Examination questions spanning just over a half-century can be found in Frank Taussig’s personal scrapbook of cut-and-pasted semester examinations for his entire Harvard career. Up to the time when Schumpeter took over the core economic theory course from Taussig in 1935, Taussig’s course covering economic theory and its history was a part of almost every properly educated Harvard economist’s basic training. Taussig’s exam questions have been previously posted for the academic years 1886/87 through 1889/90 along with enrollment data for the course; material for this course (including semesters when taught with/by other instructors) from 1890/91 through 1893/94; 1897-1900 ; 1904-1909 ; 1911-14 ; 1915-1917; 1918-1919 ; 1920-22 ; 1923-25 have been posted as well.
This post begins with the printed course description from 1929-30 then adds the enrollment data and five years of semester final examinations for the years 1925-26 through 1929-30.
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Course Description
1929-30
11. Economic Theory.
Mon. , Wed., Fri., at 2. Professor Taussig
Course 11 is intended to acquaint the student with the development of economic thought since the beginning of the nineteenth century, and at the same time to train him in the critical consideration of economic principles. The exercises are conducted mainly by the discussion of selected passages from the leading writers; and in this discussion the students are expected to take an active part. A careful examination is made of the writings of Ricardo and J. S. Mill, and of representative modern economists.
Source: Division of History, Government, and Economics, 1929-30. Official Register of Harvard University, Vol. XXVI, No. 36 (June 27, 1929), p. 71. Identical course description found in Official Register of Harvard University, Vol. XXV, No. 29 (May 26, 1928), p. 70.
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1925-26
Course Enrollment: Economics 11
1925-26
[Economics] 11. Professor Taussig.—Economic Theory
Total 50: 36 Graduates, 5 Graduate Business, 2 Seniors, 6 Radcliffe, 1 Other.
Source: Harvard University. Reports of the President and Treasurer of Harvard College, 1925-26, p. 77.
HARVARD UNIVERSITY
ECONOMICS 11
Mid-year Final Exam
1925-26
Arrange your answers in the order of the questions
- “The ordinary bargain between labor and capital is that the wage-receiver gets command over commodities in a form ready for immediate consumption, and in exchange carries his employer’s goods a stage further towards being ready for immediate consumption. But while this is true of most employees, it is not true for those who finish the processes of production. For instance, those who put together and finish watches, give to their employers far more commodities in a form ready for immediate consumption, than they obtain as wages. And if we take one season of the year with another, so as to allow for seed and harvest time, we find that workmen as a whole hand over to their employers more finished commodities than they receive as wages.”
Do you see anything to criticize in this? - (a) “In estimating the exchangeable value of stockings, for example, we shall find that their value, comparatively with other things, depends on the total quantity of labour necessary to manufacture them and bring them to market. First, there is the labour necessary to cultivate the land on which the raw cotton is grown; secondly, the labour of conveying the cotton to the country where the stockings are to be manufactured, which includes a portion of the labour bestowed in building the ship in which it is conveyed, and which is charged in the freight of the goods; thirdly, the labour of the spinner and the weaver; fourthly, a portion of the labour of the engineer, smith, and carpenter, who erected the buildings and the machinery. . . . The aggregate sum of these various kinds of labour determines the quantity of other things for which these stockings will exchange.”
(b) “Suppose one man employs one hundred men for a year in the construction of a machine, and another man employs the same number of men in cultivating corn. . . .
Suppose that for the labour of each workman £50 per annum were paid, or that £5000 capital were employed and profits were 10 per cent, the value of the machine as well as of the corn, at the end of the first year, would be £5500. The second year the manufacturer and farmer will again employ £5000 each in the support of labour, and will therefore again sell their goods for £5500; but the man using the machine, to be on a par with the farmer, must not only obtain £5500 for the equal capital of £5000 employed on labour, but must obtain a further sum of £550 for the profit on £5500, which he has invested in machinery, and consequently his goods must sell for £6050. Here, then, are capitalists employing precisely the same quantity of labour annually on the production of their commodities, and yet the goods they produce differ in value on account of the different quantities of fixed capital, or accumulated labour, employed by each respectively.”Is Ricardo’s reasoning tenable, on his own premises, in both cases? Are the premises the same in both? - “To popular apprehension it seems as if the profits of business depend on prices. A producer or dealer seems to obtain his profits by selling his commodity for more than it costs him. . . . Demand — customers — a market for the commodity, are the cause of the gain of the capitalist.” What would Mill say to this? Ricardo?
- The effective desire of accumulation; the rate of profits as dependent on the cost of labor; the tendency of profits to a minimum, — are the doctrines of Mill on these topics consistent with each other? With what Ricardo laid down?
- “The cost of production [of agricultural produce] on the margin of the profitable application of capital and labour is that to which the price of the whole produce tends, under the control of the general conditions of demand and supply; it does not govern price, but it focusses the causes which do govern price.” Explain what Marshall means. Does the doctrine differ from Mill’s on the same subject?
Would Marshall’s conclusion be applicable to a manufactured commodity which is produced under the conditions usually indicated by cost-accountants’ data (a supply curve positively inclined)? - Suppose a decrease in the demand for a commodity produced with much fixed capital: what consequences would you expect on the equilibrium of supply and demand, price, quasi-rent, cost. Consider both the short period and the long period effects.
- Wherein, if at all, is the conception of quasi-rent applicable to
“Capital sunk in the soil”;
Pullman, Saltaire, and the like cases;
The gains of pioneers settling in a new country.
- What is meant by a law of increasing return? Do you believe there is one as regards “external economies”? internal economies?
HARVARD UNIVERSITY
ECONOMICS 11
Year-end Final Exam
1925-26
Arrange your answers in the order of the questions
- Define, with the utmost brevity consistent with accuracy, producers’ surplus; consumers’ surplus; savers’ surplus. What writers do you associate with the concepts to which these terms refer?
- “When the artisan or professional man has once obtained the skill required for his work, a part of his earnings are for the future really a quasi-rent of the capital and labour invested in fitting him for his work, in obtaining his start in life, his business connections, and generally his opportunity for turning his faculties to good account; and only the remainder of his income is true earnings of effort. But this remainder is generally a large part of the whole. And here lies the contrast. For when a similar analysis is made of the profits of the business man, the proportions are found to be different: in his case the greater part is quasi-rent.”Is the greater part of the earnings of business men to be regarded as quasi-rent? Is only the remainder to be regarded as true earnings of effort? Are these propositions in accord with Walker’s doctrine concerning business profits?
- What sort of surplus, if any, arises from the operation of diminishing returns as regards (a) increasing output secured from land; (b) increasing output secured with the aid of additional instruments made by man?
- The resemblance or difference between Clark’s doctrine that “abstinence is confined to the genesis of new capital,” and the reasoning of later writers concerning the significance of the surplus accounts of corporations.
- “‘On the whole,’ says Marshall, ‘it happens that by far the greater number of the events with which economics deals affect in about equal proportions all the different classes of society; so that if the money measures of the happiness caused by two events are equal, there is not in general any very great difference between the amounts of the happiness in the two cases.’ This has been justly characterized as a cavalier dismissal of the effect of differences of wealth and differences in sensibility.”Why a cavalier dismissal? or why not? Consider whether the criticism holds good as regards Marshall’s reasoning on the effects of taxes and bounties.
- (a) “As the inquiry to which I wish to draw the reader’s attention relates to the effect of the variations in the relative value of commodities, and not in their absolute value, it will be of little importance to examine into the comparative degree of estimation in which the different kinds of human labour are held. We may fairly conclude that whatever inequality there might originally have been in them, whatever the ingenuity, skill, or time necessary for the acquirement of one species of manual dexterity more than another, it continues nearly the same from one generation to another; or at least that the variation is very inconsiderable from year to year, and therefore can have little effect, for short periods, on the relative value of commodities.”
Is this a cavalier dismissal of the relation between differing rates of wages and the value of goods?(b) “Although general wages, whether high or low, do not affect values, yet if wages are higher in one employment than another, or if they rise and fall permanently in one employment without doing so in others, these inequalities do really operate upon values. . . . When the wages of an employment permanently exceed the average rate, the value of the thing produced will, in the same degree, exceed the standard determined by mere quantity of labour. Things, for example, which are made by skilled labour, exchange for the produce of a much greater quantity of unskilled labour; for no reason but because the labour is more highly paid.” Mill.What would Marshall say to this? Böhm-Bawerk? What is your own view? - Is there essential difference between the doctrine that the general level of wages is determined by the discounted marginal product of labor, and Clark’s doctrine concerning the relation between wages and the product of labor?
- “It is not true that the spinning of yarn in a factory, after allowance has been made for the wear-and-tear of the machinery, is the product of the labour of the operatives. It is the product of their labour, together with that of the employer and subordinate managers, and of the capital employed; and that capital itself is the product of labour and waiting: and therefore the spinning is the product of labour of many kinds, and of waiting. If we admit that it is the product of labour alone, and not of labour and waiting, we can no doubt be compelled by inexorable logic to admit that there is no justification for Interest, the reward of waiting; for the conclusion is implied in the premiss.”(a) What would Böhm-Bawerk say to this? What is your own view?
(b) What is the premiss which is implied in the conclusion?
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1926-27
Course Enrollment: Economics 11
1926-27
[Economics] 11. Professor Taussig.—Economic Theory
Total 44: 38 Graduates, 3 Graduate Business, 2 Seniors, 1 Radcliffe.
Source: Harvard University. Reports of the President and Treasurer of Harvard College, 1926-27, p. 75.
HARVARD UNIVERSITY
ECONOMICS 11
Mid-year Examination
1926-27
[Arrange your questions in the order of the answers]
- The merits and defects of Walker’s treatment of distribution.
- The merits and defects of Ricardo’s treatment of value.
- The merits and defects of Mill’s treatment of profits.
- What is meant by “increase of demand” in the following passages: —
(a) “The democratization of society and the aping of the ways of the well-to-do by the lower classes have greatly increased the demand for silk fabrics.”
(b) “ The lower price of sugar after 1890, when sugar was admitted free of duty, at once caused an increase of demand.”
(c) “The cheapening of a commodity may mean an increase of demand such that the total sum spent on it will be as great as before, even greater than before.” - Describe the supply curves indicated by accountants’ figures for the costs of agricultural and of manufactured products; and explain wherein they confirm or fail to confirm traditional “laws of value” applicable to the two classes of goods.
- (a) “Were it not for this tendency [to diminishing returns] every farmer could save nearly the whole of his rent by giving up all but a small piece of his land, and bestowing all his labor and capital on that. If all the labor and capital which he would in that case apply to it gave as good a return in proportion as that he now applies to it, he would get from that plot as large a produce as he now gets from his whole farm; and he would make a net gain of all his rent save that of the little plot that he retained.”
(b) “The return to additional labour and capital [applied to land] diminishes sooner or later; the return is here measured by the quantity of the produce, not by its value.”
(c) “Ricardo, and the economists of his time generally were too hasty in deducing this inference [tendency to increased pressure] from the law of diminishing return; and they did not allow enough for the increase of strength that comes from organization. But in fact every farmer is aided by the presence of neighbours, whether agriculturists or townspeople. . . . If the neighbouring market town expands into a large industrial centre, all his produce is worth more; some things which he used to throw away fetch a good price. He finds new openings in dairy farming and market gardening, and with a larger range of produce he makes use of rotations that keep his land always active without denuding it of any one of the elements that are necessary for its fertility.”
Have you any criticisms or qualifications to suggest on these passages from Marshall? - “For periods which are long in comparison with the time needed to make improvements of any kind, and bring them into full operation, the net incomes derived from them are but the price required to be paid for the efforts and sacrifices of those who make them; the expenses of making them thus directly enter into marginal expenses of production, and take a direct part in governing long-period supply price. But in short periods, that is, in periods short relatively to the time required to make and bring into full bearing improvements of the class in question, no such direct influence on supply price is exercised by the necessity that such improvements should in the long run yield net incomes sufficient to give normal profits on their cost. And therefore when we are dealing with such periods, these incomes may be regarded as quasi-rents which depend on the price of the produce.”
Precisely what is meant by “these incomes”?
HARVARD UNIVERSITY
ECONOMICS 11
Year-end Final Examination
1926-27
Arrange your answers in the order of the questions
- What is the difference, if any, between
supply prices and expenses of production;
successive costs and contemporaneous costs;
demand curves and utility curves?
- Would you reckon economic rent among the expenses of production of a commodity? business profits?
Would you reckon them among the costs of production? - “‘Rent is not an element in price’ — such is the classical statement on the subject. . . . But if one defines rent as product imputable to a concrete agent, the impossibility of maintaining such a claim becomes apparent. Even if one were to restrict the term rent to the product created by land, the claim that it is not an element in adjusting market values would be absurd; for it would amount to saying that a certain part of the output of every kind of goods has no effect on their market value. The ‘price’ referred to in the formula is, of course, the market value expressed in units of currency.” What do you say?
- “That capital is productive has often been questioned, but no one would deny that tools and other materials of production are useful; yet these two propositions mean exactly the same when correctly understood. Capital consists primarily of tools and other materials of production, and such things are useful only in so far as they add something to the product of the community. Find out how much can be produced without any particular tool or machine, and then how much can be produced with it, and in the difference you have the measure of its productiveness.”
What would Böhm-Bawerk say to this? J. B. Clark? What is your own view? - Böhm-Bawerk remarks that the theory which he has put forward bears “a certain resemblance” to the wages fund theory of the older English School, but differs from it in various ways, one of which is “the most important.” What are the points of resemblance? and what is this “most important” difference?
Questions 6 and 7 may be treated as one, if you prefer; and questions 8 and 9 may also be so treated.
- “It may well be asked whether a method [of measuring utility] that needs so much guarding and explaining is worth adopting at all. The answer is that the principle of the declining marginal significance is fundamental. The doctrine of surplus value in the thing bought, over and above the value of the price paid, is an inevitable deduction from it.” Do you agree?
- Adventitious utility, conspicuous waste, consumer’s surplus, organic welfare. How are these related? or not related?
- Ricardo’s theory of cost of production is so expressed as almost to invite misunderstanding. In consequence there is a widely spread belief that it has needed to be reconstructed by the present generation of economists. . . . On the contrary the foundations of the theory as they were left by Ricardo remain intact; much has been added to them and very much has been built upon them, but little has been taken from them. He knew that demand played an essential part in governing value, but he regarded its action as less obscure than that of cost of production, and therefore passed it lightly over in the notes which he made for the use of his friends, and himself; for he never essayed to write a formal treatise: he regarded cost of production as dependent — not, as Marx asserted him to have done, on the mere quantity of labor used up in production, but — on the quality as well as quantity of that labor; together with the amount of stored up capital needed to aid labor, and the length of time during which such aid was invoked.” Do you agree?
- “The incomes which are being earned by all agents of production, human as well as material, and those which appear likely to be earned by them in the future, exercise a ceaseless influence on those persons by whose action the future supplies of these agents are determined. There is a constant tendency towards a position of normal equilibrium, in which the supply of each of these agents shall stand in such a relation to the demand for its services, as to give to those who have provided the supply a sufficient reward for their efforts and sacrifices. If the economic conditions of the country remained stationary sufficiently long, this tendency would realize itself in such an adjustment of supply to demand, that both machines and human beings would earn generally an amount that corresponded fairly with their cost of rearing and training, conventional necessaries as well as those things which are strictly necessary being reckoned for.”
Is this in accord with Ricardo’s view? with Mill’s view? with Cairnes’s? What is your own opinion?
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1927-28
Course Enrollment: Economics 11
1927-28
[Economics] 11. Professor Taussig.—Economic Theory
Total 56: 43 Graduates, 2 Graduate Business, 6 Seniors, 1 Junior, 4 Radcliffe.
Source: Harvard University. Reports of the President and Treasurer of Harvard College, 1927-28, p. 75.
HARVARD UNIVERSITY
ECONOMICS 11
Mid-year Final Examination
1927-28
Arrange your answers strictly in the order of the questions
- Wherein is there resemblance, wherein difference, between Walker’s long-run theory of wages and Cairnes’s?
- “Ricardo’s theory of cost of production is so expressed as almost to invite misunderstanding. In consequence there is a widely spread belief that it has needed to be reconstructed by the present generation of economists….On the contrary the foundations of the theory as they were left by Ricardo remain intact; much has been added to them and very much has been built upon them, but little has been taken from them. He knew that demand played an essential part in governing value, but he regarded its action as less obscure than that of cost of production, and therefore passed it lightly over in the notes which he made for the use of his friends, and himself; for he never essayed to write a formal treatise: he regarded cost of production as dependent—not, as Marx asserted him to have done, on the mere quantity of labor used up in production, but—on the quality as well as quantity of that labor; together with the amount of stored up capital needed to aid labor, and the length of time during which such aid was invoked.”
Do you agree? - What is the short period view, what the long period view (1) of Mill as regards the level of wages; (2) of Marshall as regards differences of wages in different occupations?
- Does Marshall conclude that money costs of production measure real costs of production? that value is ultimately determined by a constant supply price?
- “An increase in the aggregate volume of production will generally increase the size, and therefore the internal economies possessed by a representative firm; it will always increase the external economies to which the firm has access; and then will enable it to manufacture at a less proportionate cost of labour and sacrifice than before.”
Why? or why not? - Explain the criticisms or objections to the notion of consumer’s surplus which have been urged on the ground of (a) inequalities of income, (b) “esteem value” or “adventitious value,” (c) identity in the yield of satisfaction from each constituent of a given stock. Which among these objections if any, tell strongly against Marshall’s suggestion regarding the use of taxes and bounties?
- “The extra income derived from rare natural abilities bears a closer analogy to the surplus produce from the holding of a settler who has made an exceptionally lucky selection, than to the rent of land in an old country.”
Why? or why not? - (a) “The deepest and most important line of cleavage in economic theory” is “the distinction between the quasi-rents which do not, and the profits which do, directly enter into the normal supply prices of produce for periods of moderate length.” Marshall.
(b) A critic has remarked: “In that which is most characteristic, original and positive in his work, Professor Marshall has left the old concept of rent far behind. The logical consequence of his treatment is that all the division fences between the different sorts of material wealth have been leveled; and that rent is the income of an material agent….”
What have you to say?
HARVARD UNIVERSITY
ECONOMICS 11
Year-end Final Examination
1927-28
- Explain in the briefest terms
Expenses of Production.
Opportunity Cost.
“Cost” as used by Cairnes.
“Cost” as used by Marshall.
“Cost” as used by Böhm-Bawerk.
- What do you conceive to be meant by “pure profits”? and what is the place of pure profits in the theory of cost and value?
- “‘Rent is not an element in price’ — such is the classical statement on the subject. It even expresses a view that is now prevalent. The expression itself however, is vague. It seems to mean that the fact of rent plays no part in the adjustment of values, and that things would exchange for one another in exactly the ratios in which they now do, if there were no such thing as rent. But if one defines rent as product imputable to a concrete agent, the impossibility of maintaining such a claim becomes apparent. Even if one were to restrict the term rent to the product created by land, the claim that it is not an element in adjusting market values would be absurd; for it would amount to saying that a certain part of the output of every kind of goods has no effect on their market value. The ‘price’ referred to in the formula is, of course, the market value expressed in units of currency.”
What do you say? - Resemblances and differences between the “discounted marginal product” theory of wages and the specific product theory.
- “Interest under Socialism” as discussed by Böhm-Bawerk.
- What are “fair wages,” in Marshall’s view? Clark’s? Böhm-Bawerk’s? Your own?
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1928-29
Course Enrollment: Economics 11
1928-29
[Economics] 11. Professor Taussig.—Economic Theory
Total 39: 28 Graduates, 1 Graduate Business, 1 Senior, 1 Junior, 8 Radcliffe.
Source: Harvard University. Reports of the President and Treasurer of Harvard College, 1928-29, p. 72.
HARVARD UNIVERSITY
ECONOMICS 11
Mid-year Final Examination
1928-29
Answer the questions in the order in which they are put; and answer them all, distributing your time accordingly.
- It had been maintained by Adam Smith and others that:
(1) profits are lowered by the mutual competition of merchants;
(2) taxes on necessaries cause money wages to rise;
(3) a rise in money wages means a rise in all prices;
(4) taxes on wages lessen farmer’s profits, and thus lower rent.
What would Ricardo say under each head? - It has been said by German writers that there is a certain degree of truth in the wages fund doctrine, in that the capital of employers is the immediate source from which wages come; but the ultimate source is in the incomes of consumers. What would Ricardo say to this? Walker? your own view?
- In the familiar diagram representing conditions of increasing costs for an agricultural commodity, does the supply curve indicate expenses of production or “real costs” of production?
In a similar diagram for a manufactured commodity, based on accountants’ figures of costs, does the supply curve indicate expenses or “real costs”?
Are the two curves different in meaning, or do they indicate essentially the same situation? - “We have next to study the conditions of business management; and in so doing we must have in view a problem that will occupy our attention as we go on. It arises from the fact that, though in manufacturing at least every individual business, so long as it is well managed, tends to become stronger the larger it has grown; and though prima facie we might therefore expect to see large firms driving their smaller rivals completely out of many branches of industry, yet they do not in fact do so.”
What is Marshall’s solution of the problem thus stated by him? - “That part of a man’s income which he owes to the possession of extraordinary natural abilities is a free boon to him; and from an abstract point of view bears some resemblance to the rent of other free gifts of nature, such as the inherent properties in land. But in reference to normal prices, it is to be classed rather with the profits derived by free settlers from the cultivation of new land, or again with the find of the pearl-fisher.”
On what grounds does Marshall rest this conclusion? What would Walker say to it? - How, if at all, did Mill modify Adam Smith’s conclusions on the causes of the differences of wages in different employments? Cairnes modify Mill’s? Marshall modify Cairnes’s?
- “It might be supposed at first thought that . . . the area above the horizontal line (in the usual diagram) represents consumers’ surplus. This is not exactly true, however, and that for two reasons. In the first place, the satisfaction of additional wants which a lower price makes possible may make the more important wants less intense. A man might be willing to give ten dollars for a cord of wood in order that at least one room in his house could be heated during the winter. He might also be willing to give seven dollars a cord for two cords, so as to heat two rooms, but the heating of the second room might render the heating of the first room less important to him. He might not be willing, for example, to give ten dollars plus seven dollars in order to have the two rooms heated. In the second place, utility itself is to a large extent affected by price. So far as our purchases satisfy what has been called the desire for distinction, or represent what Thorstein Veblen has termed ‘conspicuous consumption,’ a lowering of the price of a commodity would lessen its utility to us.”
Give your opinion on these objections; and consider which of them, if either, would necessarily tell against Marshall’s suggestion concerning bounties and taxes.
HARVARD UNIVERSITY
ECONOMICS 11
Year-end Final Examination
1928-29
Arrange your answers in the order of the questions.
Two questions may be omitted.
- Resemblances and differences between Ricardo and Boehm-Bawerk.
- The following have been suggested, by one writer or another, as the grounds on which the distinction between interest and rent turns:
(1) Land is fixed in amount, instruments made by man are not.
(2) Competition equalizes the return on instruments made by man but not that on land.
(3) The returns on land and instruments alike depend on marginal productivity.
Examine critically but briefly each statement; and give your own view. - Would interest necessarily persist in a socialist state? The rent of land?
- “Quasi-rents are the net profits made in years of exceptionally good trade, or by business men of exceptional natural ability.”
“Business profits are the net return secured in years of exceptionally good trade, or by business men of exceptional natural ability.”
Do you agree in either case? - (a) “The output of the least efficient producers forms part of the total output whose magnitude helps to determine price. But to argue from this that there is some special relation between price and the costs of the least efficient producers is a complete non sequitur.”
(b) “‘ Rent is not an element in price’ — such is the classical statement on the subject. It even expresses a view that is now prevalent. The expression itself, however, is vague. It seems to mean that the fact of rent plays no part in the adjustment of values, and that things would exchange for one another in exactly the ratios in which they now do, if there were no such thing as rent. But if one defines rent as product imputable to a concrete agent, the impossibility of maintaining such a claim becomes apparent. Even if one were to restrict the term rent to the product created by land, the claim that it is not an element in adjusting market values would be absurd; for it would amount to saying that a certain part of the output of every kind of goods has no effect on their market value. The ‘price’ referred to in the formula is, of course, the market value expressed in units of currency.”
What is your opinion? - Are there important distinctions between these propositions:
(a) Wages are determined by the specific product of labor;
(b) Wages are determined by the imputed product of labor;
(c) Wages are determined by the discounted marginal product of labor. - “It is evident that, if the supply [of labor] is increased, whether the increase comes about through an addition to the number of workpeople or through an addition to their average capacity, the national dividend must be increased. Our problem is to ascertain the effect that will be produced upon the aggregate real income of labour. The analysis set out in the preceding section shows that the marginal net product of labour, in terms of things in general, and, therefore, its real earnings per unit, must be diminished. Whether its aggregate earnings will be increased depends, therefore, on whether the elasticity of the demand for labour in general is greater or less than unity. If this elasticity is greater than unity, labour in the aggregate will receive a larger absolute quantity of dividend than before; whereas, if the elasticity is less than unity, it will receive a smaller absolute quantity. It is, therefore, necessary to determine whether in fact the elasticity of demand is greater or less than unity.” Do you agree? and what is your conclusion on the elasticity of demand for labor?
- Compare Hobson’s analysis of “costless” savings with that of other recent writers.
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1929-30
Course Enrollment: Economics 11
1929-30
[Economics] 11. Professor Taussig.—Economic Theory
Total 53: 44 Graduates, 3 Seniors, 5 Radcliffe, 1 Other.
Source: Harvard University. Reports of the President and Treasurer of Harvard College, 1929-30, p. 78.
HARVARD UNIVERSITY
ECONOMICS 11
Mid-year Final Examination
1929-30
Arrange your answers in the order of the questions. Answer ALL the questions.
- “The ordinary bargain between labour and capital is that the wage-receiver gets command over commodities in a form ready for immediate consumption, and in exchange carries his employer’s goods a stage further towards being ready for immediate consumption. But while this is true of most employees, it is not true for those who finish the process of production. For instance, those who put together and finish watches, give to their employers far more commodities in a form ready for immediate consumption, than they obtain as wages. And if we take one season of the year with another, so as to allow for seed and harvest time, we find that workmen as a whole hand over to their employers more finished commodities than they receive as wages.”
What do you say to this? and what is its bearing on the questions raised by George and Walker? - “This principle of the division of the produce of labour and capital between wages and profits, which I have attempted to establish, appears to me so certain, that excepting in the immediate effects, I should think it of little importance whether the profits of stock or the wages of labour, were taxed. . . . A tax on wages does not fall on the landlord, but it falls on the profits of stock: it does not ‘entitle and oblige the master manufacturer to charge it with a profit on the prices of his goods,’ for he will be unable to increase their price, and therefore he must himself wholly and without compensation pay such a tax.”
What led Ricardo to the conclusions stated in this passage? - (a) “As the inquiry to which I wish to draw the reader’s attention relates to the effect of the variations in the relative value of commodities, and not in their absolute value, it will be of little importance to examine into the comparative degree of estimation in which the different kinds of human labour are held. We may fairly conclude that whatever inequality there might originally have been in them, whatever the ingenuity, skill, or time necessary for the acquirement of one species of manual dexterity more than another, it continues nearly the same from one generation to another; or at least that the variation is very inconsiderable from year to year, and therefore can have little effect, for short periods, on the relative value of commodities.”
(b) “Although general wages, whether high or low, do not affect values, yet if wages are higher in one employment than another, or if they rise and fall permanently in one employment without doing so in others, these inequalities do really operate upon values. . . . When the wages of an employment permanently exceed the average rate, the value of the thing produced will, in the same degree, exceed the standard determined by mere quantity of labour. Things, for example, which are made by skilled labour, exchange for the produce of a much greater quantity of unskilled labour; for no reason but because the labour is more highly paid.” Mill.
What would Cairnes say about the proposition here laid down? What would Marshall say? What are your own opinions? - Consider whether marginal cost determines price, or price determines marginal cost, in the following cases:
(a) the short-period price of a manufactured commodity;
(b) the short-period (seasonal) price of an agricultural commodity;
(c) the long-period price of a manufactured commodity;
(d) the long-period price of an agricultural commodity;
(e) the long-period value of gold. - Describe the supply curves (particular costs curves) which we have for agricultural products; indicate what they signify; and indicate also in what principles and in what manner such curves should be constructed in order to make them fit into the “orthodox” reasoning about the rent of land, or to serve as test or verification for that reasoning.
- (a) “The deepest and most important line of cleavage in economic theory” is “the distinction between the quasi-rents which do not, and the profits which do, directly enter into the normal supply prices of produce for periods of moderate length.”
(b) A critic has remarked: “In that which is most characteristic, original and positive in his work, Professor Marshall has left the old concept of rent far behind. The logical consequence of his treatment is that all the division fences between the different sorts of material wealth have been levelled; and that rent is the income of any material agent. . . .”
Why should Marshall consider the line of cleavage explained in (a) to be the most important? If he does, must he admit the “logical consequence” stated in (b)? - “Curves of total satisfaction are purely abstract; that is to say, they represent the subjective value attached by a consumer to each increment of the commodity, or the amount he would purchase at any given price, apart from any consideration of the causes that might be supposed in actual experience to limit his supply or raise the price of the commodity, and apart from all reactions upon the price or other commodities. They are also isolated; that is to say, we cannot conceive of a system of such curves being so constructed as to be valid simultaneously. Nor can we sum their areas, taken successively, without omitting some values and counting others more than once. Nor can we read on them the effect of a rise or fall in the consumer’s income. Nevertheless their general form has a high theoretical significance. . . .
It may well be asked whether a method that needs so much guarding and explaining is worth adopting at all. The answer is that the principle of declining marginal significances is absolutely fundamental. The doctrine of surplus value in the thing bought over and above the value of the price paid, is an inevitable deduction from it.”Explain, and give your own views.
HARVARD UNIVERSITY
ECONOMICS 11
[Year-end Final Examination]
1929-30
Arrange your answers in the order of the questions.
- Explain briefly,
Simple Competition
Monopolistic Competition
Bilateral Monopoly
Simple Monopoly
Discriminating Monopoly
- What is the elasticity of demand for labor, on the reasoning of the Wages Fund doctrine? on that of Böhm-Bawerk? on that of Pigou? What is your own view?
- What are “pure profits”? and what would be “impure” profits? Can you distinguish? If so, how and why?
- “That able but wrongheaded man, David Ricardo, shunted the car of Economic Science on to a wrong line, on which it was further urged toward confusion by his equally able and wrongheaded admirer John Stuart Mill.”
“Ricardo’s theory of cost of production is so expressed as almost to invite misunderstanding. In consequence, there is a widely spread belief that it has needed to be reconstructed by the present generation of economists. . . . On the contrary the foundations of the theory as they were left by Ricardo remain intact; much has been added to them and very much has been built upon them, but little has been taken from them.” Marshall.
What ground for either view? - Give the rest of your time — at least one hour — to a discussion of The Universal Law of Diminishing Returns.
Source for examination questions: Harvard University Archives. Prof. F. W. Taussig, Examination Papers in Economics 1882-1935 (Scrapbook).
Image Source: Harvard Class Album, 1934.