During the academic year 1957-58 Wassily Leontief was on academic leave from Harvard and Franco Modigliani of the Carnegie Institute of Technology took a leave of absence to accept a visiting professorship filling in for Leontief. From Modigliani’s papers in the Rosenstein Library of Duke University I have been able to piece together outlines and readings for the two semesters of advanced economic theory that he taught.
For the Summer session and Fall semester of 1957 it is possible to construct a topical outline for the first semester of Harvard’s Economics 202 from Modigliani’s own handwritten notes. We see that the outline matches that of the corresponding course “Advanced Economics I” that Modigliani taught in the spring semesters of 1957 and 1959 at his home university, i.e. before and after his year at Harvard. We note some additions and deletions in the readings for Modigliani’s Carnegie Tech courses, but since the outline was not significantly changed, it is reasonable to assume that his Fall Semester reading list at Harvard was some “average” of these two Carnegie Tech courses. A copy of Modigliani’s exam questions for the first semester of Advanced Economic Theory (January 25, 1958) completes the material for the first semester.
For the Spring semester of 1958 we have a cover page to his lecture notes indicating four broad topics to be covered. For three of the topics I found short mimeographed reading lists in another folder in a different box of Modigliani’s papers. For the topic “Money and Keynesian Economics” there is a two page handwritten outline that precedes his lecture notes. I cannot explain why the first semester covers parts I-IV and the second semester apparently begins with part VI.
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Course Enrollment
[Economics] 202. Advanced Economic Theory. Professor Modigliani (Carnegie Institute of Technology). Full Course.
(F) 1 Junior, 1 Senior, 29 Graduates, 4 Radcliffe, 3 Other: Total 38
(S) 1 Junior, 1 Senior, 27 Graduates, 3 Radcliffe, 4 Other: Total 36
Source: Harvard University. Report of the President of Harvard College and Reports of Departments, 1957-58, p. 82.
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Modigliani Outline for Fall Semester, 1957 (Handwritten)
Ec. Analysis I
Summer & Fall 1957 Harvard
Outline
Part I. Methodology.
(A) Subject matter and the areas
(B) The methodology of positive economics and of Welfare economics
(C) Discussion of types of model and sequence of presentation
Part II. Theory of Demand and application
II(a) Partial Equilibrium Analysis-Demand function and application
(A) The law of demand and the description of demand functions
(1) The law of demand
(2) Cournot formulation. The notion of functions and some mathematics
(3) The slope of demand functions and responsiveness
(4) Criticism of slope as measure of responsiveness
(5) The notion of demand elasticity and its computation
(6) The behavior of total outlays and its relation to η
(B) Application to problem of random supply. Price and income variation and stabilization.
(C) Application to the elementary theory of Monopoly.
(1) Nature of the model
(2) The case of no costs. Total curves
(3) Graphical computation of MR
(4) η and MR
(5) Fixed costs. Comp. Statics
(6) Effect of Taxes
(7) Introduction of costs. Equilibrium Analysis
(8) Comparative Statics and Taxation
II (b) Utility Analysis
(A) Introduction
(1) Utility and M.U. The Marshallian approach
(2) Shortcoming. The alternative approach.
(B) Indifference Approach
(1) The fundamental postulates
(2) Graphical Representation of tastes
(3) Indifference map and utility function
(4) Slope of I.C.—m.r. of s. and expression in terms of m.u.
(5) Generalizations and the role of two commodities
(6) Types of indifference maps.
(7) The opportunity set. The case of perfect markets
(8) Pathological cases and the law of d.m.r. of s.
(9) Effect of variation in income. Engel curves
(10) Effect of variations in prices. The demand curve
(11) The case of two commodities; income derived from the commodities. Demand and supply.
(12) Generalization to n commodities; complementarity and substitution
(C) Applications of utility analysis
(1) Consumers surplus
(2) Elements of Index number theory
II (c) General Equilibrium of Exchange.
(A) Nature of Problem and approach.
(1) What we wish to explain
(2) Nature of model’s assumptions.
(B) The two person, two commodity case.
(1) The Edgeworth Box.
(2) The offer curves
(3) The behavior of excess demand as function of p and competitive equilibrium (normal case) [illegible] market
(4) The relation between Ex and Ey. Walras law.
(5) Multiple intersection of offer curves. Stable and unstable equilbria. The correspondence Principle.
(6) The pure monopoly solutions.
(7) Comparison of competitive and monopoly solution. Welfare maximization.
(8) The Pareto locus and the Weak Welfare ordering.
(9) Necessary and sufficient condition for max. welfare under individualistic welfare function. The [illegible word] feasibility function. Every point on Pareto locus achievable by perfect market, lump sum taxes and subsidies.
(10) Comparative statics.
(11) Uses of Edgeworth Diagram in the study of barter and bilateral monopoly
(C) General Equilibrium of Exchange
III. Theory of supply and production
(A) Introduction
(1) Nature of production and relation to consumption and exchange model.
(2) The organization of production and the nature of the firm in the model.
(3) Factors of production; general notions and the classical dichotomy[?]
(4) Profit maximization and the definition of profit.
(B) Production functions and cost functions.
B(I). One output and two inputs.
(1) Three dimensional representation.
(2) A single variable factor. Product curve.
(3) The cost curve
B(II). Two variable inputs
(1) Determination of equilibrium can be broken up into two parts. Cost minimization, and choice of best output along the minimized cost function.
(2) Cost minimization.
[(C) Supply function]
(1) Long run cost functions and returns to scale
(2) The long run supply curve
(3) Short run costs and supply curves
IV. Market Structures.
(A) Classification of Markets
(B) Monopolistic competition.
(1) Equilibrium for the firm
(2) Simultaneous equilibrium of the group.
(3) Essential characteristics of equilibrium in relation to monopoly and perfect competition, welfare aspects.
(4) Relaxation of the pure model.
(5) Forces making for [illegible] higher prices
(C) Oligopoly with homogeneous selling and no free entry
(1) Duopoly, Cournot solution
(2) Oligopoly and the limit solution as n goes to infinity
Source: Duke University, Rubenstein Library. Franco Modigliani Papers. Box T6. Folder “Economics 1956-57”
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Mimeographed Course Outline,
Carnegie Institute of Technology 1957
February, 1957
GI-581—Advanced Economics I
Course Outline and Major References (Provisional)
I. Methodological issues:
(1) Kaufman — Methodology of the Social Sciences
(2) Friedman — Essays in Positive Economics — Part I
(3) Robbins — The Nature and Significance of Economic Science
II. Theory of Demand and Applications
(A) Partial equilibrium approach — Marshallian Demand functions and applications to simple monopoly.
(B) General equilibrium approach — Utility analysis and indifference curves
(C) General equilibrium of exchange: (i) the two person, two commodity case; (ii) the general case
(1) Marshall — Principles of Economics, Book III, Ch. III and IV; Mathematical Appendix, Notes II and III
(2) Cournot — The Mathematical Principles of the Theory of Wealth, Ch. IV, V, VI
(3) Bowley — The Mathematical Groundwork of Economics, Ch. I
(4) Hicks — Value and Capital, Part I (pages 12-52) and Part II, ch. IV and V.
(5) Mosak — General Equilibrium Theory in International Trade, Ch. 1 and 2
(6) Samuelson — Foundations of Economic Analysis, Ch. 1, 5, 6, 7
(7) Slutsky — On the Theory for the Budget of the Consumer, Readings in Price Theory
(8) Hicks — Revision of Demand Theory
III. Theory of supply and costs under competitive conditions
(A) Partial equilibrium approach — theory of Rent
(B) General equilibrium approach — production functions and marginal productivity
(C) General equilibrium of production and exchange
(D) Some welfare implications
(1) Viner — Cost Curves and Supply Curves, Readings in Price Theory
(2) Stigler — The Theory of Prices
(3) Hicks — Value and Capital, Ch. VI and VII
(4) Mosak — Ch. V
(5) Lerner — The Economics of Control
IV. Imperfect Competition Theories and Market Structures
(A) Theory of monopoly
(B) Small numbers and imperfect competition
(1) Cournot — Ch. 7
(2) Chamberlin — Theory of Monopolistic Competition
(3) Robinson — Economics of Imperfect Competition
(4) Readings in Price Theory, Part V, Imperfect Competition
(5) Hall and Hitch — Price Theory and Business Behavior, Oxford Economic Papers, 1939
(6) Stigler — Notes on the Theory of Duopoly, JPE, 1947, page 521
(7) Fellner — Competition among the Few
(8) Bain — A Note on Pricing in Monopoly and Oligopoly, AER, 1949, page 448
(9) Hurwicz — The Theory of Economic Behavior, Readings in Price Theory
(10) Henderson — The Theory of Duopoly, QJE, December, 1954
(11) Harrod — Economic Essays, The Theory of Imperfect Competition revised
(12) Hicks — The Process of Imperfect Competition, Oxford Economic Papers, 1954
(13) Paul — Notes on Excess Capacity, Oxford Economic Papers, 1954
(14) Hahn — Excess Capacity and Imperfect Competition, Oxford Economic Papers, 1955
Source: Duke University, Rubenstein Library. Franco Modigliani Papers. Box T8. Folder “(Notes on Advanced Monetary Theory III , 1953-1960”.
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Mimeographed Course Outline, Carnegie Institute of Technology 1959
February, 1959
GI-581—Advanced Economics I
Course Outline and Major References
I. Methodological issues:
(1) Kaufman — Methodology of the Social Sciences
(2) Friedman — Essays in Positive Economics — Part I
(3) Robbins — The Nature and Significance of Economic Science
II. Theory of Demand and Applications
(A) Partial equilibrium approach — Marshallian Demand functions and applications to simple monopoly.
(B) General equilibrium approach — Utility analysis and indifference curves.
(C) General equilibrium of exchange: (i) the two person, two commodity case; (ii) the general case
(D) Basic concepts of Welfare Economics. Index number theory.
(1) Marshall — Principles of Economics, Book III, Ch. III and IV; Mathematical Appendix, Notes II and III
(2) Cournot — The Mathematical Principles of the Theory of Wealth, Ch. IV, V, VI
(3) Samuelson — Foundations of Economic Analysis, Ch. 1, 2, 3, 5, 6
(4) Hicks — Value and Capital, Part I (pages 12-52) and Part II, ch. IV and V.
(5) Slutsky — On the Theory for the Budget of the Consumer, Readings in Price Theory
(6) Hicks — Revision of Demand Theory Parts I and II
(7) Bowley — The Mathematical Groundwork of Economics, Ch. I
(8) Mosak — General Equilibrium Theory in International Trade, Ch. 1 and 2
(9) Boulding — Welfare Economics in Survey of Contemporary Economics, vol. II.
III. Theory of supply and costs under competitive conditions
(A) Partial equilibrium approach — theory of Rent
(B) General equilibrium approach — production functions and marginal productivity
(C) General equilibrium of production and exchange under competitive conditions
(D) Some welfare implications
(E) Stability of equilibrium — comparative statics and dynamics.
(1) Viner — Cost Curves and Supply Curves, Readings in Price Theory
(2) Stigler — The Theory of Prices
(3) Samuelson — Foundations chs. 4, 9
(4) Lerner — The Economics of Control chs. 15, 16, 17
(5) Hicks — Value and Capital, Ch. VI and VII
(6) Mosak — Ch. V
(7) Cassel — The Theory of Social Economy Vol I. ch. 4, pp. 134-155
IV. Imperfect Competition Theories and Market Structures
(A) Classification of market structures
(B) Theory of monopoly
(C) Monopolistic competition, large group
(D) Oligopolistic competition
(E) The role of the conditions of entry.
(1) Cournot — Ch. 7
(2) Chamberlin — Theory of Monopolistic Competition
(3) Robinson — Economics of Imperfect Competition, Book V.
(4) Readings in Price Theory, Part V, Imperfect Competition
(5) Hall and Hitch — Price Theory and Business Behavior, Oxford Economic Papers, 1939
(6) Stigler — Notes on the Theory of Duopoly, JPE, 1947, page 521
(7) Fellner — Competition among the Few
(8) Hurwicz — The Theory of Economic Behavior, Readings in Price Theory
(9) Henderson — The Theory of Duopoly, QJE, December, 1954
(10) Bain — Barriers to New Competition. Esp. ch. 1, 3, 4, 6.
(11) Modigliani — New Developments on the Oligopoly Front. JPE June 1958, pp. 215-232.
(12) Cyert and March — Organizational Structure and Pricing Behavior in an Oligopolistic Market. AER March 1955, pp. 129-139
(13) Cyert and March — Organizational Factors in the Theory of Oligopoly. QJE Feb. 1956, pp. 44-64
Source: Duke University, Rubenstein Library. Franco Modigliani Papers. Box T8. Folder “(Notes on Advanced Monetary Theory III , 1953-1960”.
Final Examination for GI 581 in 1959 and 1960 has been posted!
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Final Examination Economics 202, Fall Semester (1957-58)
HARVARD UNIVERSITY
Department of Economics
ECONOMICS 202
Answer questions 1, 2, and two of the remaining three. Question 1 will be given double weight.
- Assume that the government fixes by law the price of a commodity and hands out to the public ration coupons equal in number to the number of units of the commodity produced. Assume throughout that the supply is perfectly inelastic.
a) Show graphically the opportunity locus of an individual consumer, in terms of the usual indifference diagram, with one of the axes representing money. Under what condition would a consumer not use all of his coupons?
b) Show that consumers would be better off if they were free to buy or sell their ration coupons in a free market.
c) Supposing now that coupons could be bought and sold in a free market, explain how one could derive an individual consumer’s demand curve for coupons. (Hint: the situation is analogous to the consumer being forced to buy his ration of the good at the legal price and then being allowed to sell it or buy more of it on a free market.)
d) Explain the formation of the equilibrium market price of coupons.
e) What can be said as to the relation between the legal price, the price of coupons, and the price which would prevail in the absence of price control and rationing? Under what condition would the sum of the first two be equal to the third?
- Wicksell states two alternative conditions under which entrepreneurial profits would be zero:
“…either that large-scale and small-scale operations are equally productive, so that, when all the factors of production are increased in the same proportion, the total product also increases exactly proportionately; or at least that all productive enterprises have already reached the limit beyond which a further increase in the scale of production will no longer yield any advantage.”
Explain the reasoning behind Wicksell’s statement of these conditions. Is either of them sufficient, or must other conditions be added?
- Discuss the significance of free entry to the relation of the long-run equilibrium size of the firm to its optimum size.
- A profit maximizing monopolist buys factors of production in a perfect market.
a) Discuss the long-run effect on his demand for each of the factors he uses and on his selling price of a tax on one of the factors. (Give a graphic treatment for the case of two factors.)
b) Suppose that one of the two factors is fixed in the short run. Contrast the change in the long-run and short-run demand for both factors when a tax is placed on either.
- Evaluate the methodological positions of Friedman and Koopmans. Would an agreement with one as against the other make any difference as to the direction of economic research?
January 25, 1958
Source: Duke University, Rubenstein Library. Franco Modigliani Papers. Box T8. Folder “(Notes on Advanced Monetary Theory III , 1953-1960”.
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[Handwritten cover page to course lecture notes]
ECONOMIC ANALYSIS II
Harvard—Spring 1958
Outline
I. Welfare Economics and Critique of Laisser faire
II. Dynamics with Certainty
III. Theory of Choice Under Uncertainty
IV. Money and Keynesian Economics
Source: Duke University, Rubenstein Library. Franco Modigliani Papers. Box T6. Folder “Economics 1956-57”.
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[Two mimeographed sheets of course outline and readings]
HARVARD UNIVERSITY
Department of Economics
Economics 202
Spring, 1958
VI. Economics of Welfare
Readings:
Lerner, A. P., The Economics of Control, Chap. 1-14 (as a review)
Hicks, J. R., “The Foundations of Welfare Economics,” Economic Journal, Dec. 1939.
Scitovsky, T., “A Reconsideration of the Theory of Tariffs,” Review of Economic Studies, Volume 9, 1941
Samuelson, P., “Evaluation of Real National Income,” Oxford Economic Papers, Jan. 1950
J. de V. Graaf, Theoretical Welfare Economics
Baumol, William J., Welfare Economics and the Theory of the State (omit Ch. 8)
Ruggles, N., “The Welfare Basis of Marginal Cost Pricing,” Review of Economic Studies, Vol. XVII, 1949-50.
Vickrey, W., “Some Objections to Marginal Cost Pricing,” JPE, June 1948
*Burk (Bergson) A., “A Reformulation of Certain Aspects of Welfare Economics,” Quarterly Journal of Economics, Vol. 52, 1938
*Samuelson, P., Foundations of Economic Analysis, Chapter 8
*Koopmans, T. C., Three Essays on the State of Economic Science, I—Allocation of Resources and the Price System.
VII. Dynamics under Certainty
Temporal theory of consumer choice — the notion of interest — inter-temporal equilibrium without production — temporal theory of production and capital — growth
Readings:
Fisher, The Theory of Interest, Chapters II, X, XI, XVI, XVIII.
Hicks, Value and Capital, Chapters IX, X, XI, XV, XVI, XVII, XVIII.
Lutz and Lutz, The Theory of Investment of the Firm, Chapters I-X, XII, XV, XX.
Lindahl, Studies in the Theory of Money and Capital, Part III, Ch. 2, 3.
Samuelson, “Dynamics, Statics and the Stationary State,” in Clemence, Readings in Economic Analysis, Vol. I
Modigliani and Brumberg, “Utility Analysis and the Consumption Function,” in Kurihara, Post-Keynesian Economics.
*Mosak, General Equilibrium Theory, Ch. VI, VII.
*Koopmans, Three Essays on the State of Economic Science, Essay I, part 4, (Pp. 105-126).
VIII. Some Approaches to the Theory of Choice under Uncertainty.
Readings:
Arrow, “Alternative Approaches to the Theory of Choice under Uncertainty in Risk-taking Situations,” Econo metrica, 1951.
Modigliani, “Liquidity and Uncertainty,” (Discussion paper) AER, May 1949
Hart, Anticipations, Uncertainty and Dynamic Planning
Marschak, “Probability in the Social Sciences,” in Lazarsfeld, Mathematics 1 Thinking in the Social Sciences.
Friedman and Savage, “The Utility Analysis of Choice Involving Risk,” in Readings in Price Theory.
Strotz, “Cardinal Utility,” AER, May 1953.
Hart, “Risk, Uncertainty, and the Unprofitability of Compounding Probabilities,” in Readings in the Theory of Income Distribution.
*Herstein and Miller, “An Axiomatic Approach to Measurable Utility,” Econometrica, April 1953.
Source: Duke University, Rubenstein Library. Franco Modigliani Papers. Box T6. Folder “Economics 1956-57”.
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[Handwritten outline preceding notes for fourth part of second semester]
Money and Keynesian Economics
Outline
I. Introduction of uncertainty and money in dynamic general equilibrium framework
II. The supply and demand for money
(A) Supply side. The banking system and bank balance equation
(B) The demand side
(1) The transaction demand. Cambridge and Fisher equations.
(2) The formal closing of system with dichotomy and neutrality. Criticism. No connection between demand for money and demand for anything else. No [illegible] formal money market
(3) The role of interest rate on transaction demand
(4) Liquidity preference and the connection of Money and Bond market. The formal model of these markets in which funds are acquired or disposed of against bonds.
(5) Preservation of dichotomy under certain assumptions: the role of money in real system. Its disappearance with pure bank money and η =1.
(6) Sources of non-transaction or asset demand for money:
(a) Transaction costs on short funds.
(b) The so called speculative demand.
The case of a single short rate [for the supply of money to equal the demand for money] provided r01 >0.
Liquidity trap. No carrying cost, r cannot be negative.
The case of multiple rates. Speculative demand.
(7) The breakdown of the system. The Pigou effect. its implications on extreme fluctuations of price level.
(8) The consequence of price rigidity.
III. The Economics of rigid prices (rigid wages)
(A) Description of labor market and the [illegible]of rigidity.
(B) The emergence [consequence?] of the notion of Income. Capitalism. Property and non-property income
(C) Nature of demand and supply. Consumption and Investment.
(D) Why wage rigidity [illegible]a solution even when r of full employment is negative. Supply falls faster than demand
(E) The four quadrant analysis and its interpretation.
Source: Duke University, Rubenstein Library. Franco Modigliani Papers. Box T6. Folder “Economics 1956-57”.
Image Source: Franco Modigliani page at the History of Economic Thought Website.