Try to imagine what a summer school student at Harvard might have thought in the summer of 1970 (scarcely a month after the Kent State University shootings) when confronted with the five page reading list in Martin Bronfenbrenner’s economics course on income distribution. Next jump down to the four page final exam and also imagine that summer student’s reaction. Well, that was exactly a half-century ago and it was still a time when professors could get away with assigning mountains of reading followed by an examination demanding both comprehension and thought. Chapeau!
Worth noting: Joan Robinson appeared in four of the seven exam questions.
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Summer 1970
INCOME DISTRIBUTION—M. Bronfenbrenner
Text: B.F. Haley and William Fellner (eds.), Readings in the Theory of Income Distribution.
Note: Few will have time for even half the materials below. Students should concentrate where their interests are strongest, and/or where class presentation seems weakest.
- Introduction
- Theoretical
Clark, Distribution of Wealth, Ch. 1.
Galbraith, Affluent Society, Ch. 7.
Kuznets, “Economic Growth and Income Inequality,” AER, Mar. 55.
(Reprinted in Kuznets, Economic Growth and Structure.)
Klein, Introduction to Econometrics, Ch. 4.
M. Friedman, “Choice, Chance, and the Personal Distribution of Income,” JPE, Aug. 53.
Mincer, “Investment in Human Capital and Personal Income Distribution,” JPE, Aug. 58.
Weintraub, General Theory of the Price Level, Output, Income, and Growth, Ch. 3-4.
Solow, “Constancy of Relative Shares,” AER, Sept. 58, or Bronfenbrenner “Relative Shares and Elasticity of Substitution,” JPE, June 60.
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- Statistical
Lydall, Structure of Earnings, Ch. 2-4.
Budd, Inequality and Poverty, pp. x-xxviii (Budd), Parts 2-3 (Solow, Goldsmith, Lampman, Projector and Weiss, Stigler, Meade).
Readings, 4 (Bowman) [“A Graphical Analysis of Personal Income Distribution in the United States”]
Kuznets, Shares of Upper Income Groups in Income and Saving, pp. xxvii-xli.
Lampman, “Recent Changes in Income Inequality,” AER, June 54.
Lebergott, “Factor Shares in the Long Run,” in NBER, Behavior of Income Shares, pp. 53-86, or Kravis, “Relative Income Shares in Fact and Theory,” AER, Dec. 59.
Phillips, “Labor Share and Wage Parity,” R.E.Stat., May 60.
- Maldistribution?
- General Ethical Issues
Budd, Part 1 (Meade and Hitch, de Jouvenel, Wallich, Tawney, Friedman)
Shaw, Intelligent Woman’s Guide to Socialism and Capitalism, Ch. 2-14, 20-23 (skim).
Lerner, Economics of Control, Ch. 3.
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- General Economic Issues
Hobson, Evolution of Modern Capitalism, Ch. 11.
Durbin, Purchasing Power and Trade Depression, Ch. 1.
Bronfenbrenner, Yamane, and Lee, “Study in Redistribution and Consumption,” R.E.Stat., May 55.
Budd, Part 4 (Meade, Friedman, Simons, Pigou).
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- American Poverty Program
Budd, Part 5 (Harrington, Miller, Ornati, Lampman, Johnson, Ad Hoc Committee on Triple Revolution, Friedman, Tobin)
R.D. Friedman, Poverty, Definition and Perspective, Ch. 2-3.
Green, Negative Taxes and the Poverty Problem, Ch. 4-6, 8.
Thurow, Poverty and Discrimination, Ch. 3-5, 9.
- Demand for Productive Inputs
- Marginal Productivity
Hicks, Theory of Wages, Ch. 1.
Ferguson, Neoclassical Theory of Production and Distribution, Ch. 4-6, 9, 12.2.
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- Complications and Objections
Levinson, Unionism, Wage Trends, and Income Distribution, Ch. 1.
Dobb, Wages, pp. 81-92, Ch. 5.
Weintraub, Approach to the Theory of Income Distribution, Ch. 1.
Readings, 6 (Stigler [“Production and Distribution in the Short Run”]), 8 (Machlup [“On the Meaning of the Marginal Product”]) , 12 (Robertson [“Wage-Grumbles”]), 15 (Rolph [“The Discounted Marginal Productivity Doctrine”]).
The Lester-Machlup-Stigler Controversy: AER, Mar. 46 and Sept. 46, Mar. 47. (Reprinted in Clemence, Readings in Econ. Analysis).
Reder, “Marginal Productivity Reconsidered,” JPE, Oct. 47 (Reprinted in Clemence, Readings in Econ. Analysis.)
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- Exploitation?
Robinson, Imperfect Competition, Ch. 21-26, or Pigou, pt. III, Ch. 14-19.
Rothschild, Theory of Wages, Ch. 7-8.
Readings 7 (Chamberlin [“Monopolistic Competition and the Productivity Theory of Distribution”]), 14 (Bloom [“A Reconsideration of the Theory of Exploitation”]).
Bronfenbrenner, “Potential Monopsony,” Ind. Labor Rel. Rev., Apr. 56.
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- Impact of Innovations
Ferguson, Ch. 12.3, 16.
Readings, 9 (Robinson [“The Classification of Inventions”]), 10 (Lange [“A Note on Innovations”])
Stiglitz and Uzawa, Readings in Modern Theory of Economic Growth, 6 (Hicks [“From Theory of Wages”]), 9 (Fellner [“Two Propositions in the Theory of Induced Innovations”]), 10 (Kennedy [“Induced Bias in Innovation and the Theory of Distribution”]).
Seeber, “Classification of Inventions,” So. Ec. J., Apr. 62.
- Labor Supply
Rothschild, Ch. 3, or Stigler, Theory of Price (3rd), pp. 194-202.
Readings, 13 (Robbins [“On the Elasticity of Demand for Income in Terms of Effort”]).
Long, The Labor Force Under Changing Income and Employment, Ch. 1.
Break, “Income Taxes, Wage Rates, and Factor Services,” Natl. Tax J., Dec. 53.
- Collective Bargaining
- Theory and Evidence
Hicks, Ch. 7.
Readings, 19 (Dunlop [Wage Policies of Trade Unions]).
Ross, Trade Union Wage Policy, Ch. 2, 6.
Fellner, Competition Among the Few, Ch. 10.
Rees, Economics of Trade Unions, Ch. 4-5.
Lewis, Unionism and Relative Wages in U.S., Ch. 1, 4-6.
Bronfenbrenner, “Incidence of Collective Bargaining Once More,” So. Ec. J., Apr. 58. (Reprinted in Galenson and Lipset, Labor and Trade Unionism.)
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- The Labor Monopoly Issue
Simons, Economic Policy for a Free Society, Ch. 6.
Lester, “The Labor Monopoly Issue,” JPE, Dec. 47.
Lindblom, Unions and Capitalism, Ch. 1-3, 14-18.
Lerner, Economics of Employment, Part IV, or Rothschild, Ch. 13.
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- Wage Difference (Omitted in Class)
Mill, Principles of Political Economy, Bk. II, Ch. 14.
Dobb, Ch. 6.
Mills, White Collar, Ch. 6-7, or Harris, Market for College Graduates, Ch. 3, 3-a.
McCaffree, “Earnings Differential Between White Collar and Manual Occupations,” R.E.Stat., Feb. 53.
Burns, “Comparative Economic Position of Manual and White Collar Employees,” Journ. Of Bus., Oct. 54.
Reder, “Wage Differentials,” in NBER, Aspects of Labor Economics, pp. 257-99.
- Wages and Employment
Keynes, General Theory of Employment, Interest and Money, Ch. 19.
Readings, 18 (Tarshis [“Changes in Real and Money Wages”]), 17 (Lerner [“The Relation of Wage Policies and Price Policies”]).
Slichter-Nathan Controversy: “Raising the Price of Labor as a Method of Increasing Employment,” R.E.Stat., Nov. 49.
Bronfenbrenner, “Contribution to Aggregative Theory of Wages,” JPE, Dec. 56.
- Theory of Interest
- Real Theories
Conard, Introduction to the Theory of Interest, Ch. 3, 4, 7.
Hirschleifer, “Theory of Optimal Investment Decision,” JPE, Aug. 58.
Knight, “Interest,” in Encyclopedia of Social Sciences, or, “Diminishing Returns from Investment,” JPE, Mar. 44.
Patinkin, Money, Interest, and Prices, Ch. 4.
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- Monetary Theories
Readings, 22 (Keynes [“The Theory of the Rate of Interest”]), 23 (Robertson [“Mr. Keynes and the Rate of Interest”]), 24 (Hicks [“Mr. Keynes and the ‘Classics’; A Suggested Interpretation”]).
Harris, (Ed.), New Economics, 43-46 (Lerner).
Lange, “Rate of Interest and Optimum Propensity to Consume,” in AEA, Readings in Business Cycle Theory, 8.
Conard, Ch. 9-10.
Patinkin, Ch. 15.
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- Rate Differences
Readings, 26 (Lutz [“The Structure of Interest Rates”])
Hicks, Value and Capital (2nd), pp. 144-52.
Conard, Ch. 17.
Kessel, “Cyclical Behavior of Term Structure of Interest Rates,” (NBER Occasional Paper 91), Ch. 1.
- Theory of Rent
Ricardo, Principles of Political Economy, Ch. 2.
George, Progress and Poverty, Bk. III, Ch. 2; also skim Books IV-VI.
Robertson, Lectures on Political Economy, Vol. ii, Ch. 3
Readings, 31 (Buchanan [“The Historical Approach to Rent and Price Theory”]).
Ferguson, Ch. 1.4.2, 2.2.1, 2.3.2, 3.4.3.
- Theory of Profit
Knight, Risk, Uncertainty, and Profit, Ch. 1-2, 8-9.
Readings, 27 (Knight [“Profit”]), 29 (Gordon [“Enterprise, Profits, and the Modern Corporation”]), 30 (Crum [“Corporate Earnings on Invested Capital”]).
Weston, “Generalized Uncertainty Theory of Profit,” AER, Mar. 50.
Marchal, “New Theory of Profits,” AER, Sept. 51.
Bronfenbrenner, “Rehabilitation of Naïve Profit Theory,” So. Ec. J., Apr. 60 (Reprinted in Brait and Hochman, Readings in Microeconomics).
Joint Economic Committee, U.S. Congress, Profits Hearings, Dec. 48. (Testimony of Slichter, Harris, Ruttenberg, Montgomery, and Nixon on definition and measurement).
- Aggregative Distribution Theories
Scitovsky, “Some Theories of Income Distribution,” in NBER, Behavior of Income Shares, pp. 15-31.
Davidson, Theories of Aggregate Income Distribution, Ch. 4-8.
Douglas, “Are There Laws of Production?” AER, Mar. 48. (Reprinted in Kelley edition of Douglas, Theory of Wages.)
Ferguson, Ch. 12.4-12.9, 15.
Readings, 11 (Kalecki [“The Distribution of the National Income”]), or Rothschild, Ch. 15.
Boulding, Reconstruction of Economics, Ch. 14.
Stiglitz and Uzawa, 21 (Kaldor [“Alternative Theories of Distribution”]) [Also in Kaldor, Essays in Value and Distribution, no. 10.], 22 (Robinson).
Reder, “Alternative Theories of Labor’s Share,” in Abramovitz, Allocation of Economic Resources.
Source: Duke University, David M. Rubenstein Rare Book and Manuscript Library, Economists’ Papers Archives. Papers of Martin Bronfenbrenner, Box 25, Folder “Micro-econ + Distribution, 1 of 2, 1966-71, n.d.”
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HARVARD UNIVERSITY
DEPARTMENT OF ECONOMICS
Economics S-222—Income Distribution
Summer 1970—M. Bronfenbrenner
Final Examination
In a (probably unsuccessful) attempt to make my own position clear on a number of controversial issues, I have perhaps understressed in class certain powerful statements of contrary positions.
For purposes of this examination, please consider any four of the quotations below. Indicate the portions of distribution theory to which they apply. Then comment upon them, indicating why they do (or do not) appear convincing.
- Technical conditions and the rate of profit determine the pattern of normal prices, including the price of labour-time in terms of each commodity; money-wage rates determine the corresponding money price level. But what determines the rate of profit?
Marx closes his system sometimes (following Ricardo) by postulating a real-wage rate governed by the conventional standard of life (the value of labour-time) and sometimes by taking as given the share of net profit in the value of net output (the rate of exploitation). Marshall conceals the problem behind a smoke-screen of moral sentiments. The latter-day neoclassicals are for ever chasing definitions around a circular argument. Sraffa offers no observations on the subject. Von Neumann postulates a real-wage rate which is precisely specified in terms of particular quantities of particular commodities, but leaves us helpless when that assumption is relaxed. The question of what determines the rate of profit, when the real-wage rate is not to be taken as given, is a huge blank in traditional economic teaching.
[Joan Robinson, Essays in the Theory of Economic Growth, p. 11] - Even from the momentary market point of view, the Keynesian formulation tends to obscure unduly the parts played by Productivity and Thrift…While there are hints here and there of a broader treatment, in the main (Mr. Keynes’) plan is to set the rate of interest in a direct functional relation only with that part of the money stock which is held for what he calls “speculative reasons”, i.e., because it is expected that the rate of interest will subsequently rise. Thus the rate of interest is what it is because it is expected to become other than it is; if it is not expected to become other than it is, there is nothing left to tell us why it is what it is. The organ which secretes it has been amputated, and yet it somehow still exists—a grin without a cat. Mr. Plumptre of Toronto…has aptly compared the position of the lenders of money under this theory with that of an insurance company which charges its clients a premium, the only risk against which it insures them being the risk that its premium will be raised.
[Dennis H. Robertson, “Mr. Keynes and the Rate of Interest” in Essays in Monetary Theory, 1940. Pages 35-36.] - …
The price of pig
Is something big,
Because its corn, you’ll understand,
Is high-priced too;
Because it grew
Upon the high-priced farming land.
If you’d know why
That land is high,
Consider this: its price is big
Because it pays
Thereon to raise
The costly corn, the high-priced pig!
[Herbert Joseph Davenport, The Economics of Enterprise, 1913. Pages 107-108]
- The level of money-wage rates obtaining at any particular moment is an historical accident. The absolute level of wages in terms of money affects nothing except the words and numbers in which money values are reckoned and the nominal value of the stock of currency. But changes in the level of money-wage rates have important effects upon the behavior of the economy in real terms.
The causes of movements in money-wage rates are bound up with the competition of different groups of workers to maintain or improve their relative positions, and the consequences of changes in wage levels are most important in connection with the competition in international trade.
The level of money-wage rates may be continuously rising simply because it is easier for each group of employers to give way to the demands of their workers and recoup themselves by raising prices than to incur the losses and unpleasantness involved in resisting them.
[Joan Robinson, Essays in the Theory of Economic Growth, pp. 70-71] - A distinction should be made between primary and secondary distribution of the national income.
The national income first of all falls into the hands of the capitalists. Primary distribution of the national income consists on its being distributed between capitalists and workers. The workers receive wages, the capitalists surplus value, which is distributed among the industrialists, merchants, bankers, and big landed proprietors.
After the national income has been distributed among the basic elements of capitalist society, a secondary distribution or redistribution takes place. We have seen that in the non-productive branches of the economy (medical institutions, public services, entertainments, etc.) no national income is created. But the capitalists who control these enterprizes and institutions pay salaries to their employees, cover the cost of maintaining premises, and in addition make a profit. The capitalists cover all these items of expenditure out of the national income created in the sphere of material production by charging for the services provided. These payments produce an average profit for the capitalists in the non-productive sphere. Part of the income of the working people is (also) redistributed through the state budget in the interests of the ruling class. The bourgeois state has its army, police, penal institutions and courts, administrative apparatus and so on. All are maintained out of the state budget, taxes levied upon the population being its main source of revenue. After working people have received wages through the primary distribution on the national income, they have to pay taxes out of them. In this way, the part of the national income put at the disposal of the working people is reduced. (Capitalists, too, pay taxes. But part is returned in the form of extremely high payment for supplies and service to the government. Another part is spent in the upkeep of the state apparatus, army and so on, the chief purpose of which is to defend the interests of these same capitalists.)
This is why not only the distribution, but also the redistribution of the national income in bourgeois society is effected in the interests of the exploiting classes.
[P. Nikitin, Fundamentals of Political Economy, trans. Violet Dutt and Murad Saifulin (probably 1966), pp. 133-135 quoted by Martin Bronfenbrenner in Income Distribution Theory, Chapter 2, footnote 12. Cf: 1983 Translation of a later edition by Jane Syer, pp. 151-152.] - The neo-classical model is most at its ease in a stationary state. The amount of capital that capitalists are willing to maintain in being (neither saving nor dissaving) is a function of the rate of interest, or, alternatively, there is one rate of interest at which net saving is zero. The physical stock of capital and the real-wage rate are such as to have brought the rate of profit into equality with the rate of interest. There is then one value of the stock of capital that yields the rate of return (with a given labor force fully employed) which will cause it to be maintained. This is the value of capital that satisfies the conditions of the stationary state.
When it leaves the stationary state, the neo-classical model is all at sea. With any given value of capital in existence, the amount of saving that the capitalists wish to do to increase it depends upon the rate of interest, which must be equal to the rate of profit, but how can we tell what the rate of profit is till we know the rate of accumulation?
It is an illusion to suppose that “the marginal productivity of capital” provides an independent determinant of the rate of interest. A “quantity of capital” in terms of value has no meaning in terms of physical productivity until the prices of its physical components are known, and this involves the rate of profit. A “quantity of capital” in terms of a list of physical capital goods appropriate to various kinds of output, if they are taken to be fully utilized, entails the output of investment goods, and so the rate of accumulation, independently of the rate of profit that is supposed to determine it. If they are not necessarily fully utilized, then we have to know the current rate of investment to find out the state of effective demand and current profits. Whatever we do, we are one equation short.
The reason why the model works all right in the stationary state has nothing to do with its stationariness. It works because the rate of accumulation—zero—is specified. With any specified rate of accumulation, the function connecting saving with the rate of profit determines the position, for it shows what the rate of profit and the value of capital must be to make saving equal to investment at full employment.
[Joan Robinson, Essays in the Theory of Economic Growth, pp. 81-82] - The theory of the distribution of the product of industry between wages and profits which is knocking about in current economic teaching consists of a number of propositions, each of which is quite unexceptionable in itself, but none of which bears any relation to the rest…The proposition that the share of profits in income is a function of the ratio of investment to income is perfectly correct, but capacity and the degree of monopoly have to be brought in to determine what income it is that profits are a share of, and investment is related to.
[Joan Robinson, Collected Economic Papers, II, p. 145]
L’ENVOI
The bookful blockhead, ignorantly read,
With loads of learned lumber in his head.
(Alexander Pope)
Source: Duke University, David M. Rubenstein Rare Book and Manuscript Library, Economists’ Papers Archives. Papers of Martin Bronfenbrenner, Box 24, Folder “Exams. Micro-econ + distribution. 2 of 2, 1954-66, n.d.”
Image Source: Martin Bronfenbrenner. University of Minnesota Archives/Libraries/Umedia.