Franco Modigliani first came to M.I.T. as a visiting professor in 1960-61 from the Carnegie Institute of Technology before returning in 1962 after only one year at Northwestern. His former Carnegie Tech student Albert K. Ando was already on the M.I.T. faculty and the partial reading lists for their jointly taught courses can be found in Modigliani’s papers at Duke’s Economists’ Papers Archive.
Readings and final exam from the monetary theory course taught by Modigliani at Northwestern in 1961 have been posted earlier.
Note: I have inserted part of the reading list on monetary policy from Modigliani’s course at Carnegie Tech in the term immediately preceding his visiting professorship at M.I.T. This insertion is motivated by last sentence in the course description in the M.I.T. catalogue that includes the topic “the role of money in policy”.
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Monetary Economics course enrollments
1960-61
Fall 1960. 14.461 Monetary Economics, A. K. Ando. 14 students.
Spring 1961. 14.192 Economics Seminar—Monetary Economics. Ando/Modigliani. 7 students.
Source: M.I.T. Archives. Department of Economics, Records. Box 3, Folder “Teaching Responsibility”.
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Course Announcement
Fall, 1960
14.461 Monetary Economics
Prereq.: 14.451 [Theory of Income and Employment]
Year: G(1)
Review of theory of income determination, with explicit attention to monetary parts of the model. Examination of sources and determinants of supply of money with attention to role of commercial banks, Federal Reserve System, and the Treasury. Exploration of both theory and fact about demand for money for transactions and for speculative purposes. Discussion of general equilibrium theory of money, interest, prices and output, and role of money in policy.
Ando, Modigliani
Source: Massachusetts Institute of Technology Bulletin, 1960-61, p. 243.
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Modigliani
Ando
Fall, 1960
Monetary Economics
14.461
We assume that students are familiar with the elementary price theory and income theory, i.e., that they have taken 14.121, 14.122, 14.451, and 14.452. We also assume that students have some material ordinarily covered in the elementary course in Money and Banking. Those who feel that they need to refresh their memory of the latter may consult:
Steiner, Shapiro, Solomon, Money and Banking, Parts I, II, and III.
Day and Beza, Money and Income, Parts I and III.
Hart, Money, Debt, and Economic Activity, 2nd edition, Part I.
Chandler, The Economics of Money and Banking, 3rd edition.
- The nature of money and the position of money in the balance sheet for the United States: An Introduction
Tobin, J., Manuscript, Chs. 1 and 2.
Robertson, D. H., Money, Chs. 1 to 3.
Meade, J. E., “The Amount of Money and the Banking System,” Readings in Monetary Theory.
The Federal Reserve System—Purposes and Functions, Chs. I to VIII and XIII.
Modigliani, F., Lecture Notes No. 1-3.
Federal Reserve Bulletin, August, 1959, “A Quarterly Presentation of Flow of Funds, Saving, and Investment.”
Roosa, R. V. Federal Reserve Operations with Money and Government Securities Market.
- Demand for Money
This year, we shall postpone the discussion of the demand for money arising from various forms of uncertainty until later in the course, and confine ourselves in this section to dealing with the demand for money due to the existence of the cost of transaction.
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- Why is demand for money different from demands for consumption goods?
Samuelson, P. A., Foundations, pp. 117-124
Marschak, J., “The Rationale of the Demand for Money and of ‘Money Illusion’,” Metroeconomica, August, 1950, Sections 1 and 2.
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- Classical theory (Equation of Exchange and Cambridge Equation).
Fisher, I., The Purchasing Power of Money, Chs. 1 to 6 and 8.
Robertson, D. H., Money, Chs. 4 to 6.
Marshall, A., Official Papers, pp. 32-54.
Keynes, J. M., A Treatise on Money, Chs. 9-19.
Wicksell, K., Interest and Prices, Chs. 3 and 5 to 8.
Gregory, T. E., The Gold Standard and Its Future, Chs. 1 and 2.
Hicks, J. R., “A Suggestion for Simplifying the Theory of Money,” Readings in Monetary Theory.
Keynes, J. M., The General Theory of Employment, Interest, and Money, Ch. 15.
Pigou, A. C., “The Value of Money,” AEA Readings in Monetary Theory, pp. 162-185.
Friedman, M., “The Restatement of the Quantity Theory of Money,” in Studies in the Quantity Theory of Money.
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- More modern theory of transaction demand for money.
Tobin, J., Manuscript, Chapter 4, Sections 1 and 2, Appendix to Chapter 4.
Tobin, J., “The Interest Elasticity of Transaction Demand for Cash,” Review of Economics and Statistics, August, 1956, pp. 241-47.
Baumol, W. J., “The Transaction Demand for Cash,” Quarterly Journal of Economics, November, 1952.
Lecture notes, 3-6, 9 and 10.
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- Some empirical evidence.
Bresciani-Turroni, The Economics of Inflation, Chs. 2, 4, and 5 (see also J. Robinson’s review in Economic Journal, September, 1938).
League of Nations, The Course and Control of Inflation, Part I.
Cagan, P., “The Monetary Dynamics of Hyper-Inflation,” in Studies in the Quantity Theory of Money, (M. Friedman, ed.)
Kisselgoff, A., “Liquidity Preference of Large Manufacturing Corporations,” Econometrica, October, 1945.
Latane, H. A., “Cash Balances and the Interest Rate,” Review of Economics and Statistics, 1954, pp. 456-460.
Polak, J. and White, W. H., “The Effect of Income Expansion on the Quantity of Money,” in IMF Staff Papers, August, 1956.
Stedry, A.C., “A Note on Interest Rates and the Demand for Money,” RENS August, 1959.
Those who are not familiar with the elementary theory of inventory management should consult any one of the following:
Whitin, T., Theory of Inventory Management, Chapters 2 and 3.
Arrow, K. J., Karlin, and Scarf, Studies in the Mathematical Theory of Inventory and Production, Chapters 1 and 2.
Arrow, K. J., Harris, and Marschak, “Optimal Inventory Policy,” Econometrica, July 1951.
- Analysis of the place of money in the economy—general equilibrium theory of money, prices, and employment.
- Neo-classical theory: the case of flexible prices and perfect markets.
Marschak, J., “The Rationale of the Demand for Money and Money Illusion,” Metroeconomica, 1950, pp. 71-160.
Modigliani, F., Preliminary Notes on the Theory of Money and Interest, Part I, II, and III, Section A to D (2).
Patinkin, D., Money, Interest, and Prices, An Integration of Monetary and Value Theory.
Patinkin, D., “A Reconsideration of the General Equilibrium Theory of Money,” Review of Economic Studies, Vol. 18, 1950-51.
De Scitovsky, T., “Capital Accumulation, Employment, and Price Rigidity,” Review of Economic Studies, Vol. 8, pp. 69-88.
Pigou, A. C., “Economic Progress in a Stable Environment,” Readings in Monetary Theory.
Metzler, L., “Wealth, Saving, and the Rate of Interest,” JPE, April, 1951.
Archibald, G. C., and Lipsey, R.G., “Monetary and Value Theory: A Critique of Lange and Patinkin,” Review of Economic Studies, October, 1958.
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- Keynesian theory: the effects of rigid prices.
Keynes, J. M., The General Theory of Employment, Interest, and Money, Chs. 2, 6, 10, 11, 18, 19, 21 including appendix.
Hicks, J. R., “Mr. Keynes and the Classics,” Readings in the Theory of Income Distribution.
Modigliani, F., “Liquidity Preference and the Theory of Interest and Money,” Readings in Monetary Theory
Modigliani, Preliminary Notes, Part IV.
Pigou, A. C., Employment and Equilibrium.
Tobin, J., Manuscript, Chs. 5-6.
(To be continued)
Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archives. Franco Modigliani Papers. Box T6, Folder “Economic Fluctuation and Growth, 1961”.
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From: Course outline and major references, GI-583—Advance Economics III (Monetary Theory and Macro-Economic Analysis), Carnegie Institute of Technology, Spring Term 1960.
[Applications of the model to Economic Analysis and Policy]
- a) The causes of unemployment
(i) “Monetary” causes
(ii) Effective demand and the limits of monetary policy—Fiscal policy.
(iii) Real wage rigidity, market structures and the limits of monetary and fiscal policy
b) Creeping inflation and its causes—Cost push and demand pull
c) Implications for economic policy
Modigliani, Preliminary notes, Part IV section A.6 and C.6
Hart, A. G., Money, Debt and Economic Activity, Part V
Timlin, P., A MODEL OF THE CURRENT INFLATION—B.A. Thesis, Swarthmore College (Mimeographed) Ch. I
Joint Economic Committee, U.S. Congress—THE RELATIONSHIP OF PRICES TO ECONOMIC STABILITY AND GROWTH—COMPENDIUM March, 1958
(See especially: A. P. Lerner, “Inflationary Depression and the Regulation of Administered prices”) and G. Ackley, “A Third Approach to the Analysis and Control of Inflation”)
Selden, R., Cost Push versus Demand Pull, JPE Feb. 1959
WAGES, PRICES, PROFITS AND PRODUCTIVITY—The American Assembly, Columbia University
Schultze, C. THE RECENT INFLATION IN THE UNITED STATES. Joint Economic Committee, 1959
Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archives. Franco Modigliani Papers. Box T6, Folder “Economic Fluctuation and Growth, 1961”.
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List of Suggested Books
for Review in 14.461
Pigou, A. C., Employment and Equilibrium
Friedman, M., A Program for Monetary Stability
Hansen, B., Theory of Inflation
Hansen, B., Economic Theory of Fiscal Policy
Gurley, J. G., and Shaw, E., Money in a Theory of Finance
Faxen, K. O., Monetary and Fiscal Policy under Uncertainty
Botha, D. J., A Study in the Theory of Monetary Equilibrium
Hall, C. A., Fiscal Policy for Stable Growth
Buchanan, J. M., Public Principles of Public Debt
Musgrave, R. A., The Theory of Public Finance
Patinkin, D., Money, Interest, and Prices
Robinson, J., Accumulation of Capital
Sraffa, P., Production of Commodities by Means of Commodities
Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archives. Franco Modigliani Papers. Box T6, Folder “Economic Fluctuation and Growth, 1961”.
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Course Announcement
14.192 Economics Seminar
Prereq.: 14.121 [Economic Analysis (first term)]
Year: G(1)
Special social problems or economic problems of particular industries. (Open to graduate students only.)
Source: Massachusetts Institute of Technology Bulletin, 1960-61, p. 242.
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Spring Term, 1961
Franco Modigliani
Albert Ando
14.192
Monetary Economics
- Preliminary Discussion of the Theory of Decision Making Under Uncertainty
Friedman, M., “Choice, Chance, and Personal Distribution of Income,” Journal of Political Economy, 1953, pp. 277-290.
Friedman, M., and Savage, L. J., “The Utility Analysis of Choices involving Risk,” JPE, 1948, pp. 279-304, reprinted in AEA Readings in Price Theory.
Dreze, J., and Modigliani, F., Consumer’s Behavior under Uncertaintydittoed notes.
Tobin, J., “Liquidity Preference as Behavior Toward Risk,” The Review of Economic Studies, February, 1958
Tobin, J., Manuscript, Ch. 3
Markowitz, H. M., Portfolio Selection
Hirschleifer—“Risk, the Discount Rate and Investment Decisions”—AER, Vol LI, No. 2 May 1961, pp. 112-120
Those who are not familiar with the standard theory of decision making under uncertainty should consult the following:
Luce, R. D., and Raiffa, H., Games and Decisions: Introduction and Critical Survey, Chs. 2, 13, and 14
Raiffa, H., and Schlaifer, R. O.,Applied Statistical Decision Theory, Preface and Introduction, Ch. 1.
Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archives. Franco Modigliani Papers. Box T6, Folder “Economic Fluctuation and Growth, 1961”.
Image Source: Albert K. Ando from the MIT Museum, People Records. Franco Modigliani from Gonçalo L. Fonseca’s History of Economic Thought website.