Harvard. History of Economic Theory. Final exam questions, Taussig, 1897-1900
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. Until 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 every properly educated Harvard economist’s basic training. In an earlier posting you will find Taussig’s exam questions for the academic years 1886/87 through 1889/90 along with enrollment data for this course; analogous material from 1890/91 through 1893/94 has also been posted.
Note: Taussig did not teach Economics 2 1894/95 and 1895/96. Instead it was taught by William James Ashley, A.M., Professor of Economic History and Silas Marcus Macvane, Ph.D., McLean Professor of Ancient and Modern History. Taussig was on leave from Harvard 1894-95 [Harvard University, Annual Reports of the President and Treasurer of Harvard College, 1894-95, p. 76.]
For Graduates and Undergraduates:—
[Economics] 2. Professors Ashley and Macvane. — Economic Theory from Adam Smith to the Present Time. — Selections from Adam Smith and Ricardo. — Modern Writers. — Lectures. 3 hours.
Total 34: 9 Graduates, 14 Seniors, 6 Juniors, 1 Sophomore, 4 Others.
Source: Harvard University, Annual Reports of the President and Treasurer of Harvard College, 1894-95, p. 62.
For Graduates and Undergraduates:—
[Economics] 2. Professors Ashley and Macvane. — Economic Theory from Adam Smith to the present time. — Selections from Adam Smith and Ricardo. — Modern Writers. — Lectures. 3 hours.
Total 37: 5 Graduates, 14 Seniors, 7 Juniors, 4 Sophomore, 7 Others.
Source: Harvard University, Annual Reports of the President and Treasurer of Harvard College, 1895-96, p. 63.
For Graduates and Undergraduates:—
[Economics] 2. Professor Taussig. — Economic Theory from the Middle of the Nineteenth Century to the Present Time. — English Writers. — The Austrian School. 3 hours.
Total 42: 12 Graduates, 12 Seniors, 13 Juniors, 2 Sophomores, 3 Other.
Source: Harvard University, Annual Reports of the President and Treasurer of Harvard College, 1896-97, p. 65.
- “According to Ricardo, the exchange value of commodities contains neither return to capital nor rent, but simply labor.” Why? or why not?
- Sketch concisely the development of the general theory of value at the hands of Ricardo, Mill, Cairnes.
- “Skill, as skill, produces no effect on value; in other words, commodities do not under any circumstances exchange for each other in proportion to the degree of skill bestowed on them. Skill, though in itself inoperative on value, nevertheless affects it indirectly in two distinct ways; first, where competition is effective among producers, through the cost which must be undergone in acquiring the skill; . . . and secondly, in the absence of competition, through the principle of monopoly.” — Cairnes.
Explain and illustrate.
- “If there really was a national fund the whole of which must necessarily be applied to the payment of wages, that fund could be no other than an aggregate of smaller similar funds possessed by the several individuals who compose the employing part of the nation. Does, then, any individual employer, possess any such fund? Is there any specific portion of any individual’s capital which the owner must necessarily expend upon labour? . . . May he not spend more or less on his family and himself, according to his fancy, — in the one case having more, in the other less, left for the conduct of his business? And of what is left, does he or can he determine beforehand how much shall be laid out on buildings, how much on materials, how much on labour? . . . Be it observed, fixity of definiteness is the very essence of the supposed wages-fund. No one denies that some amount or other must within any given period be disbursed in the form of wages. The only question is, whether that amount be determinate or indeterminate.” — Thornton, On Labour.
State carefully, and consider critically, the answers Cairnes made to these questions.
- Would you accede to the statement that “President Walker’s theory is, in reality, not a theory of manager’s earnings at all, but a theory of differences in manager’s earnings”?
- “For an understanding of the machinery by which distribution is accomplished, the classification of sources of income should thus be different from that to be adopted for an explanation of the fundamental causes.” — Taussig.
- Explain what is meant by Consumer’s Rent; and consider how its significance is affected by inequalities in wealth.
- “As a rule, the poorer soils rise in value relatively to the richer, as the pressure of population increases.” — Marshall. Why?
- Do you believe that a permanent gain for the theory of wages has been made by Walker’s discussion of that subject? If so, wherein? if not, why not?
- Does Marshall’s analysis of the different grades of labor, and of the barriers between them, differ in essentials from Cairnes’s? from Mill’s?
- Explain what “quasi-rent” is, wherein it differs from true rent, wherein resembles true rent; and state whether the conception seems to you a helpful one, deserving to be permanently embodied in economic theory.
- What do you conceive the difference to be between what Walker calls “current product,” Marshall “the national dividend,” and the instructor in the course “real income”?
- On what grounds does Marshall maintain that “the extra income earned by natural abilities may be regarded as a rent, when we are considering the sources of the income of individuals, but not with reference to the normal earnings of a trade”? What is your own opinion?
- “The attribute of normal value implies systematic and continuous production.” CAIRNES. Would Böhm-Bawerk accede to this proposition? Why, or why not? Give your own opinion.
- Explain what Böhm-Bawerk means by (subjective) “value”; and consider his analysis of the relation between value and cost.
- Enumerate the grounds on which Böhm-Bawerk maintains that “present goods have greater value than future goods of like kind and quantity”; consider to which of these grounds he gives most attention; and give your opinion as to the justice of this emphasis.
For Undergraduates and Graduates:—
[Economics] 2. Professor Taussig. — Economic Theory in the Nineteenth Century. 3 hours.
Total 32: 9 Graduates, 9 Seniors, 11 Juniors, 3 Sophomores.
Source: Harvard University, Annual Reports of the President and Treasurer of Harvard College, 1897-98, p. 77.
Detailed Course Description
*2. Economic Theory in the Nineteenth Century. Mon., Wed., Fri., at 2.30. Professor Taussig. (V)
Course 2 is designed to acquaint the student with the history of economic thought during the nineteenth century, and to give him at the same time training in the critical consideration of economic principles. The exercises are accordingly conducted mainly by the discussion of selected passages from the important writers; and in this discussion students are expected to take an active part. Lectures are given at intervals, tracing the general movement of economic thought and describing its literature. Special attention will be given to the theory of distribution.
The course opens with an examination of Ricardo’s doctrines, selections from Ricardo’s writings being read and discussed. These will then be compared with the appropriate chapters in Mill’s Principles of Political Economy, and further with passages in Cairnes’ Leading Principles. The theory of wages, and the related theory of business profits, will then be followed in the writings of F. A. Walker, Sidgwick, and Marshall, and a general survey made of the present stage of economic theory in England and the United States. The development on the continent of Europe will be traced chiefly in lectures; but toward the close of the year a critical examination will be made of the doctrines of the modern Austrian school.
Course 2 is taken with advantage in the next year after Course 1 [Outlines of Economics taught by Professor Frank Taussig, Assistant Professor Edward Cummings and Dr. John Cummings]; but Course 15 [The History and Literature of Economics to the Close of the Eighteenth Century taught by Professor William James Ashley] may also be taken with advantage after Course 1, and then followed by Course 2, or taken contemporaneously with it.
Source: Harvard University, Faculty of Arts and Sciences, Division of History and Political Science, 1897-98, p. 34.
[Arrange your answers in the order of the questions. One question may be omitted.]
- According to Ricardo, what is the effect, if any, of a rise in the price of food on wages? on profits? on the prices of commodities?
- “Ricardo expresses himself as if the quantity of labor which it costs to produce a commodity and bring it to the market, were the only thing on which its value depended. But since the cost of production to the capitalist is not labor but wages, and since wages may be greater or less, the quantity of labor being the same; it would seem that the value of the product cannot be determined solely by the quantity of labor, but by the quantity together with the remuneration; and that values must depend on wages.” — Mill.
What do you conceive Ricardo would have said to this?
- “We have therefore remarked that the difficulty of passing from one class of employments to a class greatly superior, has hitherto caused the wages of all those classes of laborers who are separated from one another by any very marked barrier, to depend more than might be supposed upon the increase of population of each class, considered separately; and that the inequalities in the remuneration of labor are much greater than could exist if the competition of the laboring people generally could be brought practically to bear on each particular employment. It follows from this that wages in each particular employment do not rise or fall simultaneously, but are, for short and sometimes even for long periods, nearly independent of each other. All such disparities evidently alter the relative costs of production of different commodities, and will therefore be completely represented in the natural or average value.” — Mill.
What has Cairnes added to this?
- “He [Mr. Longe] puts the case of a capitalist who, by taking advantage of the necessities of his workmen, effects a reduction in their wages; and asks how is this sum, thus withdrawn, to be restored to the fund? . . . The answer to the case put by Mr. Longe is easy on his own principles; and I am disposed to flatter myself that the reader who has gone with me in the foregoing discussion will not have much difficulty in replying to it on mine.” — Cairnes.
Give the reply.
- “Fixity or definiteness is the very essence of the supposed wages-fund. No one denies that some amount or other must within a given period be disbursed in the form of wages. The only question is whether that amount be determinate or indeterminate.” — Thornton.
What is Cairnes’s answer to the question put in this passage?
- What would you expect the relation of imports to exports to be in a country whose inhabitants had for a long time been borrowing, and were still borrowing, from the inhabitants of other countries?
- Are general high wages an obstacle to a country’s exporting?
- “Granted a certain store of provisions, of tools, and of materials for production, sufficient, say, for 1000 laborers, those who hold the wage-fund theory assert that the same rate of wages (meaning thereby the actual amount of necessaries, comforts, and luxuries received by the laborer) would prevail whether these laborers be Englishmen or East Indians. . . . On the contrary, it is not true that the present economical quality of the laborers, as a whole, is an element in ascertaining the aggregate amount that can now be paid in wages; that as wages are paid out of the product, and as the product will be greater or smaller by reason of the workman’s sobriety, industry, and intelligence, or his want of these qualities, so wages may and should be higher or lower accordingly?”
Give your opinion.
- What do you conceive to be the “no profits class of employers” in President Walker’s theory of distribution?
The answer to one question may be omitted.
- The analysis of capital in its relation to labor and wages at the hands of Ricardo and of Böhm-Bawerk, — wherein the same? wherein different?
- The contributions of permanent worth for economic theory by Cairnes? by F.A. Walker? [Consider one.]
- The position of Carey and Bastiat in the development of economic theory.
- “If the efficiency of labor could be suddenly doubled, whilst the capital of the country remained stationary, there would be a great and immediate rise in real wages. The supplies of capital already in existence would be distributed among the laborers more rapidly than would otherwise be the case, and the increased efficiency of labor would soon make good the diminished supplies. The fact is that an increase in the efficiency of labor would bring about an increase in the supply of capital.” — Marshall. Why? or why not?
- “The capital of the employer is by no means the real source of the wages even of the workmen employed by him. It is only the intermediate reservoir from which wages are paid out, until the purchasers of the commodities produced by that labor make good the advance and thereby encourage the undertaker to purchase additional labor.” W. Roscher.
What do you say to this?
- “If the rate of profit falls, the laborer gets more nearly the whole amount of the product. But if the rate of wages falls, we have a corresponding fall in prices and little change in the relative shares of labor and capital.” Hadley.
Why, or why not, in either case?
- “In the present condition of industry, most sales are made by men who are producers or merchants by profession, and who hold an amount of commodities entirely beyond any needs of their own. Consequently, for them the subjective use-value of their own wares is, for the most part, very nearly nil; and the figure which they put on their own valuation almost sinks to zero.” Explain the bearing of this remark on the theory of value as developed by Böhm-Bawerk.
- What, according to Böhm-Bawerk, is the explanation of interest derived from “durable consumption goods”? And what is your own view?
- How far do you conceive that there is a “productivity” of capital, serving to explain the existence of interest, and the rate?
Course Description and Enrollment
For Undergraduates and Graduates:—
[Economics] 2. Professor Taussig. — Economic Theory in the Nineteenth Century. Discussion of selected paassages from leading writers. The history of theory. Lectures and recitations (3 hours).
Total 67: 5 Graduates, 27 Seniors, 22 Juniors, 3 Sophomores, 10 Others.
Source: Harvard University, Annual Reports of the President and Treasurer of Harvard College, 1898-99, p. 72.
- Are the high wages earned by some kinds of skilled laborers cause or effect of high prices of commodities made by them?
- Many Americans annually visit European countries, and there spend freely. Supposing this to be the only cause, beside the imports and exports of merchandise, affecting the international trade of the United States, what would you expect the usual relation of its imports and exports to be? and what the usual flow of specie to or from the country?
- “What a nation is interested in is, not in having its prices high or low, but in having its gold cheap — understanding by cheapness not low value, but low cost — a small sacrifice of ease and comfort; and it generally happens that cheap gold is accompanied by a high scale of prices.”
How does a country gain from having its gold cheap? and why need cheap gold not be accompanied by a high scale of prices?
- “The distinction, then, between capital and non-capital does not lie in the kind of commodities, but in the mind of the capitalist — in his will to employ them for one purpose rather than another; and all property, however ill adapted in itself for the use of laborers, is a part of capital, so soon as it, or the value to be received from it, is set apart for productive reinvestment.” Is this true?
- “The multitudes who compose the working class are too numerous and too widely scattered to combine at all, much more to combine effectually. If they could do so, they might doubtless succeed in diminishing the hours of labor, and obtaining the same wages for less work. But if they aimed at obtaining actually higher wages than the rate fixed by demand and supply — the rate which distributed the whole circulating capital of the country among the working population — this could only be accomplished by keeping a part of their number permanently out of employment. . . . The workpeople collectively would be no better off than before, having to support the same numbers out of the same aggregate wages.”
Whom do you suppose to be the writer of this passage? What would Cairnes say to it? Professor Taussig?
- “If the efficiency of labor could be suddenly doubled, whilst the capital of the country remained stationary, there would be a great and immediate rise in real wages. The supplies of capital already in existence would be distributed among the laborers more rapidly than would otherwise be the case, and the increased efficiency of labor would soon make good the diminished supplies. The fact is that an increase in the efficiency of labor would bring about an increase in the supply of capital.” — Marshall.
Why? or why not?
- Do you believe Walker’s discussion of the theory of wages has promoted the better understanding of the causes affecting the welfare of laborers? If so, how? If not, why not?
- “The extra gains which any producer or dealer obtains through superior talents for business, or superior business arrangements, are very much a similar kind [to rent]. If all his competitors had the same advantages, and used them, the benefit would be transferred to their customers, through the diminished value of the article: he only retains it for himself because he is able to bring his commodity to market at a lower cost, while its value is determined by a higher. All advantages, in fact, which one competitor has over another, whether natural or acquired, whether personal or the result of social arrangements . . . . assimilate the possessor of the advantage to a receiver of rent.” Mill.
Wherein does Walker’s doctrine differ from this?
Arrange your answers strictly in the order of the questions.
Three questions from this group.
- J. S. Mill’s contributions to economic theory, and his position as regards the development of theory.
- “Cost of production” and “expenses of production”: what Marshall designates by these phrases; whether he believes that “expenses” measure “cost”; and how far Cairnes and Mill believed “expenses” to measure “cost.”
- It has been said that the wages-fund doctrine grew out of the industrial conditions of England during the Napoleonic wars, — capital having then been accumulated to such an extent as to enable employers to pay their laborers by the month, week, or day, without waiting for the marketing of the product. It has been said also that its general acceptance was favored by the fact that it afforded a complete justification, as to wages, for the existing order of things. — Give your opinion as to the historical accuracy of these statements as to the origin and the ready acceptance of the doctrine.
- Marshall’s conclusions on the relation of cost and of utility to the value of a commodity, —
(a) for long periods, if it be subject to the law of constant returns;
(b) for short periods, if it be subject to the law of constant returns;
(c) for long periods, if it be subject to the law of increasing returns.
Which among these conclusions has been heretofore most dwelt on by economists? and which is applicable to the greatest range of phenomena?
Three questions from this group.
- Explain “consumers’ rent” (or “surplus,”) “producers’ rent,” “savers’ rent,” “quasi-rent”; and consider how far any or all of these conceptions are analogous to the traditional one of “economic rent.”
- The effect on consumers’ rent of a tax on a commodity subject to the law of diminishing returns; and the mode in which the reasoning would be affected according as the commodity were tobacco or diamonds.
- Admitting that interest is the reward of “abstinence,” does it follow that the rate of interest is a measure of the “abstinence” undergone by the several receivers of interest? Why or why not?
- The rent of rare natural abilities may be regarded as a specially important element in the income of business men, so long as we consider them as individuals. In relation to normal value, the earnings even of rare abilities are, as we have seen, to be regarded rather as a quasi rent than as a rent proper.” Is the rent of rare abilities specially important in the case of business men? if so, why? and why not to be regarded as rent in relation to normal value?
Two questions in this group.
- “ The instructed man of today desires that the world generally and all other countries should have a full circulation, while he would like for his own country, if that were possible, a trifle less than its distributive share of that supply, so that it may be a good country to buy in and not a very good country to sell in. He desires to have prices everywhere sustained, in order that trade may be good. He would like, if that were possible, to have prices in his own country permanently lower, though only a shade lower, than anywhere else, in order that his countrymen may get the largest share of that trade.’ Walker
Would you agree?
- Your conclusion as to whether in general a régime of falling prices is a cause of depression and an obstacle to prosperity; and whether the actual fall in prices during the past generation has had ill effects of this sort.
- The compensatory action of bimetallism, in regard to the ratio between the metals, and in regard to their stability in value: is it made out in either way? in both ways?
Course Description and Enrollment
For Undergraduates and Graduates:—
[Economics] 2. Professor Taussig. — Economic Theory in the Nineteenth Century. Lectures and discussions (3 hours); required reading.
Total 65: 8 Graduates, 17 Seniors, 27 Juniors, 3 Sophomores, 1 Freshman, 9 Others.
Source: Harvard University, Annual Reports of the President and Treasurer of Harvard College, 1899-1900, p. 69.
Arrange your answers strictly in the order of the questions. One question may be omitted.
- “That high wages make high prices, is a popular and widely-spread opinion. The whole amount of error involved in this proposition can only be seen thoroughly when we come to the theory of money.”
“It is another common notion that high prices make high wages; because the producers or dealers, being better off, can afford to pay more to their labourers.”
What would Cairnes say was the “amount of error” in the opinions here stated by Mill?
- “What was Cairnes’s answer to the question put by him: “Are these grounds for a separate theory of international trade?”
- Suppose country A to have to remit regularly a tribute to country B: trace the effects on imports and exports, on the usual rates of foreign exchange, on the level of prices in the two countries.
- Is Cairnes’s reasoning as to the effect which trade unions may exercise on wages consistent with his reasoning as to “a certain proportion of the sums invested, which must go to the payment of wages”?
- (a) “The tiller of the soil must abide in faith of a harvest, through months of ploughing, sowing, and cultivating; and his industry is only possible as food has been stored up from the crop of the previous year . . . To the extent of a year’s subsistence, then, it is necessary that some one should stand ready to make advances to the wage-laborer out of the products of past industry. All sums so advanced came out of capital.”
(b) ”But how largely, in fact, are wages advanced out of capital?. . . In some exceptional industries [e.g. transportation companies] it happens that the employer realizes on his product in a shorter time than once a week, so that the labourer is not only paid out of the product of his industry, but actually advances to the employer a portion of the capital on which he operates.”
(c) “In new countries . . . the wages of labor are paid only partially out of capital . . . A collection of accounts from the books of farmers in different sections before 1851 shows the hands charged with advances of the most miscellaneous character. Yet in general the amount of such advances does not exceed one third, and it rarely reaches one half, of the stipulated wages of the year. Now it is idle to speak of wages thus paid as coming out of capital. At the time these contracts were made the wealth which was to pay those wages was not in existence.”
Consider whether an advance from capital, or the absence of an advance, is made out in the cases here described by Walker.
- How far you regard wages and other incomes as predetermined, — i.e. determined by causes that have operated in the past; and how far your conclusion is affected by the saving and investment of a part of current money income.
- Your conclusion as to what share in distribution is “residual” (a) over short periods, (b) over long periods.
- Is the doctrine of a rigid and predetermined wages-fund set forth by Ricardo? by Mill?
- The “laissez-faire” and “natural rights” theory at the hands of Adam Smith, of Bastiat, of John Stuart Mill.
Arrange your answers strictly in the order of the questions.
- a) “The analysis of consumer’s surplus, or rent, gives definite expression to familiar notions, but introduces to new subtlety.”
b) Consider qualifications to be borne in mind in measuring consumer’s surplus; and give your conclusion as to helpfulness of the doctrine thus qualified.
- “When we speak of the national dividend, or distributable net income of the whole nation, as divided into the shares of land, labour, capital, we must be clear as to what things we are including, and what things we are excluding . . . The labour and capital of the country, acting on its natural resources, produce annually a certain net aggregate of commodities, material and immaterial, including services of all kinds. This is the true net annual income, or revenue, of the country; or, the national dividend.”
“It is to be understood that the share of the national dividend, which any particular class receives during the year, consists either of things that were made during the year, or the equivalents of those things. For many of the things made, or partly made, during the year are likely to remain in the possession of capitalists and undertakers of industry and to be added to the stock of capital; while in return they, directly or indirectly, hand over to the working classes some things that had been made in previous years.“
Consider as to these passages, (1) their relation to the doctrine of total utility and consumer’s rent, (2) whether you would accede to either statement, or to both.
- Define monopoly revenue; and consider the effect on monopoly and on the prices of the monopolized article of (1) a tax proportional to monopoly revenue, (2) a tax fixed in total amount, (3) a tax proportional to quantity produced.
- “We might reasonably dispute whether it is the upper blade of a pair of scissors or the lower that cuts a piece of paper, as whether value is governed by utility or cost of production. It is true that when one blade is held still, and the cutting is effected by moving the other, we may say with careless brevity that the cutting is done by the second; but the statement is not strictly accurate, and is to be excused only so long as it claims to be merely a popular and not a strictly scientific account of what actually happens.” Explain; and consider whether Mill or Cairnes would have accepted this conclusion.
5, 6, 7 (answer separately, or as one question, at your pleasure).
Rent and quasi-rent;
Producer’s rent and saver’s rent;
Producer’s rent and business profits, —
wherein like, wherein unlike; with a consideration of the helpfulness of the distinctions for the solution of economic problems.
- Compare the conclusions of Mill, Cairnes, Marshall, as to the causes of the differences in remuneration in different social strata.
- Suppose France, Germany, and the United States had not legislated as they did in 1873-75, what would have been, in your opinion, the course of the price of silver?
Source: Harvard University Archives. Prof. F. W. Taussig, Examination Papers in Economics 1882-1935 (Scrapbook).
Image Source: The Harvard Portfolio. Volume VI, Class of 1895.