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Yale. Appointment to Council of Economic Advisers. Merton J. Peck, 1968

 

In an earlier post that featured a 1955 reading list for a course on industrial organization at Harvard taught by Carl Kaysen and Merton J. Peck, I proudly introduced that artifact with a few details about my first Yale economics professor, Joe Peck. I worked as his “bursary boy” over the next three years, undertaking the tasks of library runs, photocopying, and light editorial work to finance some of the out-of-pocket expenses of my undergraduate life. 

Peck was freshly back from the Council of Economics Advisers in the last year of President Johnson’s administration (1968), when I first encountered him as my instructor in the double-credit introductory seminar “Early Concentration Economics” in the Fall of 1969. Incidentally, the seminar was co-taught by another Joe, Joseph Persky, then a visiting lecturer from Harvard, where he was completing his Ph.D. dissertation. From those earlier regional/urban economics research days, Joe Persky has become a distinguished historian of economics.

Two documents regarding Merton J. Peck’s appointment as a member of the President’s Council of Economic Advisers in 1968 are included in this post along with his obituary that was published in the Yale Daily News.

Fun Fact: In the obituary you will find a quote from yet another Joe, Joseph Altonji, now a Yale professor of economics, but then a fellow student with me in the graduate sequence of Statistics and Econometrics at Yale and my successor in the role of student assistant to Joe Peck.

_________________________

NOMINATION OF MERTON J. PECK
Monday, February 5, 1968

U.S. Senate, Committee on Banking and Currency
Washington, D.C.

The committee met pursuant to notice at 10:08 a.m., in room 5302, New Senate Office Building, Senator John Sparkman (chairman of the committee) presiding.

Present: Senators Sparkman, Proxmire, McIntyre, Spong, and Bennett.

The CHAIRMAN. The committee is meeting in open hearing on the nomination of Mr. Merton J. Peck of Connecticut to serve as a member of the Council of Economic Advisers.

Mr. Peck was born in Cleveland, Ohio, on December 17, 1925, and attended public schools in Shaker Heights and Medina, Ohio, as well as Evanston, Ill. He served in the Army from 1944 to 1946 with overseas duty in Okinawa and Japan. Mr. Peck graduated from Oberlin College in 1949 and took his graduate training in economics at Harvard, receiving his Ph. D. in 1954. He taught at Harvard College from 1954 to 1955, at the University of Michigan 1955-56, and the Harvard Graduate School of Business Administration 1956-61. During 1961 and 1962 Mr. Peck served as Assistant Deputy Controller and Director of System Analysis in the office of Charles J. Hitch, the Assistant Secretary of Defense.

In 1963 Mr. Peck was appointed professor of economics at Yale University. In July 1967 he was appointed chairman of the Yale Economics Department.

Mr. Peck, I welcome you to the committee. We are glad to have you with us this morning. We have a more complete biographical sketch which will be printed in the record.

(The information follows:)

BIOGRAPHICAL SKETCH OF MERTON J. PECK

Merton Joseph Peck was born in Cleveland, Ohio, on December 17, 1925, and attended public schools in Shaker Heights and Medina, Ohio, as well as Evanston, Illinois. He served in the Army from 1944 to 1946, with overseas duty in Okinowa and Japan.

Mr. Peck graduated from Oberlin College in 1949 and took his graduate training in economics at Harvard receiving his Ph. D. in 1954. He taught at Harvard College (1954-1955), University of Michigan (1955-1956), and the Harvard Graduate School of Business Administration (1956-1961).

During 1961 and 1962 Mr. Peck served as Assistant Deputy Controller and Director of System Analysis in the Office of Charles J. Hitch, the Assistant Secretary of Defense (Controller).

In 1963 Mr. Peck was appointed Professor of Economics at Yale University. In July 1967 he was appointed Chairman of the Yale Economics Department.

Mr. Peck has written Competition in the American Aluminum Industry, 1945–58 (Harvard University Press 1961), and he is a joint author of Economics of Competition in the Transportation Industry (Harvard University Press 1959), Weapons Acquisition: An Economic Analysis (Harvard Business School 1962), Technological Change, Economic Growth and Public Policy (Brookings Institution 1967). He has also contributed articles to various professional journals

Mr. Peck married Mary McClure Bosworth in 1949. They have four children: Richard, age 13; Katherine, age 11; Sarah, age 9; David, age 7. The Pecks reside in New Haven, Connecticut.

Mr. Peck’s parents died when he was young and he was raised by his aunts, Mrs. A. R. Lyon and Miss Olive S. Peck, who now reside in Arlington, Virginia.

Mr. Peck is a member of the American Economic Association, the Econometric Society, and the Association of American University Professors.

The CHAIRMAN. Mr. Peck, I also have a letter addressed to me which I shall read into the record.

“DEAR MR. CHAIRMAN: I regret that previous commitments prevent me from being present this morning to present the President’s nominee as a member of the Council of Economic Advisers, Mr. Merton J. Peck.

“It is an honor to introduce Professor Peck to this distinguished committee. Professor Peck was born in Cleveland, Ohio, in 1925. He graduated from Oberlin College in 1949, after serving 2 years in the Pacific theatre as a member of our Armed Forces. Upon receiving a Ph.D. degree in economics from Harvard, Professor Peck began a distinguished teaching career that led to his appointment last year as chairman of the Yale Economics Department. He now resides with his family in New Haven, Conn.

“Professor Peck combines a background of academic experience and public service, having served for 2 years in the Department of Defense as Assistant Deputy Controller and Director of Systems Analysis. Well known as an author on economic policy, he has published studies of competition in the aluminum and transportation industries. His latest book, published by the Brookings Institution, is “Technological Change, Economic Growth, and Public Policy.’

“I have touched only briefly on the accomplishments of Professor Peck, but they indicate the obvious ability and wide experience he would bring to the Council of Economic Advisers. I strongly urge that his nomination be favorably considered by this committee.

Sincerely,
ABE RIBICOFF.”

That letter will be printed in the record.

Senator BENNETT. Mr. Peck, is your official residence in Connecticut at the moment?

Mr. PECK. Yes, Senator; it is.

The CHAIRMAN. May I say we have the approval of both Senator Dodd and Senator Ribicoff. I may say for the record that accompanying Dr. Peck is Mr. Charles Warden, special assistant to the Chairman of the Council of Economic Advisers.

Senator BENNETT. Mr. Chairman, the official attitude of the Republicans on this committee has always been that the President is certainly entitled to select his economic advisers and we should under no circumstances raise any question about that privilege.
That is a kind of a negative endorsement, but in addition to that, I think Mr. Peck’s credentials are very impressive and I am sure all of the Republicans will be happy to vote for his approval.

The CHAIRMAN. Very well. Senator Spong?

Senator SPONG. I am impressed with Dr. Peck’s credentials. I would like to ask him a couple of questions, however.
Dr. Peck, have you ever been retained as a consultant by private industry?

Mr. PECK. Yes, I have.

Senator SPONG. Do you intend to end all such activities if you are confirmed and become a member of the Council of Economic Advisers?

Mr. PECK. Yes, I have.

Senator SPONG. You have ended it all?

Mr. PECK. Yes, sir.

Senator SPONG. Thank you.

The CHAIRMAN. Do you have any interest in any undertaking or activity which you feel would constitute a conflict of interest?

Mr. PECK. No, I do not.

The CHAIRMAN. Have you checked your situation with the General Counsel of the Council of Economic Advisers?

Mr. PECK. No, I have not, but I will do so. I have a financial statement that I filed.

The CHAIRMAN. You have filed a financial statement?

Mr. PECK. Yes.

The CHAIRMAN. With the Council?

Senator BENNETT. With us.

The CHAIRMAN. Oh, with our committee?

Mr. PECK. Yes, sir.

The CHAIRMAN. Very well; are there any further questions?

Senator BENNETT. No further questions.

The CHAIRMAN. Thank you very much Dr. Peck. I wish you a successful and happy tenure in office.

Mr. PECK. Thank you very much, Mr. Chairman. I look forward to this unusual post as a unique opportunity to serve and, if I am confirmed, I will do so to the best of my ability.

The CHAIRMAN. Thank you, and we shall hope to see you from time to time.

(Thereupon at 10:15 a.m., the committee went into executive session.)

*  *  *  *  *  *  *  *  *  *  *  *

(Excerpts from the Employment Act of 1946
and related laws follow):

EMPLOYMENT Act of 1946,
AS AMENDED, AND RELATED LAWS
(60 Stat. 23)
[PUBLIC LAW 304-79TH CONGRESS]

AN ACT To declare a national policy on employment, production, and purchasing power, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SHORT TITLE

SECTION 1. This Act may be cited as the “Employment Act of 1946 “.

DECLARATION OF POLICY

SEC. 2. The Congress declares that it is the continuing policy and responsibility of the Federal Government to use all practicable means consistent with its needs and obligations and other essential considerations of national policy, with the assistance and cooperation of industry, agriculture, labor, and State and local governments, to coordinate and utilize all its plans, functions, and resources for the purpose of creating and maintaining, in a manner calculated to foster and promote free competitive enterprise and the general welfare, conditions under which there will be afforded useful employment opportunities, including self-employment, for those able, willing, and seeking to work, and to promote maxi mum employment, production, and purchasing power. (15 U.S.C. 1021.)

ECONOMIC REPORT OF THE PRESIDENT

SEC. 3. (a) The President shall transmit to the Congress not later than January 20 of each year an economic report (hereinafter called the “Economic Report”) setting forth (a) the levels of employment, production, and purchasing power obtaining in the United States and such levels needed to carry out the policy declared in section 2; (2) current and foreseeable trends in the levels of employment, production, and purchasing power; (3) a review of the economic program of the Federal Government and a review of economic conditions affecting employment in the United States or any considerable portion thereof during the preceding year and of their effect upon employment, production, and purchasing power; and (4) a program for carrying out the policy declared in section 2, together with such recommendations for legislation as he may deem necessary or desirable.

(b) The President may transmit from time to time to the Congress reports supplementary to the Economic Report, each of which shall include such supplementary or revised recommendations as he may deem necessary or desirable to achieve the policy declared in section 2.

(c) The Economic Report, and all supplementary reports transmitted under subsection (b) of this section, shall, when transmitted to Congress, be referred to the joint committee created by section 5. (15 U.S.C. 1022.)

COUNCIL OF ECONOMIC ADVISERS
TO THE PRESIDENT

SEC. 4. (a) There is created in the Executive Office of the President a Council of Economic Advisers (hereinafter called the “Council”). The Council shall be composed of three members who shall be appointed by the President, by and with the advice and consent of the Senate, and each of whom shall be a person who, as a result of his training, experience, and attainments, is exceptionally qualified to analyze and interpret economic developments, to appraise programs and activities of the Government in the light of the policy declared in section 2, and to formulate and recommend national economic policy to promote employment, production, and purchasing power under free competitive enterprise.1 The President shall designate one of the members of the Council as Chairman.

(b) The Council is authorized to employ, and fix the compensation of, such specialists and other experts as may be necessary for the carrying out of its functions under this act, without regard to the civil service laws and the Classification Act of 1949, as amended, and is authorized, subject to the civil service laws, to employ such other officers and employees as may be necessary for carrying out its functions under this act, and fix their compensation in accordance with the Classification Act of 1949, as amended.

(c) It shall be the duty and function of the Council—

(1) to assist and advise the President in the preparation of the Economic Report;

(2) to gather timely and authoritative information concerning economic developments and economic trends, both current and prospective, to analyze and interpret such information in the light of the policy declared in section 2 for the purpose of determining whether such development and trends are interfering, or are likely to interfere, with the achievement of such policy, and to compile and submit to the President studies relating to such developments and trends;

(3) to appraise the various programs and activities of the Federal Government in the light of the policy declared in section 2 of this title for the purpose of determining the extent to which such programs and activities are contributing, and the extent to which they are not contributing, to the achievement of such policy and to make recommendations to the President with respect thereto;

(4) to develop and recommend to the President national economic policies to foster and promote free competitive enterprise, to avoid economic fluctuations or to diminish the effects thereof, and to maintain employment, production, and purchasing power;

(5) to make and furnish such studies, reports thereon, and recommendations with respect to matters of Federal economic policy and legislation as the President may request.

(d) The Council shall make an annual report to the President in December of each year.

(e) In exercising its powers, functions, and duties under this act—

(1) the Council may constitute such advisory committees and may consult with such representatives of industry, agriculture, labor, consumers, State and local governments, and other groups as it deems advisable;

(2) the Council shall, to the fullest extent possible, utilize the services, facilities, and information (including statistical information) of other Government agencies as well as of private research agencies, in order that duplication of effort and expense may be avoided.

(f) To enable the Council to exercise its powers, functions, and duties under this act, there are authorized to be appropriated such sums as may be necessary.

*  *  *  *  *  *  *  *  *  *  *  *

REORGANIZATION PLAN No. 9 of 1953

(Prepared by the President and transmitted to the Senate and the House of Representatives in Congress assembled, June 1, 1953, pursuant to the provisions of the Reorganization Act of 1949, as amended)

COUNCIL OF ECONOMIC ADVISERS

The functions vested in the Council of Economic Advisers by section 4 (b) of the Employment Act of 1946 (60 Stat. 24), and so much of the functions vested in the Council by section 4 (c) of that act as consists of reporting to the President with respect to any function of the Council under the said section 4 (c), are hereby transferred to the Chairman of the Council of Economic Advisers. ***

1 The Postal Revenue and Federal Salary Act of 1967 provides that the annual rates of basic compensation shall be $30,000 for the Chairman and $28,750 for the other two members of the Council of Economic Advisers.

Source: On the nomination of Merton J. Peck to be a member of the council of economic advisers, February 5, 1968. Hearing Before the Committee on Banking and Currency, United States Senate. Ninetieth Congress, Second Session.

_________________________

Remarks by President Lyndon B. Johnson at the Swearing in of Merton J. Peck as a Member, Council of Economic Advisers, and upon Designating Arthur M. Okun as Chairman

February 15, 1968

Dr. and Mrs. Peck and family, Mr. and Mrs. Okun and family, Secretary Wirtz, distinguished guests, ladies and gentlemen:

I want to welcome all of you to this ceremony this morning.

I stand here with one eye wet and one eye dry. Gardner Ackley’s departure saddens me. I would hope that he feels the same way.

When Gardner took the CEA chairmanship more than 3 years ago, the economy was already setting peacetime records. He has kept the curve climbing, turning a youthful boom into a mature and solid 8-year expansion.

Of all the good advice Chairman Ackley has given to me throughout the years, I was happiest to accept one of his fine recommendations to appoint Art Okun as his successor.

Art brings many special talents to this new job. His forecasts are so amazingly accurate that one newspaper once called him the administration’s secret weapon.

Far away from the limelight, he has been invaluable to international monetary policy — to the Treasury Department in developing the Rio Accord — to drafting the new system of Special Drawing Rights. And I am relying heavily on Chairman Okun and the Council to help us move this Nation and all nations towards swift acceptance of these new monetary arrangements.

To fill the Council vacancy, we have Merton Joseph Peck from Yale University.

I am delighted that he joins Jim Duesenberry and Art Okun at this particular time. One of our most urgent concerns in the Nation now is price stability. We have recently created a Cabinet committee to concentrate heavily on this problem. Dr. Peck is an expert on markets. He will bring special insights to price and wage problems arising from structural imperfections in labor markets, product markets, and markets for services.

Looking around us as we meet here this morning, we see more and more evidence of our economic strength. The January unemployment rate, we are pleased to say, was the lowest in more than 14 years. Corporate profits for the last quarter of 1967 were pointing upward again–to new records.

But we cannot rejoice without recognizing the dangers posed by price and cost increases. To preserve our record-breaking prosperity, we must combine it with a return to price stability.

As we have long emphasized, the first order of business is the prompt enactment by the Congress of the penny on the dollar tax increase that we will need to pay for part of our extraordinary defense costs.

Second, we need full cooperation and restraint from business and labor in their price and wage decisions. Excessive wage and excessive price increases can weaken the dollar. They cannot win lasting gains for any group. The short-run sacrifices that we ask promise long-term benefits to all of us.

Third, we must work through the new Cabinet committee for structural improvements in every market — for greater efficiency, greater productivity, and greater incentives for cost-reduction and price competition.

I will continue to look to the Council of Economic Advisers for advice on guarding our prosperity against inflation.

I was talking to someone last night and he was outlining for me the progress that our country has made throughout the years. He said, “Mr. President, there are two things that a leader must never take his mind off of in our political system. You will have many messages and many bills, but two simple rules, I suggest.”

I said, “Tell me what they are” — because he was a man of wisdom and experience and nonpartisanship.

He said, “The first one is the buck-that dollar — it must be sound. It must be stable and people must have some of them. The next one is–you don’t have to be told that one, but I want to remind you every day — the ballot. Because through the ballot people can gain the rewards they think they are entitled to. They can bring about the reforms that are essential. They can turn into motion the revolutions that are inside of all of us and they can bring them to reality and bring them to reality constitutionally and appropriately, and as we human beings should. We don’t have to act like animals to get our revolutions and reforms translated into action. That comes through the ballot.”

So, if my economic advisers are not trained counselors on the ballot, they are on the buck and that seems to be a major portion of a President’s problem. I am going to continue to look to them to guard our prosperity against inflation. They will have the help of the President and I hope they will have the help of the Cabinet and the Congress and the business and labor communities.

The Council today enjoys a worldwide reputation, I think, a reputation of three wise men who have been responsible and are responsible in the future for guiding the American economic miracle.

We expect great things from you, Dr. Peck. I am happy to welcome you officially into the world’s smallest, but the world’s most vital fraternity.

Gardner, you are on sabbatical leave, but we will expect you to carry on your good work across the ocean.

Note:
The President spoke at 1:15 p.m. in the Cabinet Room at the White House. In his opening words he also referred to Secretary of Labor W. Willard Wirtz. During his remarks he referred to James S. Duesenberry, member of the Council of Economic Advisers, and to Gardner Ackley, outgoing Chairman of the Council, whose nomination as Ambassador to Italy was announced by the President on January 1.

Establishment of the Cabinet Committee on Price Stability was announced by the President in his message to the Congress transmitting the Economic Report.

The tax increase referred to by the President was enacted as the Revenue and Expenditure Control Act of 1968.

Source:  Lyndon B. Johnson, Remarks at the Swearing In of Merton J. Peck as a Member, Council of Economic Advisers, and Upon Designating Arthur M. Okun as Chairman.
Online by Gerhard Peters and John T. Woolley, The American Presidency Project 

_________________________

Professor led the Economics Department during its ‘golden age’

by CYNTHIA HUA
Yale Daily News, 18 March 2013

Merton Peck, a devoted teacher who chaired the Economics Department during its “golden age,” died in Florida on March 1. He was 87 years old.

A respected scholar and administrator, Peck came to Yale as an economics professor in 1963 and served as chair of the Economics Department for several terms in the 1960s, 1970s and 1980s. His former colleagues remember him for his kind and patient nature and ability to foster compromise during his lengthy tenure. In addition to recruiting many prominent economists to his department, Peck strengthened the faculty by keeping peace and oversaw a period of growth in the department, said Richard Nelson GRD ’56, a former economics professor.

“One of the reasons he stayed in the chair [position] for so long is because he was able to push the department upward and avoided conflict,” said Gustav Ranis GRD ’56, a economics professor. “He didn’t have any enemies.”

When disputes arose in the department, Peck listened to both sides and gently brought arguments to a resolution, Ranis said. He frequently met with faculty individually and ensured that all professors felt their voices were heard, Ranis said, adding that nobody in the department was ever upset under Peck’s leadership.

William Brainard GRD ’63 said Peck was respected among colleagues for the care and attention he devoted to teaching economics. His undergraduate seminars, Brainard said, were often so popular that he had to teach more than one section of the same course.

“He embodied many of the characteristics a professor should strive for, in being both a great scholar and giving a lot to Yale in terms of leadership,” economics professor Joseph Altonji ’75 said.

Brainard said Peck’s congenial personality and clarity of thought made him a sought-after adviser. Altonji, who worked for Peck as a research assistant and took one of his undergraduate courses, said Peck was influential in his decision to pursue a doctorate in economics and, later, to become a professor.

An expert in the economics of technology, Peck specialized in industrial organization and government regulation, producing books and papers that touched on numerous disciplines, including defense, communications and transportation. He served as a member of Secretary of Defense Robert McNamara’s “Brain Trust” and on former President Lyndon Johnson’s Council of Economic Advisors in the 1960s.

Peck earned his bachelor’s degree at Oberlin College in the 1940s, during which time he met his wife, Mary Bosworth Peck, who died in 2004. The couple married in Oberlin, Ohio, in 1949, the year of Peck’s graduation from college. He went on to receive a doctorate in economics from Harvard.

During World War II, Peck served in the Signal Corps in Japan. His service abroad launched a lifelong interest in Japan that led to his later academic interest in the country and technology as an industry, said his son Richard.

Throughout his life, Peck remained modest about his intellectual and administrative achievements, Richard said. Outside of academics, Richard said Peck, who retired in 2002, cultivated a love of reading and jazz music.

Peck is survived by his children, Richard, Katherine, Sarah and David, and four grandchildren.

This article was updated to reflect the version published in print March 25.

Image Source: Chicago Tribune, Jan 4, 1968. Section 1B, p. 10. Newspaper image of Merton J. Peck touched-up at Economics in the Rear-view Mirror.

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Yale. Course summary and preview, Industrial Organization, Behavior, and Public Policy. Nelson, 1973

In the preceding post we find the 5 1/2 page reading list for Richard Nelson’s 1973 unconventional graduate economics course at Yale on industrial organization. After posting that reading list, I discovered another artifact for the course providing both a motivation for and a preview of the course. Incidentally I did not take the course, but was able to acquire these materials late in my undergraduate pack-rat days.

____________________

RESUMÉ AND PREVIEW OF ECONOMICS 140A
Mr. Nelson
Fall Semester 1973

This is a course about the organization and public control of economic activity. In the past few years the much debated issues have included: Is there a public interest in assuring that Lockheed will not go through bankruptcy? Are our large corporations really private or are they social assets?

Should ITT be forced to divest certain recent acquisitions? Are our anti-trust laws on this and other matters in need of rethinking?

Should we abandon rate regulation of truck and rail transportation? What if anything can and should be done about the erosion of passenger rail service? Would abandonment of “regulated competition” and establishment of a quasi-public monopoly help? Should it be subsidized?

How can we enable consumers to be better informed about the likely cost and quality of a repair job they procure at different T.V. repair shops or automobile mechanics? More generally, how can we make consumer choice more effective?

What kind of a system of taxes, subsidies, and prohibitions should be established to deal with pollution? How should such a regulatory system be organized and administered?

Are educational vouchers a good idea? How would such a system work? Is public subsidy of day care for young children a good idea? How should extra-family day care be organized in the United States?

Should we establish a system of National Health Insurance and, if so, what should the system be like? Need we complement this change with some reorganizations on the supply side?

Should the nation significantly increase its funds for cancer research? Should a National Cancer Institute be established that is independent of the National Institutes of Health System? Should public funds be used to subsidize the development of power reactors for civilian use? How should these funds be spent?

The list of important economic organization issues obviously is much longer than this sample. The second semester of this course – 140B – will consider certain classes of these questions in detail. Economics 176 (ISPS 690) is a workshop for advanced graduate students where research on these kinds of questions can be undertaken. This semester’s course will be dedicated to developing tools and concepts for looking at these questions. While some examples from the list will be used as illustrations, we will not consider any particular policy issue in any detail.

Economic organizational questions of the sort illustrated above are regarded by many people as the key public policy decisions that shape the future of the nation. Like all decisions these involve articulating values and choosing from some set of alternatives. And, like all decisions, these require mechanisms to get the choice carried out. But the organizational decisions are meta decisions. They involve establishing or modifying the machinery that will make choices (demand) and carry these out (supply) over a considerable time horizon. In a society as large and complex as our own most of decision making and administration is delegated and decentralized. Public policy decisions that are resolved at a high national level generally must be and are few in number. And the most important of these decisions tend to be organizational decisions — decisions about the manner in which a class of decisions will be made and effected for some time in the future.

There are various intellectual perspectives on the economic organization question. Various parts of the political science literature are concerned with public choice (economists also have contributed to this discussion) and public administration. From this perspective one can view the sectoral economic organization problem as that of selecting a form of governance, and often we will find it convenient to look at the problem this way. However, very little literature within this tradition has been focused specifically on particular economic sectors.

The comparative economic systems literature views the economic organization question writ large. At least since the Mises-Lange dialogue of the 1930’s the economic systems tradition has developed in appreciation of the vast multi-dimensional nature of the nation’s wants and capabilities, and of the enormous informational and computational requirements to make sensible decisions regarding what, how, and for whom. The organizational analysis and alternatives have tended to be defined in terms of general economy wide organizational modes, like consumer choice to set priorities and a regime of private and for profit firms to supply the goods and services in question, versus central planning to establish priorities and make decisions and public agencies to carry them out. Other alternatives considered have included “market socialism” and the Yugoslav model. The mode of general formal theorizing has been that of general equilibrium.

The industrial organization tradition tends to be less sweeping. Analysis within this tradition generally assumes a general background national solution to the organizational problem and focuses on the details of organization of particular sectors, industries, or activities. Predominantly a western intellectual tradition (and largely American) the general organizational background is assumed to be consumer choice plus private market supply, although it is recognized that many sectors are not so organized. The analysis considers a particular sector, say manufacturing or transportation, or a particular industry, say the aluminum or the aircraft industry and explores how that sector is organized and how it performs, and the public policy actions that might make it perform better. The basic analytic perspective is partial equilibrium with the operation of the rest of the economy subsumed under the specification of the supply curves of factors of production and the demand curves for the products of that industry.

The basic perspective taken in this course will be that of the industrial organization tradition but we shall depart form that subject as traditionally defined in three key ways. First, research within the industrial organization tradition has focused almost exclusively on sectors where demand is generated by the decisions of individuals to purchase or not purchase a particular item, and where supply is generated by private firms who are expected to be maximizing profit, perhaps subject to a regulatory constraint. The principal policy issues considered have largely involved the appropriate role of anti-trust and regulation. Very little attention has been given to public policy issues regarding the articulation of values and demand when full-blown individual consumer sovereignty may not be appropriate. Thus, the tradition has not concerned itself much with problems of inadequate consumer information, or of how to organize to control or internalize externalities. Many externalities are public goods, or bads, and the industrial organization tradition, with few exceptions, has ignored the organizational issues in making collective demand or regulatory decisions leaving these questions to the public finance field (where they have not been handled adequately). Relatedly, the tradition has tended to shy away from analysis of sectors where supply is organized governmentally, or through not-for-profit private entities.

Thus the traditional industrial organization literature really has not gripped many of today’s most pressing policy issues relating to sectors organized largely by private demand and for-profit supply, and has paid limited attention to sectors not so organized which comprise a large share of this nation’s economy. It seems important to broaden the perspective. Thus in addition to considering the traditional industrial organization literature, this course also will explore literature in such fields as public choice, public administration, and the scattered material on other kinds of organization of demand and supply. The sectors we shall consider will be not only manufacturing and public utilities (on which the traditional literature has focused) but also such sectors and activities as medical care, day care for children, and scientific research.

Second, the course will be particularly concerned with the state of existing theory of how organizations behave under different conditions of sectoral organization, exploring both generally prevailing theory, and various proposed amendments and reformulations. To repeat the point stressed earlier, decisions regarding sectoral organization or reorganization are meta decisions. Choice among possible organizational alternatives should rest on understanding of how the sectors will behave under the different regimes.

Existing positive economic theory is quite limited in the range of circumstances under which it can make definite predictions. Regarding market forms, we have a theory of behavior in which we rest some confidence only for sectors organized along the lines of perfect competition (and there is some reason to be less than fully confident even in that theory). Most market sectors do not evolve such a structure. Often the sectors turn out to be oligopolistic, usually the sector is regulated in some way or another. Often the units include not-for-profit organizations or public agencies. Until recently these public or quasi-public sectors were ignored by economists, and economists still often seem to believe that because they are “public” they can be predicted to work as the public, or the president or congress, dictates. This clearly is wrong. The way the decision to establish a public corporation to run passenger rail service will work out will depend largely on Amtrack. One might think that in cases of direct government spending the connection of order to result would be more direct. But the Atomic Energy Commission will not itself produce power reactors. These will be obtained (if at all) through contracts with private organizations and the cost and effectiveness of the system will be influenced heavily by the behavior and performance of these contractors. Between the provision of federal subsidy to day care and the objective of more or better provision of day care services lies a layer of local governmental bodies who must monitor the funds, a network of day care centers, and the parents who must decide to use day care.

Sensible resolution of the question of how to organize a sector, or how to manipulate the incentives within the sector, to achieve an agreed upon public purpose requires ability to predict response that economists presently do not have. This is so even regarding market sectors. The “anatomy of market failure” is highly sensitive to how firms and individuals actually behave. Various theories of behavior predict different things about the problems that will occur under different organizational regimes and about how to deal with these problems. And we have very little in the way of a theory of public or non-profit organizations. A good part of this course will be concerned with attempting to lay out the pieces from which a better theory perhaps can be built.

Third, particular stress will be placed on the long-run performance of a sector, in the context of the evolution of the economy more generally. Major policy decisions regarding the organization or a sector of activity are not made, or re-made, very often. These policy decisions thus must be made with a long time horizon. In a world of change, of evolving opportunities and problems, adequate sectoral behavior requires at the least that the sector respond effectively to changing patterns of demand and cost, and that it seize new opportunities created outside the sector. A major complaint about the railroads and about the public school system, is that they have not met these minimal requirements. We would hope that sector would go beyond this minimal standard and be creative and innovative. Much of the discussion regarding the organization of cancer research, and the aircraft industry, involves how to reorganize to better seize and manage the rapid flow of innovative ideas.

To a considerable extent the microeconomic policy issues of today are the result of the pace and the pattern of economic development the United States has experienced. Some, as power reactors, cancer research issues, involve technologies and scientific understanding that did not exist two· decades ago. The rise, current problems, and the policy issues surrounding Lockheed obviously involve modern technology and its management. The conglomerate merger problem certainly is related to the improvement in communication, transportation and management techniques that have made such diversified companies possible; the central policy issue is whether these companies are an efficient form in the new regime of tech­nology. Part of the issue relating to public schools and delivery of medical care is that productivity in these sectors has risen slowly relative to other sectors. Thus as factor costs have risen with rising average productivity, the relative costs of an educational day or a hospital day have soared. The policy issue of pollution clearly has been generated by past economic and demographic trends. Sectoral organizational changes are essential aspects of how the political economy generates and responds to change. And public policy decisions regarding these changes are the key policy decision guiding the economic evolution of the nation in the future.

Part 1 of this course will consider the sectoral economic organization question broadly, and examine some of the particular assumptions of the industrial organization tradition. Part 2 will consider the “private demand, for-profit firms” mode of organization, reviewing the arguments for its merit, some of the basic problems and limitations of this mode, and examine some of the tools of microeconomic policy traditionally treated in a course in industrial organization. The central policy issues introduced in this section will be considered in more detail in Econ 140 B.

Part 3 will be concerned with the present ability of microeconomic theory to predict the behavior of sectors organized in different ways. The standard theory rests heavily on the assumption that firms maximize profits. A different theory of the behavior of economic organization leads in many cases to a different appraisal of the situations that are likely to warrant intervention, and the kinds of interventions that can work. We survey a number of different departures taken recently by microeconomic analysis, and consider their implications for microeconomic policy. One strand of literature explores different motivational assumptions. A second strand employs a radically different kind of theorizing based on organization theory. Each of these avenues of analysis indicates that some of the instances of market failure under the traditional approach may not be serious problems under different views of the nature and behavior of firms, and some problems that do not appear under the traditional theory do appear under different models. And these richer models clearly are necessary if we are to model non-market sectors.

In Part 4 we study the characteristics of the economic change process, with particular focus on technological advance. Explicit recognition of the essential qualities of a dynamic world requires, we argue, certain major modifications of the theory of the firm, the role of markets, and of competition. We begin by considering these and the issues involved. Then we turn to examine technological change as a process, and dynamic processes more generally. The focus shifts away from “optimal decision making” toward problem solving, learning, and adjustment mechanisms, and from competitive equilibrium and its attributes toward a view of competition and diffusion as dynamic processes.

In Part 5 we return to certain problems and instruments of public policy and consider these from a richer perspective. One topic will be a reconsideration of decision making with particular focus on problems of externalities and on the evolving interest in social experiment and evaluation. Second, we will consider problems of control of public sector and non-market organized economic activity. Third, we will examine how micro economic policy issues come about and various theories about how they are resolved.

Obviously the course is an unorthodox treatment of “industrial or­ganization.” We are persuaded that the conceptualization and the literature studied provide the graduate student with a better set of tools to deal with the industrial organization questions of the future than is provided in a more conventional course. However many topics treated in the standard courses that we will not have time to consider, are interesting and important. We strongly urge all students to familiarize themselves with that literature. American Industry: Structure, Conduct and Performance by Richard Caves provides an excellent brief overview. Serious students should read carefully F.M. Scherer, Industrial Market Structure and Economic Performance. Those planning to take comprehensives in industrial organization will be expected to know this material.

There will be a mid-term examination and a final. Upon agreement with the instructor a paper may be substituted for the final.

 

Source: Copy from the private papers of Irwin Collier.

Categories
Suggested Reading Syllabus Yale

Yale. Course Outline for Industrial Organization, Behavior, and Public Policy. Nelson, 1973

 

Richard R. Nelson was an Oberlin College undergraduate (B.A. 1952) and received his Ph.D. from Yale University (1956). He was a senior staff economist at the Council of Economic Advisers in the Kennedy Administration (1961-63) and Professor of Economics at Yale from 1968-1986 before accepting a professorship at Columbia University.

On Richard Nelson’s life and career:

Entry for Richard R. Nelson written by Johann Peter Murmann for the Encyclopedia of Strategic Management.

Sidney G. Winter’s speech at the “Nelson Fest” held in New York City, October 13, 2000.

Warning: the original mimeographed course outline was plagued with misspellings that I have tried to correct. There are certainly others that have slipped through my editorial filter. For this transcription I need to be explicit: Caveat lector!

_______________________________

ECONOMICS 140A
Industrial Organization, Behavior, and Public Policy
Richard R. Nelson

Reading List
Fall Term 1973

* Assigned
** Material I assume you are familiar with, for review

Sept. 11, 18

  1. Perspectives on the Economic Organization Problem.
    1. The Problem Writ Large.
      1. R. Dahl*, A Preface to Democratic Theory, Chapt. 4.
      2. A. Sen**, Collective Choice and Social Welfare, Chap. 2, 3, 6.
      3. H. Simon*, Administrative Behavior, Chapters 1 & 3.
      4. H. A. Simon “The Changing Theory & The Changing Practice of Public Administration” in I. Pool (ed.) Contemporary Political Science.
      5. A. Etzioni, Modern Organizations, Chaps. 1 & 2.
      6. F. Knight, The Economic Organization, Chap. 1.
      7. R. Dahl and C. E. Lindblom, Politics, Economics, and Welfare, Chapt. 1.
      8. L. Hurwicz, “The Design of Mechanisms for Resource Allocation” AER May 1973.
      9. J. Marschak & R. Radner, Economic Theory of Teams.
      10. B. Ward, The Socialist Alternative.

Sept. 18

    1. Industrial Organization
      1. F. M. Scherer*, Industrial Market Structure and Economic Performance, Chapt. 1.
      2. R. Caves, Industrial Organization.
      3. R. Coase*, “Industrial Organization: A Proposal for Research” in V. Fuchs ed. Policy Issues & Research Opportunities in Industrial Organization.

Sept. 25

  1. Private Purchase and Market Supply as an Organizational Solution.
    1. The Role of Prices, For-Profit Suppliers, Competition.
      1. F. Knight*, The Economic Organization, Chapt. 2.
      2. O. Lange**, “On the Economic Theory of Socialism,” in Lange and Taylor, On the Economic Theory of Socialism, pp. 72-86.
        Also reprinted in M. Bornstein (ed.) Comparative Economic Systems.
      3. F. Bator**, “The Simple Economics of Welfare Maximization”, American Economic Review, March, 1957.
      4. T. C. Koopmans, Three Essays on the State of Economic Science, Essay I.
      5. F. Hayek*, “The Use of Knowledge in a Society,” American Economic Review, Sept. 1945.
      6. J. Schumpeter, “The Process of Creative Destruction”, Chapt. 7 in Capitalism, Socialism, and Democracy.
      7. J. K. Galbraith*, “The Economics of Technical Development”, Chapt. 7 in American Capitalism.
      8. J. M. Clark*, Competition as a Dynamic Process, Chapt. 4.
      9. F. M. Scherer*, Industrial Market Structure and Economic Performance, Chapt. 2.

Oct. 2,9

    1. Sources and Consequences of Monopoly Power.
      1. Scherer*, Industrial Market Structure and Economic Performance, Chapts. 3, 4, & 17.
      2. A. Harberger*, “Monopoly and Resource allocation,” AER, May 1954.
      3. O. Williamson*, “Economies as an Antitrust Defense,” AER, March 1968.
      4. H. Liebenstein*, “Allocative Efficiency vs. X-Efficiency,” AER, June, 1966.
      5. J. Bain, “Economies of Scale, Concentration and Conditions of Entry in Twenty Manufacturing Industries,” AER 1954.
      6. F. Modgliani, “New Developments on the Oligopoly Front,” JPE June 1958.
      7. G. Stigler*, “A Theory of Oligopoly,” JPE, Feb. 1964.
      8. J. K. Galbraith, The New Industrial State, Chapts. 1-3.
      9. Mason and Kaysen essays*, in E. Mason (ed.) The Corporation and Modern Society.
      10. J. Markham*, “An Alternative Approach to the Concept of Workable Competition,” in AEA Readings in Industrial Organization and Public Policy, (Heflebower and Stocking, eds.).
      11. Scherer*, Chapts. 18-22.

Note—a most detailed examination of Anti-trust and Regulation will be undertaken in Econ 140-b.

Oct. 9
and an
evening
discussion

    1. Externalities and Public Goods, Public Choice.
      1. F. Bator**, “The Anatomy of Market Failure,” QPE, August 1958.
      2. R. Coase*, “The Problem of Social Cost,” Jour. of Law and Economics, October, 1960.
      3. H. Demsetz*, “The Exchange and Enforcement of Property Rights” Jour. of Law and Econ., 1964.
      4. E. Mishan, “The Postwar Literature on Externalities” JEL, March 1971.
      5. C. Tiebout, “A Pure Theory of Local Public Expenditure” JPE, Oct. 1956.
      6. J. Buchanan*, “An Economic Theory of Clubs,” Economica, Feb. 1965.
      7. M. Olsen**, The Logic of Collective Action.
      8. A. Downs, An Economic Theory of Democracy, Part 1.
      9. Buchanan & Tullock*, The Calculus of Consent, Chapt. 6.
      10. Prest and Turvey*, “Cost-Benefit Analysis: A Survey,” Jour., Dec., 1955, –also in Survey of Economic Theory III.
      11. P. Steiner, “The Public Sector and The Public Interest” in Haveman & Margolis (eds.) Public Expenditures and Policy Analysis.
  1. More Complex Models of Organizational Behavior.

Oct. 16

    1. Organizational Goals.
      1. W. Baumol**, Business Behavior, Value and Growth, Ch. 1, 2, 4-8.
      2. O. Williamson*, “Managerial Discretion and Business Behavior”, AER, December, 1963.
      3. R. Marris*, “A Model of Managerial Enterprise,” QJE, May, 1963.
      4. J. Williamson, “Profits, Growth and Sales Maximization”, Economica, Feb. 1966.
      5. Kamerschen, “Ownership and Control and Profit Rates,” AER, June 1968.
      6. Marris and Wood (eds.) The Corporate Economy.

Oct. 23

    1. The Firm as an Organization: Behavioral Theory.
      1. R. Coase*, “The Nature of the Firm,” reprinted in Stigler and Boulding (eds.), Readings in Price Theory.
      2. Alchian and Demsetz, “Production, Information Costs and Economic Organization” AER, Dec. 1972.
      3. H. A. Simon, “A Comparison of Organization Theories,” in Models of Man.
      4. O. E. Williamson, “Hierarchical Control and Optimum Firm Size,” JPE, April 1967.
      5. H. A. Simon*, “Theories of Decision Making in Economics and Behavioral Science, AER June 1959.
      6. H. A. Simon, “A Behavioral Model of Rational Choice,” in Models of Man.
      7. J. March and H. Simon, Organizations.
      8. R. Cyert and J. March*, A Behavioral Theory of the Firm, Chaps. 1-8 (browse, 10.
      9. J. P. Crecine, Governmental Problem Solving (browse).
      10. F. Machlup*, “Theories of the Firm, Marginalist, Behavioral Management”, AER, March 1967.
      11. M. Schubik, “A Curmudgeon’s Guide to Microeconomics”, Journal of Economic Literature, June 1970.

Oct. 30

    1. Sector Models Compatible With Behavioral Organization Theories
      1. A. Alchian*, “Uncertainty, Evolution, and Economic Theory,” JPE, June 1950.
      2. G. Becker, “Irrational Behavior and Economic Theory,” JPE, Feb. 1962.
      3. S. Winter*, “Natural Selection and the Theory of the Firm”, Yale Economic Essays, Spring, 1964.
      4. H. Simon and C. Bonini, “The Size Distribution of Business Firm,”, AER Sept. 1958.
      5. Davis, Demster, Wildavsky*, “A Theory of the Budgetary Process,” American Political Science Review, Sept. 1967.
  1. Micro Economic Organization in a Dynamic World.

Nov. 6

    1. Schumpeterian Competition.
      1. J. Schumpeter*, The Theory of Economic Development, Chapts. 1 and 2.
      2. H. Simon*, “The Science of Design,” Chapt. 3 in The Sciences of the Artificial.
      3. H. Simon and J. March Organizations, Chapt 3.
      4. S. Winter*, “Satisficing, Selection, and the Innovating Remnant,” QJE, 1971, May.
      5. E. Mansfield, “Entry, Gibrat’s Law, Innovation, and the Growth of Firms,” AER, December, 1962.
      6. R. Nelson*, “Issues and Suggestions for the Study of Industrial Organization in a Regime of Rapid Technical Change,” in V. Fuchs (ed.) Policy Issues and Research Suggestions in Industrial Organization.
      7. A. Phillip*, Technical Change and Market Structure, Chapts. 1 and 8.
      8. W. Baumol, “Entrpreneurship and Economic Theory”, AER May 1968

Nov. 13
and an evening
session

    1. R&D and Technical Change.
      1. R. Nelson, M. J. Peck, and E. M. Kalachek*, Technology, Economic Growth and Public Policy, Chapters 2-5.
      2. F. Scherer, Chap. 15.
      3. R. Nelson (ed.)*, The Rate and Direction of Inventive Activity, Part D.
      4. Jacob Schmookler, Invention and Economic Growth, Harvard, 1966, Chapter 11.
      5. E. Mansfield, Industrial Research and Technological Innovation, Chapters 2, 5, 7, 8, 9.
      6. J. Jewkes, P. Sawers, and R. Stillerman, The Sources of Invention, St. Martin’s Press, 1958. Part I.
      7. Zvi Griliches*, “Hybrid Corn: An Exploration in the Economics of Technological Change,“ Econometrica, Oct. 1957.
      8. J. Coleman, E. Katz, and H. Menzel*, “The Diffusion of an Innovation Among Physicians,” Sociometry, December, 1959.
      9. Werner Hirsch*, “Manufacturing Progress Functions,” Review of Economics and Statistics May 1952.
      10. R. Vernon*, “International Investment and International Trade in Product Cycles”. QJE, May 1966.
      11. L. B. Mohr, “Determinants of Innovation in Organizations” American Political Science Review 1969.
  1. The Policy Issues Revisited.

Nov. 20

    1. Value Articulation, Demand Generation, Monitoring of Supply.
      1. C. E. Lindblom, The Policy Making Process (Browse).
      2. A. Wildavsky*, The Budgetary Process (Browse).
      3. T. J. Lowi, The End of Liberalism, (particularly Chap. 5).
      4. C. Schultze*, Politics and Economics of Public Spending.
      5. A. Rivlin, Systematic Thinking for Social Action.
      6. A. Wildavsky*, “The Political Economy of Efficiency”, Public Administration Review, Dec. 1966.
      7. A. Hirschman, Exit, Voice and Loyalty.

Nov. 27

    1. Command and Control of Non Market Supply.
      1. G. Allison*, “Models and the Cuba Missile Crisis,” Am. Polit. Sci. Review, Summer, 1969.
      2. A. Downs, Inside Bureaucracy.
      3. W. Niskanen*, Bureaucracy and Representative Government.
      4. H. Kaufman, The Forest Ranger, Chapts. 1, 2, 7.
      5. A. Downs*, “Competition and Community Schools,” in his Urban Problems and Prospects.
      6. J. Newhouse, “Towards a Theory of Non-Profit Institutions: An Economic Model of a Hospital,” AER, March 1970.
      7. Nelson & Krashensky*, “Some Questions Regarding Economic Organization: The Case of Day Care for Children” Mimeo.

Dec. 4
and an evening
session

    1. The Dynamics of Change.
      1. L. Davis and D. North*, Institutional Change and American Economic Growth, Part I.
      2. C. E. Lindblom, The Intelligence of Democracy. Chaps. 1, 2, 9.
      3. T. Schelling*, The Strategy of Conflict, Chap. 2 & 3.
      4. A. Kahn*, “The Tyranny of Small Decisions,” Kyklos, 1966.
      5. V. Goldberg*, “Institutional Change and the Quasi-Invisible Hand”, Mimeo.
      6. Edwards, Reich, and Weisskopf, The Capitalist System.
      7. E. Dunn, Economic and Social Development.

 

Source: From the personal papers of Irwin Collier.

Image Source: From the Nelson Fest, October 2000.