Tag: Yntema

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Economist Market Economists Harvard

Harvard. Memo to Provost supporting Galbraith appointment. Black, 1947

 

As surprising as it might sound, the Harvard economics department couldn’t always get whom they wanted (Theodore Schultz). As a consequence we are able to observe an aggressive strategy employed by a member of one side in the departmental hiring dispute.  Professor John D. Black attempted to play the rebound in re-pleading his case for John Kenneth Galbraith’s appointment to a newly established professorship. Indeed by writing directly to the Provost, Black could have been charged with at least an additional count of “working the ref”. The episode is well summarized in Richard Parker’s biography of Galbraith (John Kenneth Galbraith: his life, his politics, his economics, pp. 226-227). Still, there is nothing quite like the pleasure of watching sharp elbows at work in the service of intradepartmental politics as revealed in the complete letter posted below.  Black was not afraid to push nativist buttons in referring to anti-Galbrathians among his colleagues: “European clique” (cf. Haberler in 1948 on Galbraith vs Samuelson), “the monetary-fiscal policy axis” and “gaudy Keynesian trappings”.

A cynical nose can detect more than a whiff of a self-serving plea to strengthen the prospects of Black’s own field and style of research. 

Archival note: Parker refers to a copy of the letter in Black’s papers with the Wisconsin Historical Society, this post is based on a copy of the letter I found in Galbraith’s papers at the JFK Presidential Library.

Economics in the Rear-view Mirror provides the outlines and exams for Black’s courses on the marketing of agricultural commodities from 1947-48).

____________________

December 22, 1947

Provost Paul Buck
University Hall
Cambridge, Massachusetts

Dear Provost Buck:

As you are no doubt aware, it was I who last year nominated Galbraith for the joint professorship to the School of Public Administration and in the Department of Economics. It was my judgment at that time that in view of his experience in public affairs and acknowledged great ability he surely should be considered for this position. The voting last year confirmed my judgment surprisingly. Excluding Schultz, to whom the appointment was offered, and Tinbergen from the Netherlands, he ran neck and neck with Yntema for top place in all of the balloting, with Samuelson next, and Smithies in seventh place. Tinbergen owed his strength to the European clique in the Department of Economics (by no means all European born), who have a European idea of the function of a university, und would have been a misfit in this appointment.

The voting of course reflected in large measure the conceptions of the voting members as to the needs of the appointment. A majority of my colleagues in the Department of Economics thought of it in terms simply of getting another high-grade technical economist, with little thought for the needs of the School of Public Administration. To meet this situation, I prepared and read at one of last year’s joint meetings on the appointment, the following statement, which I now I now submit anew, as still describing the conditions of the appointment:

The decision as to an appointment in economics at this time raises the whole question of the future of the Graduate School of Public Administration and its meaning for the Departments of Economics and Government.

The first point to make under this head is that the two departments named, without the Graduate School of Public Administration, are destined to become conventional departments in these fields, not distinguishable from similar departments in other universities, except for probably having better faculties than most of them. Even the latter distinction could easily fade in the next decade or two. With the Graduate School of Public Administration working with them, they both have possibilities of becoming super-graduate departments, by building on top of the usual graduate offerings in these fields a type of advanced graduate instruction that deals with problems of the sort that arise in the higher levels of policy-making in government. The seminars now given are well worth while from this point of view, but they fell much sort of realizing their possibilities. The two departments therefore very much need the Graduate School of Public Administration. It offers them a real opportunity to achieve greatness and become important influences in our national life. On the other hand, the School can get nowhere without the regular graduate work of the two departments as a foundation. The School and the two departments should therefore work closely together, each helping the others at each step in their advancement.

This means looking at a problem, such as that of the new appointment, as a common problem, and asking the question what kind of an appointment now will promote best the progress of the departments and the School?

Before answering this question, we need to go back and consider the basis on which the School was conceived. Those who formulated the program for the School finally settled down on training in policy-making as the great opportunity for a school of public administration at a university like Harvard. They exhibited a kind of prescience and inner wisdom in so doing that would almost seem like a miracle except for the fact that it did grow almost inevitably out of the situation.

In the two or three years following the founding of the School, much actual headway was made in realizing the objective of training for policy-making. The program of the School and it method made a strong impression in government circles and in the world of education. Since then, the School has lost considerable of the advantage of such a splendid start. If it does not take hold with vigor again and press forward along the lines laid out, it will lose it entirely in five or ten more years and become nothing more than a minor adjunct of the two conventional departments of the University. This the departments themselves cannot afford to let happen. Neither can Harvard University.

Looking at the present problem in this light, there can be no doubt that the great weakness in our present situation is in persons qualified to train advanced graduate students in policy-making, who have the aptitude for it as well as the background. The interests of the departments are in such an appointment at this time. The training in policy-making, comparatively speaking, is not suffering now, and will not suffer for several years, because of deficiencies in the preliminary graduate training needed as a foundation for it.

Also needing to be considered are important and somewhat similar relations to other departments of Harvard University, particularly to the Graduate School of Business Administration, to the Law School, and to the new Department of Social Relations. The School can add something of high importance to each of these if its seminars in the policy-making function are adequately developed; and in turn its contribution will be much enriched by what workers in these fields have to offer.

An appointment at this time of one new professor qualified as indicated will not of course take us far alone the way we need to go. But it will make a good start. We shall need mainly two things in addition: A. Additional research funds for the different seminars — to be used in employing research associates, financing field work, statistical laboratory work, etc., B. Some appointments wholly on the faculty of the School. Funds for both of these, especially the first, can be obtained if sought in earnest.

In conclusion, it should be stated that the School has made a start exactly along the right lines. It does not need in the least to back up and take a fresh start, but instead only to pick up what it has and go forward with it.

You, Provost Buck, do not need to be told that since I made this statement, the School has done exactly what I was hoping for. Almost certainly now at least three of the major seminars of the School will have research projects combined with them, each with small staffs of research associates. Steps are being taken to bring the School into effective working relations with the Law school and the Department of Social Relations. The need for an appointment that will strengthen its instruction in the policy-making function has in consequence become even more urgent then it was a year ago.

When it came time to offer nominations again this year, I felt that in view of the strong vote for Galbraith last year, surely he should be considered again. The third men in the top three this year, Smithies, has been substituted for Samuelson by those who supported Samuelson last year, apparently for two reasons: one, they now admit Samuelson’s shortcomings in the policy role, and consider Smithies a better candidate from this point of view; two, they expect to have Samuelson appointed to the full professorship now vacant in the Department of Economics. There seems to be more general acceptance than year ago of my conception of the needs of the appointment.

It has been necessary for me to make this last statement because it is the basis for the most important factor in the whole situation as it now develops, namely, that to appoint both Smithies and Samuelson at this time would further unbalance the work in economics at Harvard in the direction of the monetary-fiscal policy axis, since both of these men work mainly along these lines. The simple fact of the matter is that the men working in money and banking, fiscal policy and international trade, plus a few (in theory mostly) who vote with them on appointments, already constitute a voting majority in the Department of Economics. (You will remember that they did their utmost to prevent Dunlop’s appointment two years ago.) To add one more to this axis at this time would be highly unfortunate. It is, of course, not their voting which is most important — it is the narrowing effect which they have on the teaching and research in economics at Harvard. Those two appointments would contribute more than usual to such narrowing, since they are Keynesians in addition.

Of course none of these in this axis considers that he is narrow. In their discussions, to be sure, they draw in all phases of the economy. But they organize it all in terms of a single framework of reference. They pour it all, as it were, through one narrow funnel, and do some sieving in the process. As to how much they may mislead themselves in so doing, — and unfortunately some of the policy-makers of the nation; we have had abundant evidence in the past two years.

We can be reasonably certain that within ten or fifteen years, the Keynesian system of economic thinking will have been pretty well taken in stride. It would be unfortunate if at that time Harvard found itself with a faculty in economics too largely clothed in outworn habiliments. The economies of that day will have a different cast then the pre-Keynesian; but it will have lost much of its gaudy Keynesian trappings.

One of the first stories told me about Harvard when I arrived in 1927 was of President Eliot’s having been asked why Harvard University’s Department of Psychology had never developed a “school” of thought in that field, as had the Departments of Cornell and Columbia, and of his having answered that if he had discovered that his Department of Psychology was becoming dominated by one school of thought he would have hastened to appoint the strongest man he could find of an opposing school.

Of course this last point is no argument for the appointment of Galbraith. It is merely an argument against appointing Smithies if Samuelson is going to be appointed to the Department of Economics — and the pressure for Samuelson’s appointment is very strong in the Department of Economics.

I do not propose to present any strong affirmative arguments in support of Galbraith’s appointment. I nominated him because I believed that he should at least be considered. It has been the votes of my colleagues that has put him in the running, and I prefer that they tell you their reasons. I would not want him appointed if in their judgment, and that of the ad hoc committee, he is not the strongest man for this joint appointment.

I say this even though I would hope that if Galbraith were appointed he could spare a small fraction of his time to helping me give the two year courses which I now give in Commodity Distribution and Prices (ordinarily called Marketing.) Even though I am now giving these two courses, with the help of one-fifth of the time of an annual instructor, in addition to three full year courses in the Economies of Agricultura (with help of part of the time of one visiting lecturer) besides supervising a score of doctor’s theses, I shall manage somehow if I can get some other regular help with the three courses in the Economics of Agriculture.1

____________

  1. The undergraduate course in marketing had 90 students in the fall term, and the graduate course had 12 plus 8 auditors. This course was offered to Harvard undergraduate in 1946-47 for the first time, except for sone special instruction in food marketing given to armed service prospects during the war. The graduate course has been given since 1933.

    ____________

It may also be of interest that 12 of the 120 Ph.D’s reported as conferred in Economics in the United States in 1946-47 (12 months) were to candidates writing theses under my direction. (See September 1947 American Economic Review.)

There have, however, been some statements made about Galbraith in faculty discussions that must be commented upon in the interest of truth and sound decision. It has been said of him that he is “not a highly competent technical economist.” All this means is that he has published no articles in which he has applied methods of statistical and mathematical analysis, to the development of refinements of economic and monetary theory. I have no doubt of Galbraith’s ability to do this when this is the important thing for him to do. The simple truth is that a man of his breadth of comprehension is likely to find himself mainly absorbed in dealing with broad fundamental economic relationships; and this is especially true in times as disturbed as those in which he has been doing his writing. When asked, in the summer of 1947, to read a paper on the current economic situation, I entitled this paper “Fundamental Elements in the Current Agricultural Situation,” and I wrote as follows:

“The day and the hour seem to call for analysis in terms of broad fundamentals. This is no occasion for the refinements of theory and their application; but rather for over-simplification and over-emphasis on a few vital elements. Something of accuracy is lost in consequence; but this is not relatively important in the emergency that confronts us. There are wild horses loose in the world and the first task is to bring them to leash. Later we can break them to the plow and the cart.”

This statement is truer today than it was in 1942. If any economist of today is turning out articles or books presenting analysis of refinements, he is doing it because he lacks real power of analysis of the larger issues of the day, or as a by-product of such analysis, or as relaxation from the steady grind of his regular job. No doubt some of Smithies’ articles fit into these latter descriptions. Galbraith’s writings of the past ten years have covered the larger aspects of a very broad range of subjects.

Another criticism has been that he is not a good speaker. It is true that he often speaks haltingly when extemporizing. He needs time to find the exact word he wants. But he writes excellent papers, and reads them very effectively. (John Williams reported at a recent faculty meeting that his paper and Ed Mason’s were the outstanding papers at a full meeting in Philadelphia. His paper at the Atlantic City meeting in December 1946 was an outstanding performance.) In fact, he has become a very effective writer. To have a man in the Graduate School of Public Administration who can write as effectively as Galbraith on public questions of the day will be a highly valuable asset.

It needs to be added that he is effective in the classroom in spite of halting for a word now and then. The secret of this is that he has an uncanny sense for the vital points in a classroom discussion the same in analyzing public issues, and for putting these in their proper perspective. He is also a very stimulating influence among students in private discussion.

Rating higher in my scale of values than in those of many other academicians is capacity. Some of my colleagues do twice as much teaching, research and writing as some others, and do it fully as well or better. Galbraith has demonstrated a high order of capacity.

The other adverse report concerning Galbraith is not so easy to analyze. It is that he does not handle public relations well, nor even his relations with colleagues and subordinates. Surely a man of Galbraith’s type needed a man of different sort to work alongside him and handle the difficult public relations of OPA. And surely Leon Henderson was not that man. He was less apt at it even than Galbraith. The public relations man for OPA had to say “No” very often; and Galbraith does not have the ease of manner for such an assignment. Given time enough to plan for it in advance, he is able to differ with his colleagues and associates in a pleasant and gracious manner; but not in haste and under pressure, and especially when some body is trying to “put something over”.

No doubt a factor in his relations with others has been his urge to get on with the job and not waste too much time talking about it. I must confess a kinship with him in this respect. He no more than I should be assigned task a with many administrative decisions.

On this point, I am ready to predict without any hesitancy that Galbraith’s relations with his colleagues in the School and in the Department of Economics, should he receive this appointment, would be more congenial by a wide margin then those now generally prevailing in these departments; also that in the role of a Harvard professor, his relations with the public and with government officials would be unusually cooperative and friendly.

Perhaps a word is in order as to why I did not vote for Yntema. Most of all, I do not want to take a chance on either of two things (1) that he will prefer to continue with his present job, thus postponing our filling this appointment for another year: (2) that he will accept the appointment, but will want to continue a tie-us with CED that will remain his main interest. We cannot afford any more such tie-ups. Second, he seems to be so well fitted to his present assignment that I do not believe he would fit ours.

Very truly yours,

John D. Black

Source: John F. Kennedy Presidential Library. John Kenneth Galbraith Papers. Box 519. Series 5. Harvard University File, 1949-1990. Folder: “Correspondence Re: Appointment of JKG as Professor of Economics. 12/22/47—3/22/50”.

Image Source:  Professor John D. Black in Harvard Class Album 1945.

Categories
Chicago Cowles Economists

Chicago. Economics Ph.D. Alumnus, Theodore O. Yntema, 1929

 

From the records of the University of Chicago’s economics department we see that Theodore O. Yntema switched his Ph.D. thesis topic to international trade from “A Study in the Theory of Demand” after eighteen months. He was of course a very distinguished Chicago Ph.D. alumnus from the 1920s.

__________________________

Distinguished Alumni Award

THEODORE O. YNTEMA
AM ’25, PHD ’29

RETIRED CHAIRMAN, FINANCE COMMITTEE
FORD MOTOR COMPANY

Theodore O. Yntema’s ties with the University of Chicago Booth School of Business span more than five decades. After receiving an AB degree from Hope College in 1921 and an MS in chemistry from the University of Illinois in 1922, he came to the University of Chicago where he earned an AM in business in 1924 and a PhD in economics in 1929. His doctoral dissertation, a “Mathematical Reformulation of the General Theory of International Trade” published by the University of Chicago Press in 1932, was considered a classic in its field.

Yntema was a pioneer contributor not only to the development of the Booth School of Business, but also to the whole field of quantitative analysis in finance during the 1920s, 1930s, and 1940s. His career furnished a strong bond between the theoretical and analytical facets of finance and its application to modern corporate management.

He served on the faculty of Chicago Booth from 1923 until 1949, when he joined the Ford Motor Credit Company. At Ford, he was vice president of finance and subsequently became chairman of the finance committee. Yntema was a Ford director and chairman of the board for two subsidiaries, Ford Motor Credit Company and America Road Insurance Company.

He was a life trustee of the University of Chicago, a member of the Council on Chicago Booth, a professional lecturer in business policy at Chicago Booth, a visiting professor at Oakland University, a trustee of the Committee on Economic Development, and a chairman of the National Bureau of Economic Research.

The Theodore O. Yntema Professorship at Chicago Booth was established in 1973.

Source: Chicago Booth School of Business / Distinguished Alumni Awards / Honorees / Theodore O. Yntema.

__________________________

Theodore O. Yntema (1900-1985)

A.B., Hope College, 1921; A.M., 1922. and C.P.A., 1924, University of Illinois; Ph.D., University of Chicago, 1929

Theodore O. Yntema became director of research of the Cowles Commission at the time of the move to Chicago in September, 1939. [Olav Bjerkholt points out in his comment below that this is incorrect!] He joined the faculty of the University of Chicago in 1923, and was professor of statistics in the School of Business, 1930–44, and professor of business and economic policy, 1944–49. He was economic consultant in the National Recovery Administration, 1934–35; head of economics And statistics in the Division of Industrial Materials of the Defense Commission, 1940; consulting economist and statistician for the United States Steel Corporation, 1938–40; consultant in the War Shipping Administration 1942; director of research of the Committee for Economic Development, 1942–49; consulting economist for Stein Roe & Farnham, 1945–49; consulting economist, Lord, Abbett & Co., 1946–49; consulting economist, Ford Motor Company, 1947–49; and consultant for the Economic Stabilization Agency, 1951. Since 1940 Yntema has been a director of the National Bureau of Economic Research. In 1949 Yntema joined Ford Motor Company as vice president-finance and since 1950 a director of the Company. He is a Fellow of the Econometric Society and of the American Statistical Association. He is author of A Mathematical Reformulation of the Theory of International Trade, 1932, and co-author of Jobs and Markets, 1946. Yntema also directed most of the research leading to Volume I of TNEC Studies, published by the United States Steel Corporation, and from 1942–49 also planned and directed most of the research leading to the Research Reports of the Committee for Economic Development. [Abstracted from A Twenty Year Research Report 1932–1952].

Source: Cowles Foundation for Research in Economics /  From the Archives / Theodore O. Yntema (1900-1985).

__________________________

Petitions for Thesis Subject and Examination by
Theodore O. Yntema, 1926-27

March 15, 1926

Mr. T. O. Yntema
University of Chicago
Faculty Exchange

My dear Mr. Yntema:

At the last Departmental meeting it seemed to the group that the suggested topic “A Study in the Theory of Demand” is satisfactory as a thesis subject.

The fields that you suggested for the examination seemed entirely satisfactory:

  1. Theory
  2. Accounting and Statistics
  3. The Market
  4. Finance

Yours very sincerely,

LCM:MLH

*  *  *  *  *  *  *  *  *

The University of Chicago
The School of Commerce and Administration

August 20, 1927.

The Faculty of the Department of Economics:

I hereby petition for a change of my fourth field from “The Market” to “International Economic Policies”. This seems desirable in view of the change in my thesis topic from “A Study in the Theory of Demand” to “A Mathematical Reformulation of the General Theory of International Trade”. My revised list of fields would then be:

  1. Economic Theory
  2. Finance
  3. Statistics and Accounting
  4. International Economic Policies

[signed]
Theodore O. Yntema

*  *  *  *  *  *  *  *  *

[To:] Mr. T. O. Yntema

[From:] L. C. Marshall

Nov. 21, [19]27

            I am instructed to report to you that the field “International Economic Policies” meets with approval as far as the matter of general principle is concerned.

The next appropriate step is for you to prepare a detailed statement suggesting as precisely as you can what territory you intend to cover and what you contemplate preparing for the examination.

LCM: GS

Source: University of Chicago Archives. Department of Economics Records. Box 38, Folder 1.

Image Source:  Hope College. Digital Collections. History of Science at Hope College. 1921; Theodore Otte Yntema; Consulting Economist for Stein, Roe, and Farnham; Ford Motor Car Company; Lord Abbott Company.

 

Categories
Chicago Economics Programs Economist Market

Chicago. Draft memo of a program to rebuild the department of economics by T.W. Schultz, 1956

 

The following draft memo by T. W. Schultz outlines the serious faculty replacement needs of the University of Chicago department of economics in the mid-1950s. Particularly noteworthy, aside from the impressive list of lost faculty, is the appended table listing the sponsored research/3rd party funders of the economics department at that time. One also sees that the department had been authorized to make offers to Kenneth Arrow, Robert Solow and Arthur F. Burns. So much for the best-laid plans of mice and men. A better historian of economics than I might spin a counterfactual tale of a post-Cowles Chicago with Arrow and Solow on the faculty.

Regarding the ICA Chile Enterprise: Economic Research Center, Schultz wrote “The Chilean enterprise will give us a fine ‘laboratory’ in which to test ourselves in the area of economic development– a major new field in economics.” This reminds me of the old Cold-War Eastern European joke about whether Marx and Engels were scientists (“No, real scientists would have tried their experiments on rats first”). What a “fine ‘laboratory'” for testing oneself!

_________________________

A Program of Rebuilding the Department of Economics
(first draft, private and confidential – T. W. Schultz, May 22, 1956)

Your Department of Economics has been passing through a crisis. Whether it would survive as a first rate department has been seriously in doubt, with one adversity following another as was the case up until last year. It is now clear, however, that we have achieved a turning point in that we can rebuild and attain the objective which is worth striving for – an outstanding faculty in economics.

The crisis came upon us as a consequence of a combination of things: (1) the department, along with others in the University, had been denied access to undergraduate students of the University who might want to become economists; (2) Viner left for Princeton, Lange for Poland, Yntema for Ford and Douglas for the Senate; (3) the Industrial Relations Center drained off some of our talent and when it jammed, Harbison left for Princeton; (4) Mr. Cowles’ arbitrary decision to shift “his” Commission to Yale was a major blow; (5) Nef been transferring his talents to the Committee on Social Thought, and (6) add to all these the retirement of Knight.

Meanwhile, there were several external developments which did not reduce our difficulties: (1) a number of strong (new) economic centers were being established – at Stanford, Johns Hopkins, Yale, Vanderbilt, M.I.T. and with public funds at Michigan and Minnesota; (2) our salaries were falling behind seriously relative to some of the other places, and (3) recruiting of established, highly competent economists became all but impossible given the crisis that was upon us and the (then) low repute of the University neighborhood.

The ever present danger of the past few years has been that we would be in the judgment of competent colleagues elsewhere, in the beliefs of oncoming graduate students and in the eyes of the major foundations – not recover our high standing but instead sing to a second or even a third-rate department and in the process lose the (internal) capacity to recruit and rebuild.

We now have achieved a turning point distinctly in our favor.

The major efforts which have contributed most have been as follows:

  1. We have taken full advantage of our unique organization in combining real research with graduate instruction. Our research and instruction workshops are the result. The Rockefeller Foundation gave us three grants along the way – agricultural economics, money and public finance – to test this approach and advanced graduate work. The Ford Foundation has now financed our workshops with $200,000 (eight 5-year grant) (our proposal of January 1956 to The Ford Foundation states the theory and argues the case for this approach on the basis of the experiences we have already accumulated).
  2. We set out aggressively to recruit outstanding younger economists. The workshops were a big aid to us in doing this; so was the financial support of the University. We had the ability to “spot them”. We now have the best group of talented young economists, age 30 and less, to be found anywhere. This achievement is rapidly becoming known to others in keen “competition” is already upon us as a consequence.
  3. We need urgently to run up a lightning rod, a (rotating) professorship with a salary second to none, to attract talent and make it clear we were in business and would pay for the best. The Ford Foundation took favorably to the idea. (Thought so well of it that they will do the same for 3 other privately supported Universities – Columbia, Harvard and Yale!)
    The $500,000 endowment grant from them for a rotating research professorship is our reward.
  4. The foundations have given us a strong vote of confidence: grants and funds received by the Department of Economics during 1955-56 now total $1,220,000. (A statement listing these is attached).
  5. The marked turn for the better in the number and the quality of students applying for scholarships and fellowships is, also, an affirmative indication.
  6. The Economics Research Center is filling a large gap in providing computing, publishing and related research facilities which was formally a function of the Cowles Commission.
  7. The Chilean enterprise will give us a fine “laboratory” in which to test ourselves in the area of economic development – a major new field in economics.

There remains, however, much to be done. We must, above all, not lose the upward momentum which is now working in our favor.

Faculty and University Financial Support

To have and to hold a first rate faculty in economics now requires between $225,000 and $250,000 of University funds a year.

To have a major faculty means offering instruction and doing research in 8 to 10 fields. Up until two years ago we came close to satisfying the standard in our graduate instruction. We then had 11 (and just prior to that, 12) professors on indefinite tenure.

Then, Koopmans and Marschak were off to Yale, Harbison to Princeton and Knight did reach 70. And, then there were 7. On top of these “woes” came the serious illness of Metzler which greatly curtailed his role; and, Nef having virtually left economics. Thus, only 5 were really active in economics with Wallis carrying many other professional burdens. Meanwhile we added only one – Harberger was given tenured this year.

Accordingly at the indefinite tenure level we are down to about one-half of what is required to have a major faculty. Fortunately, several younger men have entered and have been doing work of very high quality.

It should be said that the Deans and the Chancellor have stood by, prepared to help us rebuild.

Major appointments were authorized – Arrow, Stigler, Solow and others. We still are hoping that Arthur F. Burns will come.

The resignations and the retirement, however, did necessarily reduce sharply the amount of financial support from the University.

In rebuilding, at least five additional tenure positions will be required:

  1. Labor economics (from within)
  2. Trade cycle (we hope it will be Arthur F. Burns, already authorized).
  3. Money
  4. Econometrics and mathematical economics.
  5. Business organization
  6. Consumption economics (when Miss Reid retires; next 3 years we shall have the extra strength of Dr. D. Brady with finances from The Rockefeller Foundation)
  7. International trade (pending Metzler’s recovery)
  8. Economic development.

The faculty and the University financial support recommended is as follows:

Tenured positions (for individuals fully committed to economics).

    1. Now in the harness

6: Friedman, Johnson, Harberger, Hamilton (Metzler), Wallis (Nef), Schultz

    1. To be added

5: Burns pending, (labor), (money), and two other fields, most likely econometrics and business organization

 

Budget:

11 [tenured positions]

  

$165,000
Metzler and Nef $15,000
$180,000
III. Supplementary non-tenure faculty $45,000
Altogether $225,000

 

Outside Financial Support for the Department of Economics

Grants

 Amount of grant Available 1956-57

A. Received during 1955-56.
1.     Sears Roebuck Fellowships

$4,000

$4,000
2.     National Science Foundation (2 years)

$13,000

$6,500
3.     Conservation Foundation (2 years)

$33,000

$16,500
4.     Rockefeller Foundation: consumption economics (3 years)

$45,000

$15,000
5.     American Enterprise (2 years)

$17,250

$8,625
6.     Ford Foundation: research and instructional workshops (5 years)

$200,000

$30,000
7.     Earhart Fellowships.

$6,000

$6,000
8.     S.S.R.C. Student Grants

$5,000

$5,000
9.     Ford Foundation: 3 pre-doctoral grants

$10,200

$10,200
10.  Ford Foundation: faculty research grant (Hamilton)

$12,500

$8,000
11.  ICA Chile Enterprise: Economic Research Center Fellowships, research support (3 yrs)

$375,000

$125,000
12.  Ford Foundation: endowment for rotating research professor

$500,000

$25,000
13.  Rockefeller Foundation: Latin America (Ballesteros)

$5,000

$5,000

Sub-totals

$1,225,950

$264,825

B. Received prior to 1955-56 where funds are available for 1956-57.
1.     Rockefeller Foundation: workshop in money (3 years with one year to go)

$50,000

$20,000
2.     Rockefeller Foundation: workshop in public finance (3 years with one year to go)

$50,000

$20,000
3.     Resources for the Future (3 years with one year to go)

$67,000

$27,000
4.     Russian Agriculture (2 years with one to go)

$47,000

$22,000

B sub-totals

 $214,000 $89,000

A and B totals

$1,439,950

$353,825

 

Source:  University of Chicago Archives. Department of Economics Records. Box 42, Folder 8.

Image Source: 1944 photo of T.W. Schultz from University of Chicago Photographic Archive, apf1-07479, Special Collections Research Center, University of Chicago Library. Cf. Wikimedia Commons, same portrait (dated 1944) from Library of Congress.

Categories
Chicago Curriculum Regulations

Chicago. Intradepartmental discussion, graduate microtheory prerequisite. 1928.

 

Within an academic year there is often a natural ordering for a two-semester or three-quarter course sequence that allows the later courses to build on the course(s) that preceded it. With the growing depth of economic theory by the 1920s at the latest, more than a single course year was understood to be required to get up to research speed. We can add to this the further complicating fact of graduate programs being fed from a variety of undergraduate programs. It then becomes necessary to get excruciatingly explicit about the course content of prerequisites. 

The memos transcribed below make it clear that a “stiff” sophomore-level “value and distribution theory” course as taught in the College at the University of Chicago would constitute the minimum preparation to begin the study of neo-classical economics à la Viner in 1928. It is also noteworthy that the “powwow” of Chicago economists named in L. C. Marshall’s first memo below appeared to consider the course on “Contemporary Continental Economic Thought” a different species altogether, not requiring even intermediate microeconomic theory as a prerequisite.

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Economic Theory Course Numbers and Titles

General Survey Course [undergraduate]

102, 103, 104. The Economic Order I, II, III. Professor [Leon Carroll] Marshall and Others.

Intermediate Course [undergraduate]

201. Intermediate Economic Theory. Professor [Paul Howard] Douglas, Associate Professor[Lewis Carlyle] Sorrel and Assistant Professor [Garfield V.] Cox

[Graduate Theory Core]

301, 302, 303. Introduction to the Graduate Study of Economic Theory

301. Neo-Classical Economics. Professor [Jacob] Viner
302. History of Economic Thought. Professor [Frank Hyneman] Knight
303. Modern Tendencies in Economics. Professor [Jacob] Viner

309. Contemporary Continental Economic Thought. Mr. [Paul Howard] Palyi

 

Source:  University of Chicago, Annual Register with Announcements for the Year 1927-1928, pp. 162-163.

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3 Memos: Marshall to Viner to Marshall to Viner

The University of Chicago
Department of Economics

January 13, 1928

Memorandum

To: J. Viner
From L. C. Marshall

Before Knight left us we had a long powwow about the theory situation as it seemed to have developed through the autumn quarter. [Frank Hyneman] Knight, [Lionel D.] Edie, [Theodore Otte] Yntema, [Henry] Schultz, [William Homer] Spencer and myself participated.

Here are the results of the conference:

1) It was agreed that neither 201 nor 301 should be regarded prerequisite to 309.

2) It was agreed that a person taking 301 could not wisely take 309.

3) It was agreed that 201 could not properly be made prerequisite for 301 since most of the students taking 301 do not come up through our own organization.

Do you see any difficulties with this arrangement?

[signed]
L. C. Marshall

LCM:GS

*  *  *  *  *  *  *  *  *

The University of Chicago
The Department of Economics

Memorandum to L. C. Marshall from J. Viner. Jan. 20, 1928

(1) I do not know enough about the purposes and scope of 309 to be able to express an intelligent opinion.

(2) Do. [ditto]

(3) I do not see why 201 or its equivalent should not be demanded as a prerequisite for 301, any stiff undergraduate course in price and distribution being regarded as the equivalent of 201. For undergraduates wanting to take 301 as undergraduates it seems to me clear that 201 should be insisted upon as a prerequisite.

J.V.

*  *  *  *  *  *  *  *  *

[Memorandum to] Mr. Jacob Viner [from] Mr. L. C. Marshall. Feb. 9, [192]8

In reply to your note of January 20 in which you say “I do not see why 201 or its equivalent should not be demanded as a prerequisite for 301, any stiff undergraduate course in price and distribution being regarded as the equivalent of 201. For undergraduates wanting to take 301 as undergraduates it seems to me clear that 201 should be insisted upon as a prerequisite.”

I judge that this means that no substantial difference of opinion exists between you and the group that talked the matter over. Apparently you would regard a sophomore course in the principles of economics (the usual thing in American colleges) as being an equivalent of 201 for purposes of stating the prerequisite for 301. This being true, what would you think of stating the prerequisite thus:

Prerequisite: a good undergraduate course in value and distribution.

It seems wise specifically to mention value and distribution for the expression “principles of economics” has no one meaning as far as undergraduate instruction is concerned.

LCM:GS

 

Source:  University of Chicago Archives. Department of Economics. Records.Box 35, Folder 14 “Economics Department. Records & Addenda”.

Image Source: University of Chicago Photographic Archive, apf1-08488, Special Collections Research Center, University of Chicago Library. The photograph is dated 14 June 1944.

Categories
Chicago Economists

Chicago. Simons urges the recruitment of Milton Friedman, 1945

Simons

 

 

The atomic bomb dropped on Nagasaki was less than two weeks history and the declaration of the surrender of Imperial Japan only five days old. Nothing says “back to business as usual” at the university better than active lobbying on behalf of one’s preferred candidate for an upcoming vacancy, as we see in the following memo for the 33 year old Milton Friedman written by Henry C. Simons to the Chicago economics department chair, Simeon E. Leland. The copy of this memo comes from the President’s Office at the University of Chicago. Simons’ grand strategy was to seamlessly replace the triad Lange-Knight-Mints with his own dream team of Friedman-Stigler-Hart. He feared that outsiders to the department might be tempted to appoint some convex combination of New Dealer Rexford Tugwell and trust-bustin’ George W. Stocking Sr., economists of the institutional persuasion who were swimming on the edges of the mainstream of the time.

Economics in the Rear-view Mirror also has transcribed excerpts from an earlier 77 page (!) memorandum (10 April, 1945) to President Robert M. Hutchins from Simeon E. Leland entitled “Postwar Plans of the Department of Economics–A Wide Variety of Observations and Suggestions All Intended To Be Helpful in Improving the State of the University”.

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Henry C. Simons Urges his Department Chair to Recruit Milton Friedman

August 20, 1945

To: Simeon E. Leland           Economics

From: Henry C. Simons        Economics

 

If Lange is leaving, we should go after Milton Friedman immediately.

It is a hard choice between Friedman and Stigler. We should tell the administration that we want them both (they would work together excellently, each improving what the other did), Friedman to replace Lange, Stigler to replace Knight and to be with us well ahead of Knight’s retirement. We might also say that we want Hart to replace Mints at Mints’s retirement, and also to be with us in advance, but are happy to have him financed by C.E.D. [Committee for Economic Development] for the present.

Yntema evidently is thinking of getting Friedman shortly. We should exploit this possibility. Milton has now a great yen for a University post and would probably turn down an offer from C.E.D., even at much financial sacrifice, if a good academic post were the alternative (as it might be, at Minnesota or elsewhere). He is rather footloose—not anxious to go back either to the Treasury or to the National Bureau. We should grab him now, offering temporary joint appointment with C.E.D. and full-time, permanent appointment when he is through with C.E.D.

Friedman is young, flexible, and available potentially for a wide variety of assignments. He is a first-rate economic theorist, economic statistician, and mathematical economist, and is intensely interested over the whole range of economic policy. He has been outstanding in every organization where he has worked—here with Henry Schultz, at the National Bureau, at the Treasury, and now recently in the Army project at Columbia. Moreover, he is one of those rare cases of able young men who have enjoyed large experience and responsibility in Washington without being at all disqualified thereby for academic work.

The obvious long-term arrangement is a joint appointment with the Cowles Commission. Marschak would, I’m sure, like to have him; and Milton would like to settle into a major project of empirical research, e.g., on enterprise size and productional efficiency. Bartky may be expected strongly to support the appointment, for its strengthening of the University in statistics. The School of Business could well use Milton, to give its few advanced courses in statistics, if Yntema continues to price himself out of the University. Moreover, Milton probably would be delighted to work partly in the Law School, and be extremely useful there. In the Department, he would be available for statistics, mathematical economics, pure economic theory, taxation, and almost any field where we might need additional courses.

If University officers want outside testimony, they could get it from Randolph Paul or Roy Blough (as regards the Treasury), from Arthur F. Burns (National Bureau), from Abraham Wald, Allen Wallis, and Barky (as regards war research), and from Bunn at Wisconsin (as regards possible usefulness to the Law School)—not to mention George Stigler, Harold Groves, Wesley Mitchell, Simon Kuznets, Erwin Griswold, et al.

Perhaps the best thing about Milton, apart from his technical abilities, is his capacity for working as part of a team. He is the gregarious kind of intellectual, anxious to try out all his ideas on his colleagues and to have them reciprocate. He would doubtless be worth his whole salary, if he neither taught nor published, simply for his contribution to other people’s work and to the Department group as a whole. But he is also intensely interested in teaching, and far too industrious not to publish extensively. Our problem would be not that of finding ways to use him but that of keeping him from trying too many tasks and, especially, of leaving him enough time for his own research.

It would, I think, be good policy and good tactics to submit a major program of appointments, including [Frank W.] Fetter, Friedman, Stigler, Hart, and an economic historian (Innis or Hamilton), in the hope of getting them all within a few years, some on joint appointments with, notably, the Cowles Commission, the Law School, the School of Business (?) and, temporarily, the C.E.D. Research Staff. Such a program would serve to protect us against administration pressure for less good appointments (e.g.,  Stocking [George Ward Stocking, Sr., Ph.D. Columbia, 1925]), and from Hutchins’s alleged complaint that, while he wanted to consider major appointments in economics, the Department simply would not make recommendations. We should, in any case, err on the side of asking for more appointments than we can immediately get. Otherwise, available funds may go largely elsewhere—e.g., into Tugwell-like, lame-duck appointments, and into Industrial Relations, Agricultural Economics, and other ancillary enterprises, at the expense of the central field of economics.

There is, I trust, substantial agreement within the Department, on the men mentioned above. This fact, if fact it is, should be made unmistakably clear to the administration.

Incidentally, if we are going to explore possibilities of an appointment in American economic history (and I’m probably alone in opposing), we should do so only in co-operation with the History Department and with (from the outset) joint plans for joint appointments.

 

HCS-w

 

Source: University of Chicago Archives. Office of the President. Hutchins Administration. Records. Box 73, Folder “Economics Dept., 1943-45”.

Image Source: University of Chicago Photographic Archive, apf1-07613, Special Collections Research Center, University of Chicago Library.

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Chicago Fields Regulations

Chicago. Doctoral Field Exams Schedule for the Friedmans, Stigler, Wallis. 1935

Milton Friedman, Rose Friedman née Director, George Stigler, and W. Allen Wallis all took some of their doctoral field examinations at the University of Chicago in the Spring Quarter of 1935. The names of the examiners and the other examinees can be seen from the mimeographed page I found in George Stigler’s papers at the University of Chicago Archives. I have included in this post the field examination requirements for doctoral students in economics from the annual Announcements published for the 1934-35 academic year.

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 Three Field Examinations for Doctorate

“The candidate is expected to have general training in the important fields listed below and to specialize in three fields, one of which must be Economic Theory, including Monetary and Cycle Theory, and another must be the field of his thesis. The fields to be chosen (in addition to Economic Theory) may be taken from (1) Statistics; (2) Accounting; (3) Economic History; (4) Finance and Financial Administration; (5) Government Finance; (6) Labor and Personnel Administration; (7) Trusts and Public Utilities; (8) International Economic Relations; (9) some other field proposed by the candidate. A field proposed by the candidate may be in Economics or in another social science, the arrangement in either case being made with the Department of Economics. It is desired to develop that program of work which best meets the needs of the individual student. This usually involves the election of some courses in other departments and possibly the development of a field in another social science as a substitute for one of the fields in economics.

“The candidate’s grasp of his three fields of specialization is tested by preliminary written examinations which must be passed to the satisfaction of the Department before admission to candidacy. The final oral examination is on the field of concentration and on the thesis. The written examinations can be taken in one quarter or they can be divided between two quarters, not necessarily consecutive quarters, at the option of the candidate. The written examinations are given in the sixth, seventh, and eighth weeks of the Autumn, Spring, and Summer quarters. The written examination in general economic theory, including monetary and cycle theory, is in two parts and will require five hours in all. The written examination in each of the other fields requires from three to four hours. Notice of intention to take any written examination must be filed with the Department at least three weeks before the examinations begin. In written examinations for the doctorate the questions cover both the theoretical and administrative aspects of the field.”

 

Source: Announcements. The University of Chicago. The College and the Divisions for the Sessions of 1934-35, pp. 283-4.

______________________

 

DEPARTMENT OF ECONOMICS

SCHEDULE FOR PRELIMINARY EXAMINATIONS FOR THE DOCTORATE

Spring Quarter, 1935

The schedule below shows the preliminary examinations requested for the current quarter. Will the Chairman of each Committee please be responsible for turning in the complete examination by at least one week before the date on which it is to be given?

Dates Examinations Committees Students Enrolled
Saturday, May 11
8:30, S.S.R. 417		 Economic Theory
(New Plan)		 Viner, Chairman
Schultz
Yntema
Knight		 Friedman, M.
Shohan, C.J.
Stigler, G.J. (Brookings)
Wallis, W.A.
1:30, S.S.R. 417 Monetary and Cycle Theory Mints
Cox
Saturday, May 18
8:30, S.S.R. 417		 Financial System and Financial Administration Mints, Chairman
Cox
Meech
Gideonse		 Curtis, C.H.
Shohan, C.J.
Saturday, May 18
8:30, S.S.R. 417		 Government Finance Leland, Chairman
Simons		 Stigler, G.J. (Brookings)
Saturday, May 18
8:30, S.S.R. 417		 Statistics Schultz, Chairman
Cover
Yntema		 Director, R.
Friedman, M.
Jacoby, N.H. (Springfield)
Saturday, May 25
8:30, S.S.R. 417		 Economic History Wright, Chairman
Nef
Knight		 Ostrander, F.T. (Williams)
Shohan, C.J.

 

Source: University of Chicago Archives, George Stigler Papers Addenda, Box 33, Folder “1935 Univ. of Chicago, Class Notes (Gray binder)”.

Image Source: Rose and Milton Friedman. From The Prodos Blog.

 

Categories
Chicago Economists

Chicago. Memorandum on a Fiscal Stimulus, 1932

Today’s post is a jewel of fiscal policy thought in a memorandum from the University of Chicago written in 1932 at the trough of the Great Depression in the United States. Looking at the signers of the memorandum that argues for aggressive fiscal stimulus (economists covering the ideological spectrum from Aaron Director through Paul Douglas), one is reminded of Ben Bernanke’s bon mot from the last big financial crisis: “There are no atheists in foxholes or ideologues in a financial crisis”.

Note: Bernanke’s crack appears to be a minor variation on Jeffrey Frankel’s twist.

Backstory

After WWI, veterans lobbied for “adjusted compensation” to partially make up the difference between their combat pay and the significantly higher wages that had been paid to workers at home during the War. Veterans preferred the term “adjusted compensation” to the term “bonus” (the latter term being construed as implying something that goes beyond full and fair compensation). In 1924 veterans were finally granted “adjusted universal compensation” in the form of certificates that credited $1.25 for each day served abroad plus $1.00 for those days served in the U.S. These certificates were essentially 20-year insurance policies equal to 125% of the service credit to be redeemed in full on the veteran’s birthday in 1945. (Exceptions for immediate cash payments were granted for amounts less than $50 and in order to settle estates of deceased veterans for payments of less than $500). More details can be found at this link. 

In 1932 the question arose whether an early payout of these certificates would be a prudent and effective fiscal stimulus and Congressman Samuel Barrett Pettengill (Democrat) of Indiana sent the questionnaire that follows to academic economists across the country to solicit their advice in the matter.

A month later protesting “Bonus Marchers” (ca 20,000 veterans) set up camps in Washington, D.C. that they were evicted from by regular troops of the U.S. Army let by General Douglas MacArthur. It wasn’t until 1936 that the WWI veterans were paid their adjusted compensation.

Responses to Congressman Pettengill’s inquiry were published in the Hearings of the House Committee on Ways and Means for:

Edwin Walter Kemmerer,  Princeton University
Frank Whitson Fetter, Assistant Professor of Economics, Princeton University
Thomas Nixon Carver, Professor of Economics, Harvard University
S. J. Coon, Dean of the College of Business Administration, University of Washington
Harry E. Miller, Professor of Economics, Brown University
C. W. Hasek, Head of the Department of Economics and Sociology, Pennsylvania State College
Walter W. McLaren, Department of Economics, Williams College
Harry L. Severson, Assistant Professor, Department of Economics and Sociology, Indiana University
Hiram L. Jome, Professor of Economics, DePauw University
Warren B. Catlin, Department of Economics and Sociology, Boudoin College
E. E. Agger, Professor of Economics and head of the Department of Economics, Rutgers University
Edwin R. A. Seligman, Columbia University
H. A. Millis et al., Department of Political Economy, University of Chicago
Jacob H. Hollander, Johns Hopkins University
William C. Schleter, University of Pennsylvania
Albert Bushnell Hart, Harvard University (historian)

 Today’s post begins with the cover statement of the memorandum found with the copy in the Papers of the President of the University of Chicago, Robert Maynard Hutchins, Box 72.  It is followed by Congressman Pettengill’s list of questions, as well as the Chicago memorandum submitted by H. A. Millis and eleven of his University of Chicago colleagues.

A cursory sweep of the web discovered that this Chicago memorandum has been reprinted as Appendix B in J. Ronnie Davis’s 1967 Virginia Ph.D. dissertation, “Pre-Keynesian economic policy proposals in the United States during the Great Depression.” A scanned version of the Congressional Hearings in which the Chicago memorandum was published can be found at Hathitrust.org. I have compared the published version from the House Ways and Means Committee Hearings with the typed copy filed with the papers of President Hutchins at the University of Chicago Archives. Other than minor differences in spelling (e.g. the capitalized form “Federal” is used in the published version), the memorandum was published by the House Ways and Means Committee exactly as received.

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A MEMORANDUM PRESENTED TO A MEMBER OF THE HOUSE COMMITTEE ON MILITARY AFFAIRS, APRIL 26, 1932.

Two members of the staff of the Department of economics, at the University of Chicago, received letters from a member of the House Committee on Military Affairs, requesting answers to certain questions. Inasmuch as the views of a large number of economists were desired, the letter was circulated among and read by twelve men of the Chicago faculty; and steps were taken to prepare a memorandum covering the points raised….The memorandum, with the names of the twelve professors participating in its formulation, is reproduced in its entirety. Because of the character of the issues raised, it seemed better to prepare the memorandum in the form it has taken than to answer the specific questions, the one after the other.

Source: University of Chicago Archives. Hutchins Box 72. Folder 6 “Economics Department, 1932-1933”.

__________________________________

 

STATEMENT OF HON. SAMUEL B. PETTENGILL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF INDIANA

Mr. Pettengill. Mr. Chairman, I am not on the calendar this morning and therefore in justice to those who are here I have asked for only one minute.

Some time ago, before I knew when the Ways and Means Committee was to have hearings on this matter, on my own initiative I sent a questionnaire to 50 of the leading economists of the country on the Patman and the Thomas bills; also with reference to the benefit of “reflation” and the danger of inflation.

I have a very interesting file here, including letters from Mr. Kemmerer and Mr. King who have appeared before the committee.

In order to shorten the record as much as possible, I have briefed the replies somewhat. The entire letters, of course, are available.

[…]

Mr. Pettengill. Mr. Chairman, as I have stated, I endeavored to get the benefit of the best and most disinterested economic thought of the country with reference to the advisability of either borrowing money or printing money with which to liquidate the adjusted service certificates. In the main, I sent my letters to the economics department of our leading colleges and universities. In order to make their replies more intelligible to you, as many of them answered numbered questions in my letter, I attach, first, my original letter.

(The letter referred to is as follows:)

Dear Sir: I am writing you and other leading economists in the country with reference to the problem confronting Congress with regard to the proposed payment of the soldiers’ bonus. I trust that I will be able to secure a symposium of opinion by authorities such as yourself which will be of real value to Congress.

As you know, at the end of this fiscal year we will have an accumulated deficit of some $3,000,000,000. It is, I think, the largest peace-time deficit of any country in the world. It is rapidly getting larger. We are going into the red now $7,000,000 a day. United States obligations have recently sold below 85.

On the other hand, commodity, wage, land, and security prices are slowly drifting to levels so disastrous that they threaten the most widespread repudiation of debts and tax defaults, which may wipe out, along with the debtors, classes holding the obligations of individuals, corporations, States, and municipalities now totaling some one hundred fifty to two hundred billion dollars, which is about one-half the Nation’s wealth. For example, the conservative Washington Post, April 11, said:

“The dollar increases in value every day … unless this vicious movement is checked it will result in panic. The extension of credit will not be sufficient. Heroic emergency measures that will arrest the fall of prices seem to be in order. … This economic malady has reached a point where it can not be expected to cure itself without leaving horrible scars. … Some powerful agency must be thrown into the breach to restore the value of goods and services against this exaggerated value of money. … Emergencies of this kind call for drastic action. … It is time for the leaders in Government and financial circles to focus their minds upon realignment of values. The people would not countenance the manufacture of fiat money to make prices rise, But some method of currency expansion on a sound gold basis may be necessary.”

            The question is the advisability of paying the so-called soldiers’ bonus as an antideflationary, inflationary, “reflationary” or stabilizing measure. The name, of course, is not important.

A number of different bills have been proposed. H. R. 1, introduced by Mr. Patman, of Texas, calls for borrowing the $2,400,000,000 necessary to make payment.

  1. Do you think we can, or should, borrow this?

Sentiment here, however, is crystallizing around (for or against) Mr. Patman’s substitute, H. R. 7726; I inclose copy.
This bill simply proposes to print money to pay the debt. Is this sound, advisable, or defensible, in view of the existing emergency? And in the light of present gold reserves?

 It has been suggested that it could be strengthened as follows:
Call in the outstanding adjusted-service certificates now redeemable in 1945. Collateralize them together with 40 per cent gold which is said to be now available over and above the amount necessary for circulation now outstanding. Issue currency against this hypothecation and pay the veterans off. Then set up a sinking fund to retire the currency (together with the certificates) in whole or in part in 1945, or gradually before that time.

With reference to “excess reserves” see Federal Reserve Bulletin, March, 1932, page 143: “On the basis of these excess reserves, the Federal reserve banks could issue $3,500,000,000 of credit if the demand were for currency and $4,000,000,000 if it were for deposits at the reserve banks.”

  1. What credit do you give this statement as a basis for the proposed bonus payment?

There are, of course, all sorts of social and political features around this problem, but I direct your attention to its economic and fiscal aspects. It is a problem of the most tremendous consequences and Members here who are patriotically trying to do their best to cut the present vicious circle for the good of the entire country (not the veterans alone) need, and will appreciate, the advice of men like yourself, whose life study makes your judgment so valuable.

  1. Is the suggested alternative sound?
  1. Does it in reality add any element of safety to H. R. 7726, the outright issue of nonretirable currency?
  1. Can it be improved? If so, how?
  1. It is said the Europe holds $2,000,000,000 of deposits in this country. With their experience with “printing-press” money, would they become frightened for the solvency of the dollar, and cause disastrous liquidation and withdrawals here in America? Could such liquidation of foreign-held obligations be stopped unless we “went off gold,” or had available the precautionary device of authorizing the Treasury to change the amount of gold in our dollar along the lines advocated by Irving Fisher? If foreign exchange began to go against us, would it help Europe pay us her public and private debts, as an offset against our investment and deposit obligations held by Europeans?
  1. Would the introduction of $2,400,000,000 new currency into the pockets of the people necessarily result in the rise of commodity and other levels thus causing merchants to place orders for the products of farm and factory, thus starting production and accelerating employment?
  1. The Glass-Steagall bill, as you know, for the period of one year, authorized placing 60 per cent Government bonds plus 40 per cent gold behind Federal reserve money. This, of course, as I understand it, is 60 per cent “greenbackism,” placing one promise to pay (Government bond) behind another promise to pay (currency) to the extent of 60 per cent. Assuming that the adjusted-service certificates are also promises to pay, can the Glass-Steagall bill and the suggested method of handling the payment of the bonus be distinguished, from the standpoint of soundness?

The Glass-Steagall bill, as it appears to me, does not seem to have stopped the deflationary trend, for the reason that its potential currency expansion is based upon borrowing, and banks and individuals are not borrowing (or lending).
Recently I have heard Willford I. King, professor of economics, New York University, testify before the House Banking and Currency Committee. Although not directing his particular attention to the “bonus” he was quite clear that the currency must be expanded at the present time in order to start commodity prices upward and permit debts and taxes to be paid, as well as to start buying, and employment. However, he was equally clear that for such currency something of equal value should be taken in by the Government, e. g., Government bonds, thus temporarily substituting noncirculating certificates of indebtedness (bonds) for circulating certificates (currency). Then, he said, when commodity prices reach the desired level, e. g., 1926 commodity index, the process would be reversed, the bonds resold, and the currency retired. It was his opinion that such a device is necessary in order to stop the elevator at the right floor—i. e., prevent inflation beyond a certain point.
Neither the Patman nor the suggested alternative plan seems to me to contain this safeguard. That is, the adjusted-compensation certificates when once taken in would not be available for reissue.

            I need not state that every member here is anxious to solve the problem, not from the standpoint of helping the needy veteran and his family at the expense of the rest of the community, but only from the standpoint of benefiting the entire Nation, on the theory that a distribution to the veteran would, of course, be passed on at once in the payment of taxes, interest, land contracts, doctors’ and merchants’ bills, etc., and with the expectation that this would stop and reverse the trend of values. If the plan or any other conceivable plan at this time would bring only disaster to the Nation and thus to the veteran and his family we have no alternative except to wait until the present economic storm blows over.

Your thoughtful consideration of this matter is most earnestly requested. Your prompt reply will be a distinct public service.

I desire, of course, to use the substance of your reply, but will not quote you, by name, without your permission. Please let me know if you do give this permission.

Sincerely yours,

Samuel B. Pettengill, Member of Congress.

 

Source:  U. S. Congress (Seventy-Second Congress, First Session). Payment of Adjusted-Compensation Certificates in Hearings before the Committee on Ways and Means, House of Representatives (April 11 to 29, and May 2 and 3, 1932),pp. 508, 511-513

______________________________

 

The University of Chicago,
Department of Economics,
April 26, 1932.

Hon. Samuel. B. Pettengill,
            House Office Building, Washington, D. C.

My Dear Mr. Pettengill: The inclosed memorandum has been prepared in an attempt to answer the questions put in your letter of April 13. It has been developed in a committee of two, in conference, and in round table. It is approved by all of the University of Chicago economists who participated in the discussion and formulation; their names appear at the end of the memorandum.

It has seemed better to answer your questions in a memorandum divided into five sections rather than to answer them specifically, the one after the other. I think all of your questions, save that relating to Professor King’s testimony, are answered. No direct reference is made to King’s position because it has seemed better to take a positive stand rather than to criticize.

You ask permission to use the replies to your questions. This is, of course, granted, but our preference would be to have the whole rather than a part of the memorandum given publicity.

Trusting that the memorandum will be of some assistance to you, I am

Very truly yours,

H. A. Millis.

 

(The memorandum referred to follows:)

I.

Severe depression and deflation can be checked, and recovery initiated, either by virtue of automatic adjustments, or by deliberate governmental action. The automatic process involves tremendous losses, in wastage of productive capacity, and in acute suffering. It requires drastic reduction of wage rates, rents, and other “sticky” prices, notably those in industries where readjustments are impeded by monopoly and exceeding politeness of competition. It must also involve widespread insolvency and financial reorganization, with consequent reduction of fixed charges, in order that firms may be placed in position to obtain necessary working capital when and where expansion of output becomes profitable. Given drastic deflation of costs and elimination of fixed charges, business will discover opportunities for profitably increasing employment, firms will become anxious to borrow, and banks will be more willing to lend.

As long as wage cutting is evaded by reducing employment, and as long as monopolies, including public utilities, resist pressure for lower prices, deflation may continue indefinitely. The more intractable the “sticky” prices, the further credit contraction will go, and the more drastic must be the ultimate readjustment. We have developed an economy in which the volume and velocity of credit is exceedingly flexible and sensitive, while wages and pegged prices are highly resistant to downward pressure. This is at once the explanation of our plight and the ground on which governmental action may be justified. Recovery can be brought about, either by reduction of costs to a level consistent with existing commodity prices, or by injecting enough new purchasing power so that much larger production will be profitable at existing costs. The first method is conveniently automatic but dreadfully slow; and it admits hardly at all of being facilitated by political measures. The second method, while readily amenable to abuse, only requires a courageous fiscal policy on the part of the central government.

(We agree entirely with your remarks as to the inadequacy of the Glass-Steagall bill and similar expedients. Little is to be gained merely by easing the circumstances of banks, in a situation where, by virtue of cost-price relations, everyone, including the banks, is anxious to get out of debt. Such measures may retard deflation and prepare the way for recovery; but they cannot much mitigate the fundamental maladjustments between prices and costs.)

II.

If action is needed to raise prices (and we believe it is), it should take the form of generous Federal expenditures, financed without resort to taxes on commodities or transactions. For the effect on prices, the direction of expenditure is not crucially important. Heavy Federal contribution toward relief of distress is the most urgent and, for reflation, perhaps the most effective measure. Large appropriations for public and semipublic improvements are also an attractive expedient, provided projects are chosen which can be started quickly and opportunely stopped. Generous bonus legislation would be the most objectionable of all available devices for releasing purchasing power. Purchase of the certificates at their present value, instead of at maturity value, is perhaps relatively unobjectionable.

Bonus legislation invites comparison with a program of Federal subsidy to agencies engaged in administering emergency relief. Both measures involve a sort of outright gift, the provision of funds to individuals or for their support. One involves allocation according to need, when need is dreadfully acute; the other ignores this criterion completely. Furthermore, funds spent for relief would certainly be spent for commodities, and very promptly, while less needy veterans might only use additional cash further to increase hoarded savings. Of the possible consequences of bonus concessions for the future of pension legislation, mere reminder should suffice. Congress has already capitulated to the veterans and their votes on the grounds that the Treasury was full, and the community prosperous. It is now on the verge of capitulating again, on the grounds that the Treasury is empty, and the community impoverished.

III.

It is impossible to estimate in advance how much Federal expenditure might be required to bring genuine revival of business. We are persuaded, however, that the automatic adjustments have already proceeded to a stage where the necessary inflationary expenditures would be handsomely rewarded, in greater production, larger employment, and higher tax revenues.

One should recognize at the outset a danger that any measures of fiscal inflation may be too meager and too short lived. Inadequate, temporary stimulation might well leave conditions worse than it found them. We might experience temporary revival and then serious relapse, followed by more drastic deflation than would otherwise have been necessary. If we indorse inflation, we should be prepared to administer heavy doses of stimulant if necessary, to continue them until recovery is firmly established, and to discontinue them when the emergency is ended. It is obvious that the bonus measures fail utterly to provide this necessary flexibility.

IV.

The question of how emergency expenditures, for whatever purposes, should be financed, is difficult and highly controversial. The wisest policy for the present, however, would seem to be one guided largely by psychological considerations. It is likely that adequate stimulus could be imparted, and recovery assured, without creating an excessive drain upon our gold reserves. Inflationary measures, in whatever form, will probably accelerate for a time the export of gold; but this strain we may well be able to endure until revival of business is assured. Domestic hoarding of gold, on the other hand, might force us to suspension of our currency laws; and this possibility dictates caution as to the technique of inflation. The problem is simply that of selecting the procedure which will be least alarming.

On other grounds, the issue of greenbacks seems most expedient; but this method must be ruled out unless one is ready to abandon gold immediately, for it would create the greatest danger of domestic drain. Large sales of Federal bonds in the open market would be much less alarming; but the probable effect upon the prices of such bonds must give us pause, especially since a marked decline might jeopardize the position of many banks. It would certainly be better for the Government to sell new issues directly to the reserve banks or, in effect, to exchange bonds for bank deposits and Federal Reserve notes. Much may be said, indeed, for issuing the bonds with the circulation privilege, thus permitting the Reserve Banks to issue Federal Reserve Bank notes in exchange; for this procedure does not much invite suspicion, has supporting precedent, and would greatly reduce the legal requirements with respect to gold.

It is well to face the possibility, though it seems remote, that adequate fiscal inflation might force us to abandon gold for a time. We must be prepared to see a sort of race between depletion of the gold holdings of the reserve banks and improvement of business. If definite business revival is attained before the gold position becomes acute, the hoarders will have missed some great investment bargains; if inflation must be carried beyond the limits tolerated by gold, the hoarders will reap a profit. Moreover, if other gold-standard countries follow our example, as is quite probable, the threat to our adherence to the gold standard will prove negligible.

But we would insist again that, once deliberate reflation is undertaken, it must be carried through, whatever that policy may mean for gold. To withdraw artificial support before genuine recovery is achieved, might create a situation worse than that which would have obtained in the absence of remedial efforts. If the time comes, as it probably will not, when we must choose between recovery and convertibility, we must then abandon gold, pending the not distant time when world recovery will permit our returning to the old standard on the old terms. The remote possibility of our being forced to this step, however, should not influence our decision now. The supposedly awful consequences of departure from gold are, as England has shown us so clearly, nothing but fantastic illusions.

V.

It is easy to be too greatly alarmed about the possibility of extreme and uncontrolled inflation. With improvement of business, Federal revenues will automatically increase. Expenditures may then be financed to a lesser extent by borrowing, and thus with less inflationary influence. Indeed, one might maintain that temporary inflation is the most promising means to restore a balanced Budget. Moreover, with proper precautions, it should not be difficult to effect drastic reduction of expenditures at the appropriate time. The emergency character of inflationary appropriations should be emphasized in the acts themselves; and Congress should record the intention of balancing expenditures and revenues over a period of, say four or five years. Incidentally, no emergency expenditures would permit of more opportune retrenchment than those for relief of distress.

We find it difficult, at the present juncture, to give due attention to the problem of preventing or modifying the next boom. Obviously, we should attend to getting out of the present emergency first. It demands emphasis, however, that successful resort to fiscal methods for terminating deflation will present the very serious problem of keeping recovery within safe bounds. A merely salutary inflation treatment will fail to satisfy many groups. There will certainly be demand for more inflation and more “prosperity” than we can afford or sanely endure. Fiscal inflation must be regarded as a means for meeting an acute emergency for industry as a whole. It should not be viewed as a means of solving the agricultural problem, nor as a method for deflating the rentier. It is properly a most temporary expedient, to be abandoned (and reversed) long before many individual industries and classes have obtained the measure of relief which justice might prescribe.

We have suggested that for the period of the ensuing five years all Federal expenditures, including those of an emergency character, should be covered by tax revenues. To minimize the total necessary outlay, outlays should be very generous now; parsimonious inflation is an illusory economy. It would also be eminently wise to avoid now any new taxes which fall at the producer’s (or dealer’s) margin. The levies on income, however, should be advanced immediately to the maximum levels which an imperfect, but improving, administrative system can support. While such levies will be rather unproductive for a time, they will have no very deterrent effect upon business; and, having gotten them into the statutes during a period of least political resistance, we may be assured of large revenues at the appropriate time. Even after recovery, additional commodity taxes should be resorted to only if more equitable levies prove inadequate to full completion of the “5-year plan.” Indeed, by 1940, our Federal debt should stand at a figure far below that contemplated by existing legislation. We should have high income taxes when incomes are high.

Sound fiscal management during the next few years should give close attention to indexes of production, employment, and wholesale prices. We shall not undertake at this time to indicate any definite rules. There is no immediate problem of excessive inflation—rather, a danger of doing nothing or of a too modest beginning. For the not distant future, however, most careful and intelligent management will be imperative. Once there is clear evidence of revival, of increased and profitable production, the mechanism of credit expansion will begin to operate, and to carry on the task which fiscal inflation has begun. As soon as this happens, retrenchment must be started; emergency expenditures must be reduced as rapidly as is possible without undermining recovery. We should not attempt, by deliberate inflation, to bring prices to any level which we choose to regard as normal; nor should artificial stimulus be continued until production and employment attain really satisfactory levels. Fiscal measures should only be used to give to recovery a sure start. When this is done, the real task will be that of preventing the recovery from becoming a boom; and a beginning must be made in this task long before any alarming signs appear. The seeds of booms are sown by innocent expansion of credit during years of seemingly wholesome revival. The task of control is easily neglected at such times; and there is grave danger that both the Reserve Board and the Treasury will adopt inadequately deflationary tactics in this period when it is so easy to have no policy at all.

In summary, it is our unequivocal position that drastic but temporary fiscal inflation can now be productive of tremendous gains, with no possible losses of compensating magnitude; further, that after genuine revival of business has occurred, and especially if it is attained by artificial stimulation, there will soon be urgent need for prompt and decisive action of a deflationary character.

Garfield V. Cox.         Lloyd W. Mints.
Aaron Director.         Henry Schultz.
Paul H. Douglas.       Henry C. Simons.
Harry D. Gideonse.   Jacob Viner.
Frank H. Knight.       Chester W. Wright.
Harry A. Millis.          Theodore O. Yntem.[sic]

 

Source: U. S. Congress (Seventy-Second Congress, First Session). Payment of Adjusted-Compensation Certificates in Hearings before the Committee on Ways and Means, House of Representatives (April 11 to 29, and May 2 and 3, 1932), pp. 524-527.

Image Source:  Authentic History Center website: Page “Hoover & the Depression: The Bonus Army.”