The graduate economic theory course, Economics 11, was taught by Schumpeter for both semesters of the academic year 1935-36. According to Schumpeter’s own handwritten list of students and grades for that course, Paul Samuelson received a grade of A+ and represented the local maximum of the “Ec 11 boys, graduates”.
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Because the “cost controversy” was discussed during the first term of the academic year 1935-36 (one can gleam a glimpse of content from Schumpeter’s course notes from random names and words not written in his shorthand) I append here the corresponding readings assigned for the second term of the the academic year 1934-35. Note that Pigovian welfare economics appears to have been covered some time during the second term of the academic year 1935-36, see the exam below.
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The Laws of Cost and Returns. Probably three or four weeks. It is proposed to deal fully with the so-called “cost controversy”, a series of more or less closely connected articles which appeared in the Economic Journal from 1922 to 1932. The following is a list of the articles in the order of their appearance. Students will not be held responsible for those included in brackets, some of which are connected only remotely with the main controversy. 1) “On Empty Economic Boxes”, J. H. Clapham, Sept. 1922; “Empty Economic Boxes: a Reply”, A.C. Pigou, Dec. 1922; “Those Empty Boxes”, D. H. Robertson, March, 1924; “The Laws of Returns under Competitive Conditions”, P. Sraffa, Dec. 1926; [“The Laws of Diminishing and Increasing Costs”, A.C. Pigou, June 1927]; [“An Analysis of Supply”, A. C. Pigou; June 1928]; “Varying Costs and Marginal Net Products”, G. F. Shove, June 1928; [“The Instability of Capitalism”, J.A. Schumpeter, Sept. 1928;] [“The Representative Firm”, L.C. Robbins, Sept. 1928]; “Increasing Returns and Economic Progress”, A.A. Young, Dec. 1928; “Increasing Returns and the Representative Firm: a Symposium”, D.H. Robertson, G.F. Shove, and P. Sraffa, March 1930. The following two articles by R.F. Harrod are in effect a continuation of the “cost controversy”, but they will be considered later in connection with the discussion of imperfect competition: “Notes on Supply”, June 1930; and “The Law of Decreasing Cost”, Dec. 1931.
Source: Harvard University Archives, HUC (FP) – 4.62. Joseph Schumpeter, Lecture Notes. Box 9, Folder: Ec11 Fall 1935.
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Economics 11 [First term]
Following is a list of some of the most important works in English dealing with problems outside the range of perfect competition. They are not all assigned, but assigned reading is taken altogether from this list.
Pigou, A. C., Economics of Welfare, 3rd Edition.
Chamberlin, E. H., The Theory of Monopolistic Competition.
Chamberlin, E. H., On Imperfect Competition, in the March, 1934 Supplement of The American Economic Review, pp. 23-27.
Robinson, Joan, Economics of Imperfect Competition.
Robinson, Joan, What is Perfect Competition, Q. J. E., Nov. 1934.
Zeuthen, F., Problems of Monopoly and Economic Warfare.
Cournot, A. A., Mathematical Principles of the Theory of Wealth.
Edgeworth, F. Y., The Pure Theory of Monopoly (Papers, Vol. I)
Hotelling, Harold, Stability in Competition, E. J., March 1929.
Shove, G. F., The Imperfection of the Market, E. J., March 1933.
Harrod, R. F., Doctrines of Imperfect Competition, Q. J. E., May 1934.
Hicks, J. R., The Theory of Monopoly, Econometrica, Jan. 1935.
The subjects, in the order in which they will be taken up, together with the assigned reading, are given below.
| I. The Technique and the Background. Pigou, Part II, Ch. XIV. Robinson, Chs. 1, 2. Chamberlin, Chs. 1, 2. |
V. Monopolistic Competition Chamberlin, Chs. 4, 5, 6, 7. Robinson, Ch. 7. Q.J.E., Nov. ‘34 Shove, E.J., March ’33. Harrod, Q.J.E., May ’34. |
| II. Simple Monopoly. Pigou, Part II, Ch. XVI. Robinson, Chs. 3, 4, 5. |
VI. Discrimination. Pigou, Chs. XVII, XVIII (Part II). Robinson, Chs. 15, 16. |
| III. Duopoly and Oligopoly Pigou, Part II, Ch. XV. Chamberlin, Ch. 3. |
VII. Imperfect Competition and the Theory of Distribution. Chamberlin, in March ’34 A.E.R. Supplement. |
| IV. Bilateral Monopoly.(To be discussed in class) |
Source: Harvard University Archives, HUC (FP) – 4.62. Joseph Schumpeter, Lecture Notes. Box 9, Folder: Ec11 Fall 1935.
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1935-36
HARVARD UNIVERSITY
ECONOMICS 11
Four questions may be omitted. Arrange your answers in the order of the questions.
- Discuss the concepts “internal economies” and “spreading of overhead” and explain what, if any, relations exist between the two.
- What do we mean by Production Function? Discuss its principal properties, and state why and for what purpose we need this instrument of analysis.
- “Wherever products are differentiated, the theory of monopoly seems adequately to describe their prices. Competition is not eliminated from the explanation; it is fully taken into account by the recognition that substitutes affect the elasticity of demand for each monopolist’s product.” Do you agree? Justify your answer.
- “Under imperfect competition, in conditions of full long period equilibrium, it is not only true that average costs for the individual firm may be falling; they must be falling.” Discuss. Does this necessarily imply falling supply price?
- Assume that a commodity is offered by two sellers. Disregard costs. Describe the courses of action open to the two sellers, and discuss the conditions of the case in which price and quantity sold are uniquely determined. Show that in this case price will as a rule be higher than under perfect competition and lower than under monopoly.
- In his 1926 article, Sraffa says, “It is necessary to abandon the path of free competition and turn in the opposite direction, namely, towards monopoly.” Discuss the considerations which led him to adopt this view.
- Discuss price and output under discriminating monopoly.
- State and discuss the principle involved in “Hotelling’s case.”
- “The economist has shown that, granted certain assumptions, a set of prices exists which, if established from the beginning, would produce a state of equilibrium; he has never demonstrated, however, that forces are at work which would tend to establish such a system of prices.” Discuss.
Mid-Year. 1936.
Source: Harvard University Archives, HUC (FP) – 4.62. Joseph Schumpeter, Lecture Notes. Box 9, Folder: Ec11 Fall 1935.
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ECONOMICS 11 [Second term]
The first four or five weeks of the second term will be devoted to a study of distribution, with special emphasis on the theory of wages. Topics to be covered include (1) marginal productivity, (2) the elasticity of substitution, and (3) opportunity costs. The following is a list of reading.
- Marginal Productivity and the Theory of Wages
- Marshall, Bk. VI, especially Ch. I.
- Hicks, J. R., “The Theory of Wages”, Chs. I and VI.
- ——-, Marginal Productivity and the Principle of Variation,” Economica, Feb., 1932.
- Schultz, Henry and Hicks, J. R., “Marginal Productivity and the Lausanne School: A Reply” and “A Rejoinder”, Economica, Aug., 1932.
- Clark, J. B., “The Distribution of Wealth”, Ch. VIII.
- Robertson, D. H., “Wage Grumbles” in the volume of essays entitled Economic Fragments.
- Elasticity of Substitution
- Hicks, Ch. VI (Cf. above).
(mathematical treatment in Appendix for those who prefer) - Machlup, Fritz, “The Common Sense of the Elasticity of Substitution”, Review of Economic Studies, June, 1935.
- Also notes and articles on substitution in Review of Economic Studies, Vol. I, nos. 1 and 2, though not required reading, may be consulted.
- Hicks, Ch. VI (Cf. above).
- Opportunity Costs.
- Green, D.I., “Pain Cost and Opportunity Cost”, Quarterly Journal of Economics, 1894.
- Davenport, H.J. , “Economics of Enterprise”, Ch. VI.
- Knight, F.H., “A Suggestion for Simplifying the Statement of the General Theory of Price”, Journal of Political Economy, 1928.
Source: Harvard University Archives, HUC (FP) – 4.62. Joseph Schumpeter, Lecture Notes. Box 9, Folder: Ec11 1935-36.
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ECONOMICS 11 [Second term]
The next two or three weeks will be devoted to the discussion of capital and interest. A select bibliography and the assigned reading are listed below. The readings from Wicksell and Knight will probably not be covered in class and may, therefore, at pleasure be postponed until the reading period. As usual in this course there will be no additional reading period assignment.
BIBLIOGRAPHY
- Böhm-Bawerk, E., Capital and Interest (a history of interest theories); The Positive Theory of Capital (the third edition, available only in German, containing the polemical Excursi, is to be preferred to the English translation)
- Marx, Karl, Capital (especially Vol. I, Parts III and VII; Vol. II, Part III; Vol. III, Parts II and III)
- Wicksell, Knut, Über Wert, Kapital und Rente; Lectures on Political Economy, Vol. I
- Fisher, Irving, The Rate of Interest (1907); The Theory of Interest (1930) (a rewriting of the earlier work)
- Taussig, F.W., Wages and Capital
- Knight, F.H., “Interest”, article in The Encyc. of Soc. Science
- For a rather complete list of the numerous recent articles on capital, interest and the structure of production, Cf. Machlup, Fritz, “Professor Knight and the Period of Production”, Journal of Political Economy, 1935, first footnote.
- For an exposition of Böhm-Bawerk, Wicksell and the later work along the same lines done in Sweden, particularly by Gustav Akerman, Cf. Kirchmann, Hans, Studien zur Grenzproduktivitätstheorie des Kapitalzinses.
ASSIGNED READING
- Fisher, The Rate of Interest, Part I, Chs. 1,2,3; Part III, Ch. 10
- Böhm-Bawerk, Positive Theory, Book I, Ch. 2; Book II, Chs. 2,4,5; Book V, Chs. 1,2,3,4,5; Book VI, Chs. 5,6,7; Book VII, Chs. 1,2,3.
- Wicksell, Lectures, Vol. I, pp. 144-171; 185-195.
- Knight, “Professor Fisher’s Theory of Interest: a Case in Point”, Journal of Political Economy, April, 1931.
Source: Harvard University Archives, HUC (FP) – 4.62. Joseph Schumpeter, Lecture Notes. Box 9, Folder: “Ec11 1935-36”
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[Given that Economic Welfare, the distinction between marginal social value and private net value product, and the national dividend show up in questions 5 and 6 in the final, I append here the corresponding readings assigned for the second term of the the academic year 1934-35]
Welfare and the National Dividend. Approximately two weeks. The discussion will turn around the following chapters from “The Economics of Welfare” by A.C. Pigou (3rd or 4th edition): Part I, Chapters 1,2,3,5,6,7,8; Part IV, Chapter 2; and Part II, Chapters 1,2,3,4,11. In the second edition the corresponding chapters from Part I are 1-7 inclusive and from Part II, 1,2,3,4,10. Chap. 10 Part II is completely revised in the third edition (where it appears as Chap. 11, Part II) and should if possible be read in the third.
Source: Harvard University Archives, HUC (FP) – 4.62. Joseph Schumpeter, Lecture Notes. Box 9, Folder: “Ec11 Fall 1935”
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1935-36
Final Examination
Economics 11
One question may be omitted. Arrange your answers in the order of the questions:
- What is the relation between elasticity of substitution and elasticity of demand? Interpret the following statement: “If the demand price of capital increases as a result of a fall in wages, then the elasticity of demand for labor is greater than the elasticity of substitution.”
- How would you expect inventions to affect the rate of interest?
- Marginal productivity of labor is held to determine wages. How does this work out in the cases of perfect and of imperfect competition?
- State and discuss Boehm-Bawerk’s theory of interest.
- “If in all industries the values of marginal social and marginal private net product differed to exactly the same extent, the optimum distribution of resources [between their possible uses] would always be attained, and there would be, on these lines, no case for fiscal interference”. Discuss.
- Define Economic Welfare and National Dividend. Do you consider these two concepts to be serviceable instruments of economic analysis? Why or why not?
Source: Harvard University Archives, HUC (FP) – 4.62. Joseph Schumpeter, Lecture Notes. Box 9, Folder: “Ec11 Fall 1935”
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