Tag: Becker

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Columbia Exam Questions

Columbia. Microeconomic theory exam. Becker, 1965.

 

The following set of Gary Becker’s microeconomic theory examination questions (found in a folder in the Milton Friedman papers at the Hoover Archives) does not have an institution identification. According to the copy of Gary Becker’s c.v. buried in the website at the Institute of Labor Economics (IZA) in Bonn, Germany, we can be reasonably confident that this course was taught while Becker was still a professor at Columbia University. 

__________________

Final Examination
G6213x
Prof. G. S. Becker
January, 1965

THREE HOURS—Persons whose native language is not English can have an additional 45 minutes.

  1. (40 points) Answer each of the following as true, false or uncertain and justify your answer in the space provided.
    1. Over time in the U.S. since 1929 output of the service industries rose at about the same rate as that of goods. Since the price of services rose at least as rapidly as that of goods, the income elasticity of demand for services would be greater than that for goods.
    2. A weighted average of all price elasticities must add up to one.
    3. Suppose the excise tax on bus travel was reduced and not on plane, train or other travel. This would reduce the use of buses if such travel was a sufficiently strong inferior good relative to other kinds of travel.
    4. The ability of firms of very different sizes to survive in an industry means that the long run marginal cost curve is horizontal over the range of firm sizes that survive.
    5. If an increase in the output of any firm lowered the marginal cost curves of other firms in the same industry (external economies) a competitive industry as a whole might show increasing returns; i.e., have a negatively inclined supply curve.
    6. Short run marginal costs can never be below long run marginal costs.
    7. Suppose that a competitive firm maximizes not income but its sales subject to the constraint that it does not make any losses. Then reduction in the demand for its product might not lead it to reduce output.
    8. Goods X and Y are either substitutes, complements, or independent if an increase in the amount of X either reduces, raises or leaves unchanged the marginal utility of Y.
    9. If the price of a good competitively produced was free to vary and yet did not change much between a seasonal low and a seasonal high in demand, this means that the industry’s long run marginal cost curve was very elastic.
    10. An ad valorem tax, with a tax rate proportional to producer’s price, on a competitive industry that yielded the same revenue at the initial output as a specific tax, fixed amount per unit, would reduce output less than the specific tax.

 

  1. (20 points) Treat charitable contributions as a commodity entering the utility functions or indifference curves systems of the contributor. Assume, as is largely true, that contributions can be deducted from income in arriving at taxable income. Assume a proportional tax rate equal to t.
    1. What would be the effect of an increase in the tax rate for any one person alone on his contributions? How does your analysis compare with the traditional analysis for commodities?
    2. Is he more likely to increase or decrease his contributions?
    3. Suppose now the tax rate increased for everyone. Would your answers to a. and b. be significantly different?

 

  1. (20 points) Suppose the traffic department would like to enforce parking regulations in an efficient way. Assume that each person has the choice of parking illegally or legally; the latter costs X dollars per “day” and the former, if one is caught, causes a fine equal to F dollars per time caught.
    1. Assume first that the sole aim of the traffic department is to discourage illegal parking at minimum cost. Assume also that all drivers simply try to maximize expected money income. How frequently should the traffic department inspect parking in order to achieve its aim?
    2. If all drivers maximized expected utility and had diminishing marginal utility of income, (but there is no utility or disutility from disobeying the law), how would this affect your answer? If they had increasing marginal utility of income?
    3. Suppose the traffic department received all the fines and desired just to maximize its expected income. How would your answer to 1. be affected?
    4. How does your answer to a. and c. depend on F, the size of the fine, and X, the cost of legal parking?

 

  1. (20 points) Suppose the earnings of military personnel were set below the price that would make the number of volunteers equal to the demand by the military, and that draft calls were sent out strictly at random to males aged 18-26 to bring the number entering up to demand

a.

1. How would the composition of drafted personnel compare with those that would enter if military earnings were raised sufficiently to make the number of volunteers equal to demand?

2. How would the total tax burden and its distribution among the population compare?

b. Assume now that drafted personnel could buy a substitute or substitute for someone else (as during the Civil War) instead of entering as a draftee. Assuming the capital market for substitutes works well, in equilibrium

1. How would the composition of men entering and the tax burden compare with that under a drafted and a fully voluntary system?

2. What determines the price that substitutes can get?

 

Source: Hoover Institution Archives.  Milton Friedman Papers, Box 80, Folde.r “University of Chicago, Student doctoral thesis and papers”.

Image Source:  Gary S. Becker from University of Chicago Photographic Archive, apf7-00059, Special Collections Research Center, University of Chicago Library.

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Chicago Exam Questions Problem Sets Suggested Reading Syllabus

Chicago. Price Theory. Reading Assignments, Problems, Exam. Friedman, 1951-52

 

According to the class roll kept by Milton Friedman, we know that Gary Becker attended his graduate price theory course Economics 300A in the Autumn quarter of 1951 (presumably Becker then took 300B during the Winter quarter of 1952, but I could not find that quarter’s roll in Friedman’s papers). This post even has Friedman’s partial answer key for the True/False/Uncertain questions for Economics 300B!

The reading assignments for the two-quarter core price theory sequence taught by Milton Friedman in 1948 , and in 1958 have been posted earlier (1946 300A only).  This post gives the reading assignments with open and gated links where available (some of the papers are only available at the gated jstor.org). These can be compared to the readings for the price theory course Friedman taught at Columbia in 1939-40. 

I have put in boldface the 1951 additions to make a comparison with the 1948 version easier. Worth noting: an asterisk designates optional and not required reading.

Only one item was dropped from the 1948 reading list:

Meyers, A. L. Elements of Modern Economics, ch 5, 7, 8, 9.

The October 1951 version of the Reading Assignments for Economics 300A and B was published as an appendix to J. Daniel Hammond’s “The development of post-war Chicago price theory” in The Elgar Companion to Chicago School Economics, edited by Ross  B. Emmett, pp. 7-24. This Hammond article offers much context and is very much worth consulting.

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October, 1951

Economics 300A and B
Reading Assignments by M. Friedman

(Notes:

  1. It is assumed students are familiar with material equivalent to that contained in George Stigler,  The Theory of Price. [Revised edition, 1952] or Kenneth Boulding, Economic Analysis [Third edition, 1955].
  2. Readings marked with asterisk (*) are recommended, not required.)

Knight, F. H., The Economic Organization, esp. pp. 1-37. HB172.K73.
Keynes, J. N., The Scope and Method of Political Economy, ch. I and II, pp. 1-83. HB171.K45.
Hayek, F. A., “The Use of Knowledge in Society,” American Economic Review, Sept., 1945; Reprinted in Individualism and Economic Order. HB1.A6.

Marshall, Alfred, Principles of Economics, Bk III, ch 2, 3, 4; Bk V, ch 1,2. HB171.M36.
Friedman, Milton, “The Marshallian Demand Curve,” Journal of Political Economy, December 1949. YF6.
Schultz, Henry, The Meaning of Statistical Demand Curves, pp. 1-10. HB201.S398.
Working, E. J. “What do Statistical ‘Demand Curves’ Show?” Quarterly Journal of Economics, XLI (1927), pp. 212-27. HB1.Q3.
Knight, F. H. Risk, Uncertainty, and Profit, ch 3. HB601.K7. 1940.
*Lange, O., “On the Determinateness of the Utility Function”, Review of Economic Studies, Vol I (1933-34), pp. 218 ff. HB1.R45.
*Allen, R.G.D., “The Nature of Indifference Curves,” Ibid, pp 110 ff. HB1.R45.
Hicks, J. R., Value and Capital, Part I (pp 11-52). HB171.H64.
*Wallis, W. A., and Friedman, Milton, “The Empirical Derivation of Indifference Functions”, in Lange et al, Studies in Mathematical Economics and Econometrics. HB99.C5.
*Friedman, Milton and Savage, L. J., “The Utility Analysis of Choices Involving Risk,” Journal of Political Economy LVI (August 1948) pp. 279-304. HB1.J7.

 

Marshall, Book V, ch 3, 4, 5, 12, Appendix H. HB171.M36.
Robinson, Joan, Economics of Imperfect Competition, ch 2. HB201.R65.
Clark, J. M., The Economics of Overhead Costs, ch 9. HB195.C62.
Viner, Jacob, “Cost Curves and Supply Curves”, Zeitschrift fuer Nationaloekonomie, Bd III (Sept, 1931), pp 23-46. H5.Z55.
Friedman, Milton, “The Relationships Between Supply Curves and Cost Curves,” (dittoed) YF9.
Chamberlin, Edward, The Theory of Monopolistic Competition, ch 3, sec. 1, 4, 5, 6; ch 5. HB201.C44.
Harrod, R. F. “Doctrines of Imperfect Competition”, Quarterly Journal of Economics, May 1934, sec. 1, pp. 442-61. HB1.Q3.
Stigler, G. J., “Monopolistic Competition in Retrospect,” Lecture 2 in Five Lectures on Economic Problems. HB171.S82.
*Triffin, Robert, Monopolistic Competition and General Equilibrium Theory, esp. Part II. HD41.T8 and H31.H33, v. 67.
*Robinson, E. A. G., The Structure of Competitive Industry. H045.R732.
*___________________, Monopoly. H041.R65.
*Plant, Arnold, “The Economic Theory Concerning Patents for Inventions,” Economica, Feb, 1934. HB1.E42.
*Dennison, S. R., “The Problem of Bigness,” Cambridge Journal, Nov. 1947. Y03.

 

Marshall, Book IV, ch 1, 2, 3; Bk V, ch 6. HB171.M36.
Clark, J. B., The Distribution of Wealth, Preface, ch 1, 7, 8, 11, 12, 13, 23.
Mill, John Stuart, Principles of Political Economy, Book II, ch 14. HB171.M667.
Hicks, J. R., The Theory of Wages, ch 1-6. HD4909.H63.
Smith, Adam, The Wealth of Nations, Bk I, ch 10. HB161.S652.
Marshall, Bk VI, ch 1-5. HB171.M36.
Friedman, Milton, and Kuznets, Simon, Income from Independent Professional Practice, Preface, pp. v to x; ch 3, Sec 3, pp. 81-95, ch 4, Sect 2, pp. 118-137, App, Sec 1 & 3, pp. 142-151, 155-61. HD4965.U5F8.
Knight, F. H. “Interest” in Encyclopaedia of the Social Sciences, also in Ethics of Competition. H04965.U5F8.
Keynes, J. M. The General Theory of Employment, Interest, and Money, ch 11-14. HB171.K46.
Weston, J.F., “A Generalized Uncertainty Theory of Profit,” American Economic Review, March, 1950, pp. 40-60. HB.A6.

 

Cassell, Gustav, Fundamental Thoughts in Economics, ch. 1, 2,3. Ch. 1, 2, 3. HB 179.C283.
_________________, The Theory of Social Economy, ch 4. HB179.C283.
J. R. Hicks, “Mr. Keynes and the ‘Classics’; A Suggested Interpretation”, Econometrica, vol 5, April 1937, pp. 147-159. HB1.E23, v. 5.
Franco Modigliani, “Liquidity Preference and the Theory of Interest and Money,” Econometrica, vol 12, No. 1 (Jan 1944) esp. Part I, sec. 1 through 9, sec 11 through 17, Part II, sec 21. HB1.E23, v.12.
A. C. Pigou, “The Classical Stationary State,” Economic Journal, vol 53, December, 1943, pp. 343-51. HB1.E3, v. 53.
____________, “Economic Progress in a Stable Environment,” Economica, 1947, pp. 180-90.HB1.E42, v. 14.
Patinkin, Don, “Price Flexibility and Full Employment,” American Economic Review, XXXVIII, 4, Sept. 1948, pp. 543-64. YP6.

 

Source: Hoover Institution Archive, Milton Friedman Papers, Box 77, Folder 1 “University of Chicago, Economics 300 A & B”.

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Economics 300A
Autumn, 1951
PROBLEMS FOR READING PERIOD

  1. In an anti-trust case against the Aluminum Company of America, Judge Learned Hand argued that the Aluminum Company could be regarded as having essentially a complete monopoly on aluminum despite the existence of a highly competitive market in secondary or reclaimed aluminum (made from scrap) accounting for about one-third of the total aluminum used for fabrication. He justified this conclusion on the grounds that all secondary aluminum derives ultimately from primary aluminum produced earlier and hence that the Aluminum Company through its control of the output of primary aluminum indirectly controlled the quantity of scrap available.

            Evaluate the economic validity of this argument. To simplify your analysis assume that a single firm, say the Aluminum Company of America, has a complete monopoly of primary aluminum; that aluminum for fabrication comes from primary aluminum and secondary aluminum; and that primary and secondary aluminum are perfect substitutes. Indicate in detail how to determine the optimum price for the Aluminum Company to charge and the optimum output for it to produce if (a) the secondary aluminum is refined and sold by a large number of firms under competitive conditions; (b) it has a complete monopoly of secondary aluminum as well.

            Hand’s conclusion presumably is that the price of aluminum would be the same in cases (a) and (b). Is he correct? If not, would it be higher in case (b) than in case (a)? Lower?

 

  1. It is widely argued that entrepreneurs engaged in a number of different activities somehow have a “competitive advantage” over entrepreneurs engaged only in one even if no technical economies are achieved by combining the activities. This general argument and the supposed advantage take many different forms: sometimes it is that one activity provides a “guaranteed” market for another activity; sometimes that one activity provides financing or capital for another; sometimes that a monopoly in one line confers an advantage in another. A recent example of this reasoning is contained in a report by The Chicago Daily news financial columnist on November 20, 1951 that Sears-Roebuck had completed an arrangement with Kaiser-Frazer to market an automobile under the name of “Allstate.” The columnist commented “also there is the Allstate Insurance Company, a wholly owned subsidiary, which would benefit heavily through liability and other policies written in connection with the sales of an Allstate automobile….Some of the gossip around Detroit has been to the effect that the Allstate would have Sears batteries and tires and certain other Sears accessories as original equipment—which would mean more business for these departments of the company.”

(a) The key question is, of course, whether the financial incentive to Sears to market an automobile is greater because it owns the subsidiary companies than it would be if it did not own them. You will find it helpful in answering this question to consider first two intermediate questions: (b) Given that Sears does own the subsidiary companies and that it is going to market an automobile under its name, is it in its own interests to require that the car be equipped with accessories produced by its companies? (c) To require that cars it sells be insured by its own insurance company?

            In answering both questions (a) and (b), consider separately two cases: (1) The subsidiary companies can be regarded as operating under highly competitive conditions; (2) the subsidiary companies can be regarded as having a monopoly of the products they produce. Do the conclusions depend on the assumption made about competitive conditions? Assume throughout that there are no “technical” economies from combining the various activities.

 

Source:  Hoover Institution Archives. Papers of Milton Friedman. Box 76, Folder 76.9.

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Economics 300A
Final Examination
December 17, 1951

  1. (15 points)
    (a) Appraise: “Recent studies of domestic consumption in low-cost municipalities demonstrate that the demand for electric current is highly elastic, expanding rapidly as the cost declines. The national average consumption of the United States was 604 kilowatt-hours in 1933. The average charge to consumers on October 1, 1934, for the whole country is reported as 5.4 cents per kilowatt-hour. In Seattle where the average cost is 2.58 cents, the average consumption is 1,098 kilowatt-hours. In Tacoma, the charge is 1.726 cents and the consumption 1,550. In 26 cities of Ontario, the average charge is 1.45 cents and the consumption 1,780. Finally, in Winnipeg, where the average net charge is only 8 mills per kilowatt-hour the average per capita consumption exceeds 4,000 kilowatt-hours.” (Report of the National Resources Board, December 1, 1934, Government Printing Office, 1934, p. 39.)

(b) Will a specific tax (a tax of a specified number of dollars per physical unit) on a commodity raise its price more or less than an equivalent ad valoremtax (a tax of a specified percentage of the price)? Assume that the commodity is produced and sold under competitive conditions.

  1. (15 points) (a) Figure 1 gives the locus of points of tangency between indifference curves and budget lines parallel to ab (and cd). ABCDEFGH is therefore and “expansion path” or curve showing the quantity of X and Y and individual would buy at different incomes and constant relative prices. Fill in the following table with as precise statements as are deducible from Fig. 1 by observation without measurement:

 

 

 

Segment

Income elasticity of

Good is Superior (S), Inferior (I), or Uncertain (U)

X

 Y X

Y
AB
BC
CD
DE
EF
FG
GH

(b) ABCDEF in Figure 2 is the locus of points of tangency between indifference curves and budget lines representing different money prices for X but the same money price of Y and money income (i.e. budget lines like ab and ac rotating about a). Fill in the following table with as precise statements as are deducible from Fig. 2 by observation without measurement.

Segment

 Income elasticity of Good is Superior (S), Inferior (I), or Uncertain (U)
X Y X Y
AB
BC
CD
DE
EF

 

  1. (20 points) “Monopolistic competition robs the old concept of industry (and also the Chamberlinian group) of any theoretical significance…The value of these groupings is only a concrete, empirical one…Which firms shall be included in any one group will have to be decided, not on an a prioribasis, but after an empirical survey of market realities…In the general pure theory of value, the group and the industry are useless concepts…When the study of competition is freed from the narrowing assumptions of pure competition, only two terms remain essential for the analysis: the individual firms, on the one hand; the whole collectivity of competitors on the other.” (Triffin)

(a) Explain why “monopolistic competition robs the old concept of industry…of any theoretical significance.”
(b) Explain the general position summarized in this quotation and discuss it critically.

  1. (20 points) Find the mistakes (there are at least six) in the accompanying diagram showing long and short run marginal and average cost curves, and explain the general principle corresponding to each particular mistake.

 

  1. The accompanying diagram showing a set of indifference curves between income and work is part of a diagram given by Boulding in Economic Analysis in his discussion of the effects of various types of direct taxation, and reproduced by Schwartz and Moore in the March 1951 American Economic Review. The latter write, “Given O Q2Q5 as a rate of pay, the equilibrium position is P1 where the rate of pay is equal to the MRS between leisure and income. Let us assume that we are to collect a tax from this individual equal to OL. One method of collecting the tax would be to levy a poll tax, leaving the rate of pay unaltered, as LP5. Another direct tax would be a proportional income tax represented by OSP2 which would have the effect of lowering (flattening) the rate of ‘take-home’ pay. To extract the same amount of revenue as the poll tax does, this rate of pay must be tangent to an indifference curve at an intersection with LP5. Thus P2Q2 = OL. Since the rate of ‘take-home’ pay is flatter, P2 must lie below and to the left of P5; i.e. less effort is expended and the worker enjoys a smaller net income. More important, his welfare is diminished because he must be on a lower indifference curve…Given the premises of the conventional indifference curve pattern, this must necessarily be true.”

(a):

(1) Why do the indifference curves in the diagram slope positively?
(2) How can you justify their being drawn concave upwards?
(3) The statement that OQ2Q5 is “a rate of pay” is of course wrong. OQ2Q5 is a line. Reword the statement so it is accurate.
(4) What do the authors mean by MRS?

(b) If we suppose the diagram to stand for a “representative” individual, or one of a society of identical individuals all to be taxed alike, the last sentence in the quotation is false: the authors’ welfare conclusion does not follow from their premises and arguments. Point out the fallacy in the proof.

(c) Under what conditions is the authors’ welfare conclusion valid? Can you give a proof of your statement?

 

Source:  Hoover Institution Archives. Papers of Milton Friedman. Box 76, Folder 76.9.

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Economics 300B
Winter, 1952
PROBLEM FOR READING PERIOD

Available evidence tentatively indicates that (1) average income of white families living in the same size city is roughly the same in the North and the South; (2) the wage rate of a white worker in any given occupation is higher in the North than in the South for cities of the same size; (3) property income is roughly of equal importance for white families in the North and the South.

For purposes of this question, accept these as correct statements of fact. Can you suggest any way of reconciling the apparent contradiction among them? Presumably, any reconciliation will turn on the larger fraction of negroes and greater discrimination against them in the South than in the North.

Spell out your suggestion in detail, explaining the theoretical links if any between the higher fraction of negroes and greater discrimination, on the one hand, and the indicated results on the other. Indicate how the validity of your suggestion would be tested.

 

Source:  Hoover Institution Archives. Papers of Milton Friedman. Box 76, Folder 76.10.

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ECONOMICS 300B
Final Examination
March 12, 1952

    1. (35 points) Indicate whether each of the following statements is true (T), false (F), or uncertain (U), and state briefly the reason for your answer. It is to be understood that in each question the appropriate “other things” are to be held constant.
      1. The imposition of a minimum wage for labor of type X higher than the preceding wage leads to an increase in the number of laborers of type X employed. It follows that labor of type X is hired under monopsonistic conditions. [True]
      2. Under both competition and monopoly in the product market, marginal value product of a factor to a firm is equal to marginal physical product of the firm times marginal revenue to the firm from the sale of the product. [True]
      3. Marginal productivity analysis shows that, in the absence of monopsony, a laborer gets as a wage his marginal value product. If this analysis is correct, it follows that unions can raise wages in the absence of monopsony only if they either make each worker more efficient, or increase demand for the product, or make the demand for the product more elastic. [False]
      4. The law of variable proportions (or diminishing returns) is contradicted by the fact that agricultural output of this country has increased tremendously despite a decrease in the proportion of the working population on farms. [False]
      5. The rate of interest is equal to the rate of time preference of consumers. [True]
      6. At present levels of operation, three quarters of the total cost of the XYZ railroad is overhead cost that does not vary with traffic, only one quarter is variable cost. It follows that marginal cost is much less than average cost. [False]
      7. The demand curve of an individual firm for a factor of production is identical with its marginal value productivity curve for the same factor of production. [False]
      8. The demand curve of a firm for a factor of production is a meaningless concept if the firm is a monopsonistic purchaser of that factor. [True]
      9. A declining long run supply curve is impossible in a competitive industry. [False]
      10. Marginal factor cost is equal to the price per unit of a factor whenever the product market is competitive. [False]
      11. According to the theory of joint demand, the absolute value of the elasticity of derived demand for a factor of production will be smaller the more inelastic the supply of that factor. [False]
      12. The fact that individuals do not choose occupations solely on the basis of their pecuniary attractiveness helps explain why the supply curve of labor for a particular occupation has an elasticity greater than zero. [True]
      13. If all types of services were used only in fixed proportions, a marginal-productivity theory would be neither necessary nor possible. [False]
      14. Our society is often described as a “profit” economy or “profit-maximizing” economy. The word “profit” is here used in the same sense as in the uncertainty theory of “profit.” [False]
      15. “Profit” as defined in the uncertainty theory of profit is the expected return to any factor assuming uncertainty over and above the guaranteed expected income it can obtain if it assumes no uncertainty. [False]
      16. If one income is higher than another before income tax it will also be higher after a progressive income tax, provided only that the marginal tax never exceeds 100%. It follows that if one accepts the theory that individuals act as if they sought to maximize their income, he must also accept the conclusion that such taxes do not alter individual’s actions and hence are not shifted. [False]

17 and 18. A minimum wage law is repealed. The wage rate of a class of workers hired under competitive conditions was equal to the minimum before repeal and falls after repeal. It follows that:

      1. The total wage bill for this class of labor will rise, remain constant, or fall, according as the elasticity of demand for labor of this class is greater than, equal to, or less than unity in absolute value. [True]
      2. The quantity of labor of this class employed will fall, remain constant, or rise according as the elasticity of supply of labor of this class is positive, zero, or negative. [False]
      3. The great technological improvements in the past few decades in the production of synthetic fibers (rayon, nylon, etc.) and associated decline in their relative price has, among other effects, tended to raise the price of meat in general, especially of lamb and mutton. [True]
      4. At the same time, stringent rationing of meat consumption in Great Britain, by tending to offset this effect, has improved the competitive position of the synthetic fiber industry, and so enabled it to expand more than otherwise. [True]
  2. (15 points) “The wages of every class of labour tends to be equal to the net product due to the additional labour of the marginal labourer of that class.
    “This doctrine is not a theory of wages: but is a useful part of a theory.” (Marshall)(a) What does Marshall mean by “net product”? [4] By “Marginal labourer”?[4]
    (b) Explain and evaluate the second sentence in the quotation. [7]
  3. (15 points) It is frequently argued that a tax on a product imposed at the manufacturing level involves a greater burden on consumers than a tax yielding the same revenue imposed at the retail level because the tax is “pyramided,” i.e., the “margins” of wholesalers and retailers are viewed as given percentages of purchase price and so, it is argued, price will tend to rise not only by the tax but also by the “margins” on the tax.
    Evaluate this argument.
  4. (10 points) The price of nylon thread for use in making women’s hosiery was recently lowered drastically when DuPont decided to make much larger quantities available. The resulting decline in the price of hosiery was viewed by at least some manufacturers and retailers as a misfortune and as portending smaller profits for themselves. Were they right? In the short run? In the long run? Justify your answers.
  5. (10 points) A subsidy of $X is paid per acre of land devoted to growing soy beans. Will this lead to a rise or to a decline in the yield per acre on land devoted to growing soy beans prior to the introduction of the subsidy? Justify your answer.
  6. (15 points)
    (a) What is the Pigou effect?[4] What relevance does it have to the theory of the rate of interest?[4]
    (b) List some economic decisions that would be affected by a change in the rate of interest. Indicate why they would be affected and if possible the direction of the effect. [7]

 

Source:  Hoover Institution Archives. Papers of Milton Friedman. Box 76, Folder 76.10.

Image Source: Milton Friedman (undated). University of Chicago Photographic Archive, apf1-06230, Special Collections Research Center, University of Chicago Library.

Categories
Chicago Economic History Economist Market Economists Fields

Chicago. Report of the Bailey-Christ-Griliches Committee, 1957

 

Today’s artifact provides a collection of suggestions from three young faculty members of the University of Chicago department of economics in 1957 regarding (inter alia) thesis writing, linkages with business/law/statistics faculty, long-term staffing, and the creation of a working-papers series. After reading the report, I guess one should not be terribly surprised that all three of these young turks would ultimately end up spending the lion’s share of the rest of their working lives elsewhere than Chicago. Basically what we have below is a young insider’s view of how to proceed in promoting excellence at Chicago, though it does not really have the ring of a majority view of that faculty. For fans of Saturday Night Live, one might say Christ et al. wanted “less cowbell” but the “more cowbell” faction was stronger. [An alternate source for the SNL sketch]

The following report was written by Carl Christ who incorporated assessments by his fellow committee members Martin J. Bailey and Zvi Griliches.  These guys were only ca. 34, 30, and 27 years old, respectively, in 1957. One suspects that the acting chair of the department of economics at the University of Chicago, D. Gale Johnson, was hoping to tap the minds of the younger faculty members for some fresh ideas. Both Friedman and Stigler had already entered mid-life at 45 and 46 years of age, respectively. 

I have added footnotes to the text in square brackets, e.g. [1], where descriptions of the reader’s markings by T. W. Schultz are provided.

_______________________

T. S. Schultz’s handwritten notes attached to Report

I.  Christ-G-B

  1. dust off Master’s (hold)
  2. treatment of the weak
  3. rec[commend?] students with more enthusiasm
  4. more history (underway)
  5. combine workshops?

II. Business –Law-Statistics

O.K.     more cross listing of courses. List of faculties for use in assigning committees (underway)

III. Information

prong 1. Special seminar (tied to more visitors)
prong 2. more 1 & 2 year visitors
prong 3. dist our staff (2 v.G.
prong 4. reprint service (underway)

 

_______________________

copy of T. W. S.

REPORT OF THE BAILEY-CHRIST-GRILICHES COMMITTEE*

            *The committee was appointed by D. Gale Johnson, acting chairman of the Department, pursuant to a motion passed at a department meeting late in the spring quarter of 1957. The report was written by Carl F. Christ, chairman of the committee, and has been approved in substance by Martin J. Bailey and Zvi Griliches, the other two committee members.

 

The committee has met together several times. In addition, each of us has “held hearings” with colleagues on numerous informal occasions. Our original terms of reference centered on a long range view of the question of staffing the department. But in our discussions we have ranged very widely.

We have dealth [sic] with five broad topics, some of which are interconnected. The five are, loosely speaking:

  1. Instruction, training and placement of students.
  2. Relations with the business, law, and statistics faculties.
  3. Information about the department for its members, for the economics profession and for prospective students.
  4. The allocation of resources in economics research.
  5. Kinds of economists the department ought to try to hire.

On some of these topics we have concrete suggestions, on some we have vague suggestions, and on some we merely have questions. This report provides a brief account of our discussions, and in the course of it it the suggestions and questions will appear.

 

(1) Instruction, training and placement of students.

This topic has not been a major one in our discussions. However we have several points under it.

First, the M.A. degree ought to be dusted off and made more respectable and more meaningful to students, so that those who do not choose or are not able to continue for the Ph.D. can go away from here with the feeling that they have made a worthwhile investment, to our credit as well as theirs.

Second, we ought to do a better job with our relatively weak Ph.D. aspirants in two respects: First, in discouraging or prohibiting from Ph.D. work any student who, in our opinion, is not capable of success by our standards. Second, once a student has been permitted to go ahead on his thesis, in encouraging and assisting him so that he is able to finish within a reasonable period of time and to have the feeling that he has been treated fairly. The reason for mentioning this point is that we have come across reports of several students who worked long and hard on theses and went through several revisions, with the result that they felt we had been unreasonably exacting and had unnecessarily delayed their degrees. [1]  If the M.A. degree is made more respectable as suggested above, there should be less difficulty in maintaining our Ph.D. standards and at the same time avoiding long-drawn-out struggles with marginal Ph.D. students. [2]

Third, we ought to be more vigorous and more liberal in recommending our students for jobs. There appears to be some evidence that in making recommendations we typically assume that the prospective employer has standards as high as ours, and so sometimes fail to place some of our people in jobs that instead are filled by less qualified students from elsewhere. [3]

Fourth, we ought to give at least some of our students a better knowledge of history and inability to make use of it in economics. Too many of our students go away with only poor knowledge in this area. At the same time, in Earl Hamilton and John Nef, not to mention others, the department has access to some of the best historical talent that is to be found anywhere. Can it not be turned to the advantage of more students? [4]

Fifth, we ought to economize our resources a bit by combining into one the workshop appearance in the thesis seminar of those students whose workshop performances appear ex post to have served the purpose of the thesis seminar. It might also be possible to combine the Ph.D. oral examination with the seminar appearance in some cases, thus making a further saving.
Sixth, we ought to take more advantage of the resources in the business, law, and statistics faculties, and be prepared to let them do the same with us (see topic 2 below). [5]

 

(2) Relations with the business, law, and statistics faculties.

The committee met for an hour with Allen Wallis, James Lorie, and Arnold Harberger to discuss informally the probable future course of relations between the department and the school. From this it appeared that the school intends to continue to send many of its advanced students to the department for training in price theory and monetary and income theory, and also that the school will welcome students from the department who wish to study topics that are offered in the school. [6] It also appeared that the school intends to invest fairly heavily in staff in the areas of industrial and market organization in the public regulation of business (this interested us because we feel that one of the main weaknesses in the department’s coverage lies here; see topic 5 below). [7]

We discussed the fact that while relations between the department and the school have always been cordial, there has not been as much flow back and forth as desirable, and in particular that some of our students would be interested in the business school’s work fail to follow up this interest because our demands on their time are quite heavy. We concluded that if there were more cross-listing of courses in the catalog and time schedules (the business school now does a better job of this than we do), and if some of their faculty came to our seminars and oral examinations and vice versa, and if there were more preliminary examination committees and thesis committees with members from both the school and the department, then in the course of meeting their degree requirements, any interested economics department students will find it easier to draw on the resources of the business school and vice versa.[8]

A similar approach to law and statistics would appear promising.

 

(3) Information about the department for its members, for the economics profession, and for prospective students.

One of the most commonly recurring themes in our discussions with each other and with “witnesses” in our “hearings” was that we do not provide good enough information for each other and for outsiders about the kind of work that is going on here, and the advantages we believe we have. Our discussions on this point have led to one of the two major suggestions we have to offer (the other appears below in section 5).

The suggestion is to set up a four-pronged program something like the following. (We will quickly list the four prongs, and then return with some comments.) First, set up a sort of special seminar (which might be called the Economics Research Center Seminar) to meet more or less regularly about twice a month, at which the best work that students and faculty and guests are doing would be presented to the department and its guests. Second, have a larger number of one-year or two-year visitors from all over the U. S. and the world, either as post-doctoral fellows or research associates or the like, whose main responsibility here would be to work on their own research and participate in the special seminar, as well as to take part in one or more workshops and research projects. Third, distribute dittoed copies of our essentially finished work to a selected mailing list of economists in the US and abroad, as the Agricultural Economics group already does informally. And fourth, have a reprint series that would carry the best published articles and papers by our faculty, students, and guests.

It is clear that if such a special seminar is set up and no cut is made in the number of meetings of the other workshops and seminars, the faculty workload will increase. Since we feel that it is already pretty high, it seems sensible to suggest that each workshop skip one meeting each month. This should approximately compensate for the extra load created by the special seminar.*

*A crude survey of the faculty attendance at the Agricultural Economics Seminar and the Chile, Labor, Money, Public Finance, and Econometrics Workshops yields the estimate that about 40 faculty-hours (that is, about 20 man-seminars) per week go into these workshops. Assuming that about 10 faculty members would come to each special seminar, about every two weeks, this would require a weekly average of about 10 faculty-hours (or about 5 man-seminars), which would be released if the frequency of meetings of the workshops were reduced about 25%. Another economy measure in this direction is mentioned under topic (2), fifth item.

(In response to the special seminar idea, some colleagues have suggested that the important thing is to circulate advance notice of particularly good work that is about to be presented, so that interested faculty members and others can attend, and that if this can be done, there is no need to have a special seminar; the regular workshop sessions will suffice. If the idea is accepted that particularly good work ought to be publicized within the department before it is presented, then the question of whether to do this via notices of regular workshop meetings or via a special seminar can be discussed as a procedural matter.) [9]

The special seminar idea is tied in with the idea of more visitors, for one of the results we hope for is that the visitors will see our best work, and will spread the word about what kinds of things are being done here, when they leave and go elsewhere. [10]

The reprint series and the distribution of the dittoed manuscripts will, we hope, have a similar effect. Further, but dittoed manuscripts will enable some members of the profession at large to become familiar with our results many months before they can be brought out in published form. [11]

Other simpler measures that might improve the flow of information are the following: Putting out a special department circular or flyer describing the department, the workshops, the interchange of research among faculty and advanced students, and the large amount of faculty attention paid to students; returning to the practice of giving brief descriptions of courses in the catalog (and in the above-mentioned circular), instead of merely course titles as our department has been doing recently; and publishing an annual report for the Economics Research Center. [12]  The matter of job recommendations for our students, which is related to the topic of providing information, was touched on under topic (1) above.

 

(4) The allocation of resources and economics research.

The area of economics that is the most fully developed, the most systematic, the most firmly established, and probably the most reliable for understanding and controlling economic events is the more or less traditional theory of prices, distribution, and the allocation of resources, based on the tools of supply, demand, and marginal analysis. Because it’s postulates (including utility maximization, profit maximization, and a fairly widespread knowledge of market alternatives) appear to be rather unrealistic, this theory has the reputation among many people of being dry, abstract, and of little or no practical value. In the opinion of the committee and of many economists in our department and elsewhere, this theory is a powerful one and can lead to highly useful results when applied to real-world problems. Indeed, one of the most productive kinds of activity for economists appears to be to apply this theory to situations where public and private policies are inappropriate to the goals people have in mind. [13]

In our opinion, the main strength of our department lies in just this kind of activity. We have a group of people who are very devoted to and very good at discovering important, unsolved economic problems that can be solved with the aid of this kind of theory, and solving them. [14]

Our agricultural economists’ approach to the farm problem is one example. Their work on optimum storage rules and on the development of natural resources or others. Our department’s work on economic growth in a sense is another, since when we find that the growth in national product is not fully accounted for by inputs of labor and capital is usually measured, we begin to look for some missing input, either in the form of something that shifts the production function, or in the form of some quality improvements that we have missed in the labor and/or capital: knowledge in either case. This is related to work by Friedman, Becker, in the labor workshop on the value of education as an investment, and to Knight’s concept of human beings as a form of capital. Harberger’s work on depletion allowances, and on the welfare costs of the U.S. tax system, are other examples. Friedman’s and Cagan’s work on the demand and supply of money are examples too, in the sense that attention is focused on the behavior of economic units seeking to maximize their utility or profit in their holding of money and their borrowing and lending operations. Friedman’s and Reid’s consumption work is similar in that into rests on the same view of individual behavior. The whole Chile project is an example par excellence. Friedman’s suggestions for allowing the price system more scope in the fields of education, military recruiting, and the like, for which Friedman and indirectly, the department are so well known, are still others, as is Becker’s free banking scheme, though there is probably more disagreement among economists generally about questions like these that about the other work mentioned above.

While it is clear to us that applications of the familiar theory of allocation of resources very productive, it seems equally clear that the real frontiers of economics lies elsewhere. Some areas that have claimed attention so far are economic history, political science, sociology and social psychology and cultural anthropology, psychology (including learning theory), information theory, statistical decision theory, linear programming, the theory of games. It seems at least as likely that major advances in economics will come by one of these routes or some as-yet-unidentified route as they will come from applications of the familiar resource-allocation theory.

The foregoing statement is so broad that it is almost certain to be true, and almost useless as a guide to research workers interested in major advances. The committee polled itself as to where it thinks pay dirt lies, and where it does not lie, with results something like the following: Among the areas particularly likely to be fruitful are the borderland with learning theory and psychology concerning choice and decision-making  [15], the borderland with statistics concerning decision theory and game theory [16], the borderland with anthropology concerning culture and values [17], the borderland with political science concerning political institutions [18]. Also promising, we feel, are mathematical approaches generally, including mathematical approaches to some of the above mentioned borderlands. [19] None of us wanted to rule out linear programming, though none of us was enthusiastic about input-output.

In summary of this topic, we have two statements: First, the familiar resource allocation theory is a powerful tool and there remains a rich field for its application. Second, it seems to us that if some resources are invested in related but different areas such as those mentioned in the preceding paragraph, there is now a worthwhile chance of that substantial pay-off in the form of new knowledge relevant to economics.

 

(5) Kinds of economists the department ought to try to hire.

Over the past few years several members of the department (and a good many outsiders!) have expressed the view that our department is too homogeneous in several ways. [20] Most of us rely heavily on resource allocation theory, as suggested in the preceding section of this report, and do not emphasize peripheral and possibly frontier areas such as decision theory, learning theory, information theory, psychology, anthropology, and the like. [21] Most of us were trained at Chicago at some stage, are essentially anti-socialist, [22] have essentially similar views about monetary and fiscal policy, have similar views about how far public policy should rely on the price mechanism and how far it should interfere with it, and are primarily theoretically and analytically oriented as opposed to institutionally oriented.

In recent department meetings, our discussion of this matter has often gone something like this: First, we more or less agree that we ought to diversify by seeking a socialist, or an institutionalist, or something of the sort. [23]  Then we considered names of economists who might qualify, and one by one we reject them on the ground that they are not really good economists. The discussion ends when someone says, “There’s really nobody good in that category.”

Granted that we want to maintain a high level of quality in the department, there are at least two difficulties involved in any attempt to diversify. One is that in hiring people we like to feel that we know them pretty well, so as to make informed decisions. And the younger people whom we know the best, by and large, are our own former students and fellow-students. This creates and perpetuates a bias in favor of people trained at Chicago. [24] The bias is not so strong, of course, in the cases of people who have published and made reputations, but even here it appears to exist (look at the people who were brought here as associate professor from elsewhere, and ask how many have had training at Chicago).

A second difficulty is simply that it is hard to separate judgment about the quality of an economist from judgment about his position on questions of research strategy and of economic policy. We agree in principle that high quality is very important, and also that it is possible for powerful and prolific minds to disagree in good faith concerning research strategy and public policy. Still there is a temptation to feel that one’s own views sincerely arrived at are best, and that somehow an economist who disagrees strongly with them cannot really be a very good economist. [25]

It seems to the committee that the real issue is not diversification per se. We see the issue somewhat as follows: As we said in the foregoing section of the report, we believe that the real frontiers of economics lie in directions that are somewhat unorthodox by the lights of the department. [26] We also believe that there are high-quality economists who are unorthodox in the same sense. If these two premises are correct, then our interest as a department in pushing forward the frontiers of economics must prompt us to make a serious attempt to add a few such people to our staff. It is only in this sense the diversification seems to be a worthwhile aim.  [27]

The question of what sort of people the department ought to try to hire includes not only the problem of finding economists of high quality who appeared to have productive unorthodox approaches. [28] It also includes the problem of rounding out the subject-matter coverage of the department.

The committee pulled itself again, this time as to the subject matter areas that the department ought to pay special attention to, in seeking new faculty. The results were as follows.

For replacement of staff lost in recent years, the two high-ranking fields were mathematical economics-econometrics, and industrial and market organization in social control of business. [29]  (The second of these seems less urgent for us, in the light of the business school’s intention to invest in it; see topic 2 above.) Ranking almost as high was the history of economic thought. [30]

For expansion, we thought of business fluctuations, the economics of the firm, and American economic history (the latter mainly so as to free Earl Hamilton to give work in his real specialty, European economic history, without sacrificing our offering in the American field).

The last two sections of the report may be summarized thus (and here is the second major suggestion referred to earlier). It is the feeling of the committee (1) that we should place a high value on quality, and (2) that in view of our belief that the present composition of the department is weak in areas where the frontiers of economics are to be found, we should make a serious attempt to find high quality people whose interests and competence give promise of advancing the frontier, as suggested in the end of the preceding section of the report. We also suggest that the department pay special attention to the fields mentioned in the foregoing paragraph. In particular, we suggest that the department undertake to appoint a person in the mathematical economics-econometrics area beginning in the fall of 1958. [31]

There is no reason why one or more of these things should not be combined in the same person. And, of course, there is no reason why we should pass up opportunities to hire good economists who are essentially orthodox by our lights, if our resources will permit us to do that as well as meet our author needs.

 

Handwritten Markings and Remarks

[1] Vertical line in left margin marks the last two sentences of paragraph.

[2] Question mark in left margin for this sentence.

[3] “a good point” in left margin for second sentence of paragraph.  “need to ask[?] terms of the specific job + not general letters” in the right margin

[4] “good” in left margin. Vertical line in left-hand margin marks the entire paragraph.

[5] “OK” in left margin. Vertical line in left-hand margin marks the entire paragraph.

[6] “good” written in left margin next to this sentence.

[7] Vertical line in left margin marks the last sentence of the paragraph.

[8] “get list from these committees” in left margin for this sentence.

[9] “OK” in left margin for the last sentence of this paragraph.

[10] “OK” in left margin next to this paragraph.

[11] “OK” in left margin for the last sentence of this paragraph.

[12] underlined “merely course titles as our department has” and “publishing an annual report for the Economics”

[13] Four vertical lines in the left margin mark the last sentence of this paragraph.

[14] Vertical line in the left margin marks the entire paragraph.

[15]  Underlined: “borderland with learning theory and psychology concerning choice and decision-making”,  “(1)” in left margin.

[16] Underlined: “statistics concerning decision theory and game theory”,  “(2)” in left margin.

[17] Underlined: “anthropology concerning culture and values”,  “(3)” in left margin.

[18] Underlined: “political science concerning political institutions”,  “(4)” in left margin.

[19] “(5)” with a vertical line in the left margin marking “mathematical approaches generally, including mathematical approaches to some of the above mentioned borderlands.”

[20] “is too homogeneous in several ways” is underlined.

[21]  “decision theory, learning theory, information theory, psychology, anthropology” is underlined.

[22] “anti-socialist” is circled

[23] “socialist” and “institutionalist” are each circled.

[24] Vertical line in left margin marking the second, third, and fourth sentences of this paragraph.

[25] Vertical line in left margin marking this entire paragraph.

[26] “economics lie in directions that are somewhat unorthodox” is underlined.

[27]  Vertical line in left margin marking the last two sentences of this paragraph.

[28] “productive unorthodox approaches” is circled

[29] “mathematical economics-econometrics” is circled  “also Stigler” written in left hand margin with reference to “industrial and market organization”

[30] “history of economic thought” is underlined, connected with short line to bottom margin note “Stigler”.

[31] Curly vertical line in the left margin marks the entire paragraph.

 

Source: University of Chicago Archives. Department of Economics Records, Box 42, Folder 8.
Mimeograph copy without marginal notes also found in Harvard University Archives. Papers of Zvi Griliches, Box 129, Folder “Correspondence, 1954-1959”.

Image Source: Professor Carl F. Christ in Johns Hopkins University yearbook. Hullabaloo 1962.

 

Categories
Chicago Courses Syllabus

Chicago. Graduate Price Theory. Economics 300A. Harberger, 1955

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Thus far Economics in the Rear-View Mirror has been able to provide syllabi for the following four professors who had taught the first core price theory course at the University of Chicago spanning nearly a quarter of a decade during the middle third of the 20th century:

Today I add the syllabus for Arnold Harberger (a.k.a.”Triangle Man”, see the photo credit below). Note: chapters from Samuelson’s Foundations are only recommended readings, not yet required.

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Economics 300A
Mr. Harberger
Autumn 1955

 

Texts:

  1. Alfred Marshall, Principles of Economics, 8th
  2. George Stigler, Theory of Price, revised ed.
  3. H. Knight, The Economic Organization

 

Supplementary material (Purchase not required):

  1. American Economic Association, Readings in Price Theory
  2. Milton Friedman, Essays in Positive Economics
  3. Milton Friedman, Notes on Lectures in Price Theory (mimeographed)

Students are expected to be familiar with the materials in Stigler’s Theory of Price before entering the course. Readings marked with an asterisk (*) are recommended, not required.

 

Reading List

 

  1. Introduction:

Knight, The Economic Organization, pp. 1-37
Stigler, Theory of Price, Chs. 1-3
Friedman, “The Methodology of Positive Economics” in Essays in Positive Economics

  1. Demand:

Stigler, Theory of Price, Chs. 4-5
Marshall, Book III, Chs. 2-4, Book V, Chs. 1-2
Knight, Risk, Uncertainty and Profit, Ch. 3
Hicks, Value and Capital, pp. 11-52
Working, “What do Statistical Demand Curves Show?” Quarterly Journal of Economics
*Samuelson, Foundations of Economic Analysis, Ch. 5

  1. Supply:

Stigler, Theory of Price, Chs. 6-8
Marshall, Book V, Chs. 3-5, 12, Appendix H
Robinson, Joan, Economics of Imperfect Competition, Ch. 2
Clark, J.M., Economics of Overhead Costs, Ch. 9
Viner, “Cost Curves and Supply Curves”, Zeitschrift fuer Nationaloekonomie, Book III (Sept 1931) pp. 23-46, reprinted in Readings in Price Theory, pp. 198-232
*Samuelson, Foundations of Economic Analysis, Ch. 4

  1. Market Organization:

Stigler, Theory of Price, Chs. 9-13
Stigler, “Monopolistic Competition in Retrospect” in Five Lectures on Economic Problems
Harrod, “Doctrines of Imperfect Competition”, Quarterly Journal of Economics, May 1934, pp. 442-461
Chamberlin, The Theory of Monopolistic Competition, Chs. 3, 5
*Robinson, E.A.G., The Structure of Competitive Industry
*Robinson, E.A.G., Monopoly.

  1. Utility and Welfare Economics:

Alchian, “The Meaning of Utility Measurement”, American Economic Review, March 1953, pp. 26-50
Friedman and Savage, “The Utility Analysis of Choices Involving Risk”, Journal of Political Economy, August 1948, pp. 279-304. Reprinted in Readings in Price Theory, pp. 57-96
Scitovsky, “The State of Welfare Economics”, American Economic Review, June 1951, pp. 303-315
Hicks, “The Four Consumers’ Surpluses”, Review of Economic Studies, XI (1943-44), pp. 31-40
*Hotelling, “The General Welfare in Relation to Problems of Taxation and of Railway and Utility Rates,” Econometrica (VI) (1938), pp. 242-269
*Samuelson, Foundations of Economic Analysis, Chs. 5-7

 

Source: Hoover Institution Archives. Papers of Milton Friedman, Box 77, Folder “77.1 University of Chicago Econ 300 A & B”.

Image Source: “[Arnold] Harberger strips down to reveal himself as “Triangleman” at the University of Chicago Economics Christmas Party, probably December 1970”. Robert J. Gordon’s website.

Categories
Chicago Courses Suggested Reading Syllabus

Chicago. Monetary Dynamics Seminar. Milton Friedman, 1952

Welcome to Economics in the Rear-View Mirror. If you find this posting interesting, here is the complete list of “artifacts” from the history of economics I have assembled thus far. You can subscribe to this blog below.  There is also an opportunity for comment following each posting….

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Transcribed from items in the Milton Friedman papers at the Hoover Institution today’s posting includes the bibliographic handout provided by Milton Friedman to the participants in his graduate seminar “Monetary Dynamics” that took place in the Spring Quarter of 1952 along with the official class list. We note that one of the graduate students enrolled in the seminar was Gary S. Becker. It is also interesting to note that “empirical studies” essentially meant “case studies” as of mid-twentieth century.

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The University of Chicago
Office of the Registrar

OFFICIAL CLASS LIST
SPRING QR. 1952

Instructor: FRIEDMAN MILTON
Department: ECON
Course number: 432

Student name:

Axilrod, Stephen H.
Becker, Gary S.
Deaver, John V.
Drayton, James
Fisher, Lawrence
Klein, John
Oort, Coenraad J.
Timberlake, Richard H. Jr.
Venetianer, Edmond

___________________________

 

Economics 432: Monetary Dynamics
Spring Quarter, 1952

  1. The central topic for this quarter will be monetary inflation. We hope to cover the theory of monetary inflation and empirical evidence on monetary inflations. The major issues in this area are, the process whereby changes in the stock of money produce their effect on prices and output or conversely, whereby changes in prices and output affect the stock of money; the role of the interest rate in inflation or, conversely, the effect of monetary changes on the interest rate; the role of exchange rates in monetary inflation as both cause and effect; the relative value of alternative simplified theories for predicting the course of inflationary movement; the role and problems of governmental monetary policy in inflationary periods; empirical regularities in monetary inflations and hyperinflations.
  2. We shall of course not be able to cover all these issues at all adequately; the interests of the members of the seminar will guide the selection made.
  3. There is a vast literature on these problems. The following bibliography, despite its length, is highly selective and is designed to suggest material available and to give leads to people working on particular topics rather than to be exhaustive. The three parts into which the essentially theoretical material is classified (1 to 3) are by no means mutually exclusive and many entries could with equal justification have been classified elsewhere; the sections are meant only to indicate major broad divisions and the order within the sections, the rough lines of theoretical development. Similarly, many of the items in Section 4, supposedly dealing with policy, could readily have been classified in the earlier sections; and many of the entries in section 5, labeled empirical studies, contain discussions of policy or of theory.

 

1. Classical analysis of inflation

A. Original sources

David Hume, “Of Money,” “Of Interest” in Essays, Moral, Political and Literary, part II (first published 1752).

Adam Smith, Wealth of Nations (1776), Vol I. Bk. II, Chap 4; Bk 1, Ch xi, part of Pt. III (pp. 188-210 in Cannan edition); Bk. II, Ch. 11, esp. pp. 283-87 of Cannan edition.

Henry Thornton, An Essay on Paper Credit (1802), esp pp. 254-8, 281, 296-7, and 335-9 of reprint.

David Ricardo, Principles of Political Economy, (3rd ed. London (1821), Ch. 21; The Works and Correspondence, edited by P. Sraffa, Volume III, passim. (Cambridge 1951).

Nassau Senior, On the Value of Money (1840)

________________, Three Lectures on the Cost of Obtaining Money (1930)

John Stuart Mill, Principles of Political Economy, (1848), Bk. III, Ch. 8, 9, 23.

J. E. Cairnes, “Essays Toward a Solution of the Gold Question,” (written, 1858 to 1860) in Essays in Political Economy, Theoretical and Applied, (London, 1873) pp. 1 to 165.

B. Secondary sources

T. E. Gregory, Introduction to Tooke and Newmarch (London (1928), esp. pp. 22-31.

F. A. Hayek, “A Note on the Development of the Doctrine of ‘Forced Savings’”, Quarterly Journal of Economics, 1932, pp. 123-33.

J. W. Angell, The Theory of International Prices – history, criticism, and restatement (Cambridge, Mass., 1926)

Jacob Viner, Studies in the Theory of International Trade, (New York, 1937), Ch. III, IV, V.

Lloyd W. Mints, History of Banking Theory (Chicago, 1945)

2. Neo-classical

A. Swedish school

Knut Wicksell, Interest and Prices, esp introduction, by Bertil Ohlin, Preface, (London 1936) and Ch. 5-9.

_______________, Lectures, Vol. 2, Ch. IV; pp. 127-222 (London 1935)

Gunner Myrdal, Monetary Equilibrium, London (1939).

E. Lundberg, Studies in the Theory of Economic Expansion, (Stockholm, 1937)

E. Lindahl, Studies in the Theory of Money and Credit (London, 1939)

A. P. Lerner, “Swedish Stepping Stones in Economic Theory,” Canadian Journal of Economics, November 1940.

Brinley Thomas, Monetary Policy and Crisis, Ch. 3 and 4. (1936)

J. Marschak, “Wicksell’s Two Interest Rates,” Social Research, Nov. 1941.

B. Austrian school

L. von Mises, The Theory of Money and Credit (1934) Eng. Translation.

F. A. Hayek, Prices and Production (2nd edition (1935)).

C. Cambridge school

Alfred Marshall, Principles of Economics, pp. 593-5; Money, Credit, and Commerce, pp. 38-50 (1923)

__________________, Official Papers, Ch. II, esp. 38-41, 45-6, 123-32, 157-60. (1926)

D. H. Robertson, Essays in Monetary Theory, esp. Ch. II, XII (1940)

__________________, Banking Policy and the Price Level (3rd ed, 1950)

__________________, “Notes on the Theory of Money,” Readings in Monetary Theory, (Blakiston, 1951), pp. 159-61.

A. C. Pigou, Industrial Fluctuations (1927)

J. M. Keynes, Monetary Reform (London, 1923) especially Ch. III.

F. Langston, The Trade Cycle.

D. Other

J. M. Keynes, A Treatise on Money, esp Vol I, Ch. 13, pp. 293-302, Vol. II, Ch. 25, 30, 32, 33 (1930).

R. G. Hawtrey, The Art of Central Banking (1933), esp. pp. 116-207, 366-71.

__________________, Capital Employment, (1937) Ch. 4-6.

Irving Fisher, Elementary Principles of Economics, Ch. IX (N.Y. 1912) (revised)

__________________, The Purchasing Power of Money, (1926) Ch. 8.

__________________, The Rate of Interest, Ch. 8, 14, 16.

Bertrand Nogaro, Modern Monetary Systems (London, 1927)

M. Albert Aftalion, Monnaie, Prix et Change (Paris, 1927)

Joseph Schumpeter, Business Cycles, Vol II, Ch. 8 (1939)

MacMillan Report, Royal Commission on Finance and Industry, Cmd 3897 (1931), Ch. 11, pp. 92-160.

E. Critiques

H. Ellis, German Monetary Theory (1934) Ch. 8, 9, 19.

R. J. Saulnier, Contemporary Monetary Theory (1938)

Arthur Marget, The Theory of Prices (1938, 1942) Vol 1, Ch. 2, 12-16, Vol 2, Ch. 3.

R. S. Sayers, Modern Banking, Ch. VI (1939, rev. ed.)

G. Haberler, Prosperity and Depression, (1941, 3rd ed.) Part I.

3. Keynes of General Theory

A. General

J. M. Keynes, The General Theory of Employment, Interest, and Money. (London, 1936)

R. F. Kahn, “The Relation of Home Investment to the Multiplier,” Economic Journal, 1931.

Joan Robinson, Essays in the Theory of Employment (1938)

________________, “The Economics of Hyper-Inflation,” (Economic Journal, Sept. 1938), “War Time Inflation,” both in Collected Economic Papers (New York, 1951).

M. Kalecki, Essays on the Theory of Economic Fluctuations (1939)

J. R. Hicks, Value and Capital (2nd ed. 1946) Parts 3 and 4.

Alvin H. Hansen, Fiscal Policy and Full Employment, (1941).

________________, Monetary Theory and Fiscal Policy (1949) Chapter. 7, 8, 9.

________________, Economic Policy and Full Employment (1947).

L. Klein, The Keynesian Revolution (1947)

T. Wilson, Fluctuations in Income and Employment (3rd ed. 1948)

W. Fellner, A Treatise on War Inflation (1942)

A. G. Hart, Money, Debt and Economic Activity, (1948) Ch. 10.

A. P. Lerner, The Economics of Control, Ch. 21-25 (1944)

Walter A. Salant, “The Inflationary Gap, Meaning and Significance for Policy Making,” American Economic Review (June, 1942) pp. 308-14.

Milton Friedman, “Discussion of the Inflationary Gap,” American Economic Review (June, 1942) pp. 314-20.

Arthur Smithies, “The Behavior of Money National Income under Inflationary Conditions,” Quarterly Journal of Economics, 1942.

T. C. Koopmans, “The Dynamics of Inflation,” Review of Economics and Statistics, 1942, pp. 53-65 (comment by A. Smithies and reply, pp. 189-90.)

Franklin Holzman, “Income Determination in Open Inflation,” Review of Economics and Statistics, 1950.

Clark Warburton, “Monetary Expansion and the Inflationary Gap,” American Economic Review, 1944.

Lloyd A. Metzler, “Wealth, Saving, and the Rate of Interest,” Journal of Political Economy, April, 1951.

B. Wage-Price Spiral

Ralph Turvey, “Period Analysis and Inflation,” Economica, 1949.

________________, “Some Aspects of the Theory of Inflation in a Closed Economy,” Economic Journal, Sept. 1951.

J. Dusenberry, “The Mechanics of Inflation,” Review of Economics and Statistics, 1950.

W. A. Morton, “Trade Unionism, Full Employment, and Inflation” American Economic Review, March 1950.

_______________, “Keynesianism and Inflation,” Journal of Political Economy, June 1951.

M. W. Reder, “Theoretical Problems of a National Wage Policy,” Canadian Journal of Economics (Feb. 1948)

_____________, “On Money Wages,” Industrial Relations Research Association conference, 1950.

A. Rees, “Postwar Wage Determination in the Basic Steel Industry,” American Economic Review (June 1951).

4. Government Policy in Inflationary Periods

David Ricardo, “Funding System,” in The Works and Correspondence of David Ricardo, ed by Piero Sraffa (Cambridge, 1951), Vol. IV, esp pp. 185-200; also Vol. III, passim.

A. C. Pigou, The Political Economy of War (revised ed., 1940)

A. G. Hart, E. D. Allen, and collaborators, Paying for Defense (Philadelphia, 1941)

M. Kalecki, “General Rationing,” Bulletin of Oxford Institute of Statistics, January 1941.

G. L. Bach, “Rearmament, Recovery, and Monetary Policy,” American Economic Review, 1941

W. A. Wallis, “How to Ration Consumer Goods and Control Their Prices,” American Economic Review, 1942.

Carl Shoup, Milton Friedman, and Ruth Mack, Taxing to Prevent Inflation (New York, 1943).

Milton Friedman, “The Spendings Tax as a Wartime Fiscal Measure,” American Economic Review, 1943.

J. J. Polak, “On the Theory of Price Control,” Review of Economics and Statistics, 1945.

L. Seltzer, “Is a Rise in Interest Rates Desirable or Inevitable,” American Economic Review, December, 1945.

R. I. Robinson, “Monetary Aspects of Public Debt Policy,” Postwar Economic Studies #3, Board of Governors of Federal Reserve System.

H. C. Wallich, “The Changing Significance of the Interest Rate,” American Economic Review, December 1946.

R. G. Hawtrey, “Monetary Aspects of the Economic Situation,” American Economic Review, March 1948.

Ten Economists on Inflation, Review of Economics and Statistics, 1948.

L. V. Chandler, “Federal Reserve Policy and Federal Debt,” American Economic Review, March 1949.

R. S. Sayers, “Central Banking in Light of Recent Experience,” Quarterly Journal of Economics, 1949.

H. C. Murphy, The National Debt in War and Transition (1950)?E. A. Goldenweiser, American Monetary Policy (1951)

L. W. Mints, Monetary Policy for a Competitive Society. (1950)

Subcommittee on Monetary, Credit and Fiscal Policies (“Douglas subcommittee”), Hearings, 81st Congress, 1st Session and Report, 81st Congress, 2nd Session, Senate Document 129.

“The Controversy over Monetary Policy,” (Seymour Harris, Lester Chandler, Milton Friedman, Alvin Hansen, Abba Lerner, and James Tobin), Review of Economics and Statistics, August 1951.

J. K. Galbraith, The Theory of Price Control (1952)

Joint Committee on the Economic Report, Monetary Policy and the Management of the Public Debt, Joint Committee Print, 82nd Congress, 2nd Session (Washington, 1952) in two volumes.

5. Empirical Studies

W. C. Mitchell, History of the Greenbacks (Chicago, 1903)

_______________, Gold, Prices, and Wages under the Greenback Standard (Berkeley, 1908)

N. S. Silberling, “Financial and Monetary Policy of Great Britain during the Napoleonic Wars,” Quarterly Journal of Economics (1924), pp. 214-33, 397-439.

C. Bresciani-Turroni, The Economics of Inflation.

E. L. Dulles, The French Franc (New York, 1929)

W. De Bordes, The Austrian Crown (London, 1924)

S. S. Katzenellenbaum Russian Currency and Banking, 1914-24 (London, 1925)

James H. Rogers, The Process of Inflation in France, 1914-27 (New York, 1929)

Frank D. Graham, Exchange, Prices, and Production in Hyper-inflation: Germany, 1920-23 (Princeton, 1930)

Seymour Harris, The Assignats (1930)

R. A. Lester, Monetary Experiments (1939)

E. J. Hamilton, “Prices and Wages at Paris under John Law’s System,” Quarterly Journal of Economics (November, 1936).

______________, “Prices and Wages in Southern France under John Law’s System,” Economic History, a supplement of the Economic Journal (February, 1937)

Bertrand Nogaro, “Hungary’s Monetary Crisis,” American Economic Review (Sept. 1948).

Henry W. Spiegel, “A Century of Prices in Brazil,” Review of Economics and Statistics, 1948

A. J. Brown, “Inflation and the Flight from Cash,” Yorkshire Bulletin of Economic and Social Research, Vol. 1 (Sept., 1949)

L. V. Chandler, Inflation in the United States, 1940-49. (1951)

Milton Friedman, “Price, Income, and Monetary Changes during Three Wartime Periods,” [American Economic Review, Papers and Proceedings, May 1952, pp. 612-625]

 

Source: Hoover Institution Archives. Milton Friedman Papers, Box 78, Folder 4 (University of Chicago, Econ 432).

 

Categories
Chicago Suggested Reading Syllabus

Chicago. Economics 300A. Core Theory. Gary Becker, 1956

Nobel Laureate and University of Chicago Professor of Economics and Sociology, Garyy Becker, AM’53, PhD’55, passed away on Saturday. He was 83 years old.

The first required course in economic theory in a graduate program is intended (to mix metaphors) to get students on the same page and up to speed with core theory. I have posted earlier Chicago material for Jacob Viner, Milton Friedman [ (1946), (1947) and (1948)], and Lloyd Metzler. While this posting moves us well into the 1950s  and out my historian’s comfort zone (i.e. into my own lifetime), for younger followers of Economics in the Rear-view Mirror 1956 probably seems ancient enough to be included here. Besides which, it is never in bad taste to extend a time series by adding an additional observation. It is interesting to note that Alfred Marshall has survived at least this long on the Chicago required reading list for economic theory.

_______________

Economics 300A
Autumn 1956
Reading Assignments by G. Becker

 

NOTES:

1) A knowledge of the material in George Stigler, A Theory of Price or in Kenneth Boulding, Economic Analysis, is a prerequisite.
2) Readings marked with an asterisk (*) are recommended, not required.

 

I. INTRODUCTION

Friedman, M., Lecture Notes, pp. 1-16.
Knight, F. H., The Economic Organization, pp. 1-37.
Friedman, Milton, “The New Methodology of Positive Economics,” in Essays in Positive Economics.
*Hayek, F. A., “The Use of Knowledge in Society,” American Economic Review, September 1945, reprinted in Individualism and Economic Order.
*Keynes, J. N., The Scope and Method of Political Economy, pp. 1-83.

 

II. DEMAND ANALYSIS

Marshall, A., Principles of Economics, Book III, chs. 2-4; Book V, chs. 1-2.
Friedman, M., Notes, pp. 16-68.
Friedman, M., “The Marshallian Demand Curve,” Journal of Political Economy, December 1949, reprinted in Essays in Positive Economics.
Hicks, J. R., Value and Capital, Part I.
*Hicks, J. R., A Revision of Demand Theory.
*Slutsky, E., “On the Theory of the Budget of the Consumer,” Readings in Price Theory.
Knight, F. H., Risk, Uncertainty and Profit, ch. 3.
Schultz, H., The Meaning of Statistical Demand Curves, pp. 1-10.
Working, E. J., “What do Statistical ‘Demand Curves’ Show?”, reprinted in Readings in Price Theory.
Wold, H., Demand Analysis, ch. 1.
*Stigler, G.J., “The Early History of Empirical Studies of Consumer Behavior,” Journal of Political Economy, April 1954.
Friedman, M., Notes, pp. 69-75.
*Friedman, M., Notes, pp. 69-75.
*Friedman, M., and Savage, L. J., “The Utility Analysis of Choices Involving Risk,” reprinted in Readings in Price Theory.
Friedman, M., “The Expected Utility Hypothesis and the Measurability of Utility,” Journal of Political Economy, December 1952, pp. 463-474.
*Alchian, A., “The Meaning of Utility Measurement,” American Economic Review, March 1953, pp. 28-50.
Friedman, M., “Choice, Chance, and the Personal Distribution of Income,” Journal of Political Economy, August 1953, pp. 277-290.

 

III. SUPPLY OF PRODUCTS

Friedman, M., Notes, pp. 75-132.
Marshall, A., Book V, chs. 3, 4, 5, 12, Appendix H.
*Viner, J., “Cost Curves and Supply Curves,” reprinted in Readings in Price Theory.
*Robinson, J., Economics of Overhead Costs, ch. 9.
Robinson, J., “Rising Supply Price,” in Readings in Price Theory.
Apel, H., “Marginal Cost Constancy and Its Implications,” American Economic Review, December 1948, pp. 870-885.
*Coase, R. H., “The Nature of the Firm,” in Readings in Price Theory.
Chamberlin, E., The Theory of Monopolistic Competition, chs. 3, 4, 5.
Stigler, G. J., “Monopolistic Competition in Retrospect,” in Five Lectures on Economic Problems.
*Triffin, R., Monopolistic Competition and General Equilibrium Theory, esp. Part II.
Harberger, A. C., “Monopoly and Resource Allocation,” Proceedings of the American Economic Review (May 1954).
Stigler, G. J., “Competition in the United States,” in Five Lectures on Economic Problems.
Stigler, G. J., “The Statistics of Monopoly and Merger,” Journal of Political Economy, February 1956.
Stigler, G. J., “The Kinky Oligopoly Demand Curve and Rigid Prices,” in Readings in Price Theory.
*Robinson, E.A.G., Monopoly.
*Robinson, E.A.G., The Structure of Competitive Industry.
*Plant, A., “The Economic Theory Concerning Patents for Inventions,” Economica, February 1934.

 

Source: Hoover Institution Archives, Milton Friedman Papers, Box 77, Folder 1 “University of Chicago Econ 300A & B”.

Image Source: Photo credited to Joe Sterbenc/Becker Friedman Institute published on-line with the story “University mourns Gary Becker,” The Chicago Maroon May 6, 2014.