indirect effects [“direct and indirect effects” not in original]
Walrasian equations of general equilibrium

Source: Hoover Institution Archives. Milton Friedman Papers, Box 75, Folder 1 “Columbia University” for carbon copies of the typed outline. “Original” refers to Friedman’s handwritten draft found in Box 75, Folder 12.

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The following list of assignments for Friedman’s course Structure of Neo-classical Economics was taken from a poor carbon copy with Friedman’s handwritten revisions, e.g. the new title would read “Assignments in course given at Columbia by M. Friedman entitled ‘Structure of Neo-classical Economics’”. Also the sections of suggested readings for mathematicians and in mathematics in the Columbia version were apparently intended to be omitted in the later version. We have Friedman’s handwritten notes for the dates of assignments. Lectures (for which typed student notes are available) are designated below with an asterisk (*). These incomplete student notes are misfiled in Hoover Institution Archives,Milton Friedman Papers, Box 75, Folder 12 “University of Minnesota, B.A. 102”. There is a later typed alternate version of this assignment list with a few handwritten additions that I have included below in curved brackets {}.

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{Wallis and Friedman—Indifference Curves
Knight—Functions}

Assignments in Economics ub-171-2 [1939-40]
“Structure of Neo-classical Economics”

Instructor: Milton Friedman

(listed in order in which assigned)

First Semester

[Sept 28*:] Alfred Marshall, Principles of Economics, Book III, ch. 2, 3, 4; Book V, ch. 1, 2

[Oct 5*:] Henry Schultz, The Meaning of Statistical Demand Curves, pp. 1-10

{§§5,6,7,8,III, ch 4. Add Marshall Bk III, ch 5 }

E.J. Working, “What do Statistical ‘Demand Curves’ Show?”, Q. J. E. Vol. XLI (1927), pp. 212-27

Frank H. Knight, Risk, Uncertainty and Profit, ch. 3.

Frederic Benham, Economics, pp. 89-100

Suggested

J. R. Hicks, Value and Capital, pp. 11-37

Columbia University Extension Courses

Outline of Course Given at Columbia by M. Friedman Entitled “Structure of Neo-classical Economics”

Assignments in Economics ub-171-2 [1939-40] “Structure of Neo-classical Economics”

Related

Outline of Course Given at Columbia by M. Friedman
Entitled “Structure of Neo-classical Economics”

Assignments in Economics ub-171-2 [1939-40]
“Structure of Neo-classical Economics”