Between his professorships at Carnegie and MIT, Franco Modigliani briefly held a professorship at Northwestern. It appears that Northwestern could not be faulted in its pursuit and courtship of Modigliani, but one sees that Modigliani’s academic heart was left in Cambridge. He answered the call to MIT, undoubtedly leaving a broken hearted colleague or two in Evanston.
Below the reading list and final exam questions for Franco Modigliani’s course at Northwestern “Monetary Policy”.
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Modigliani remembers Northwestern
Carnegie granted me a sabbatical year in 1957-58, during which I was a visiting professor at Harvard, where I stood in for Leontief (who was on leave)…At the end of 1959 I was again invited to be a visiting professor, but this time at MIT. I intended to accept, but the administration at the Carnegie Institute was against it. In that period I felt rather annoyed by the university, for I had the impressiona that the administration did not intend to invest resources in the economics sector. To my dismay, they decided not to replace an excellent economist, Alexander Henderson, who had worked alongside me and died prematurely…
Serena and I therefore decided it was time to move on and accepted MIT’s offer and an invitation to occupy a permanent chair at Northwestern University, with the proviso that I be allowed to retain my post of visiting professor at MIT. The year 1960, then, was a crucial one, for I fell in love with MIT. It was a delight to have so many colleagues who were both at the top of the profession and pleasant. The administration aimed only to oil the wheels of the teacher’s liffe, and the students were all of the first quality…
At MIT everyone knew I had the commitment to go to Northwestern and, nobless oblige, no one tried to deter me. The University of Northwestern [sic] gave us a grand welcome. We found a large funished house awaiting us near the campus, and we were taken to avarious areas in order that we might choose where to buy our home. But we made too many comparisons with MIT and could not make the decision to put down roots. Everyone was too kind, too solicitous, and maybe we had the feeling as of being animals in a zoo, with everybody asking us about Italy. Well, our hearts were still back at MIT. Judge, then, how happy we were when, at Christmas, the dean of the Sloan School at MIT phone me and asked: “Franco, now you’ve had a taste of Northwestern…what about coming back to us?” We had no hesitation, and in June 1962 Serena returned to Massachusetts alone and bought our house in Belmont, where I joined her as soon as I had finished my classes in Evanston and where we spent 36 happy years.
Source: Franco Modigliani, Adventures of an Economist. New York: Texere, 2001, pp. 91-2.
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NORTHWESTERN UNIVERSITY
Department of Economics
Economics C-30
Mr. Modigliani
Fall Term 1961
C-30 MONETARY POLICY
Reading List I
Books suggested for general background and review
Chandler—The Economics of Money and Banking, 3rd edition
Day and Bean—Money and Income
Sayers—Modern Banking
- The Supply of Money, the Banking System, Financial Intermediaries and the Matrix of Claims
Meade, J. E.—“The Amount of Money and the Banking System”—Readings in Monetary Theory.
The Federal Reserve System—Purposes and Functions—Ch. I-VIII and XIII
H.C. Carr—“Why and How to read the Federal Reserve Statement” Journal of Finance, Dec. 1959
Roosa, R. V.—Federal Reserve Operations in the Money and Government Securities Markets
Chandler, L. V.—“Federal Reserve Policy and the Federal Debt”—Readings in Monetary Theory
Federal Reserve Bulletin—August 19959 “A quarterly presentation of Funds, Saving and Investment”
Reading List II
- The Demand for Money
Fisher, I.—The Purchasing Power of Money, Chs. 1-6 and 8
Robertson, D.—Money, Chs. 4-6
Pigou, A.C.—“The Value of Money”, Readings in Monetary Theory
Hicks, J. R.—“A suggestion for simplifying the Theory of Money”, Readings in Monetary Theory
Tobin, J.—“The interest elasticity of Transaction Demand for Cash”, Review of Economics and Statistics (RE&S), August 1956
Keynes, J. M.—General Theory, Ch. 15
Friedman, M.—“The Restatement of the Quantity Theory of Money”, in Studies in the Quantity Theory of Money
Latané, H.A.—“Cash Balances and the Interest Rate”, RE&S, Nov. 1954, pp. 456-460
___________–“Income Velocity and Interest Rates”, RE&S, Nov. 1960, pp. 445-449
Stedry, A.C.—“A Note on Interest Rates and the Demand for Money”, RE&S, August 1959
Bronfenbrenner and Mayer—“Liquidity Functions in the American Money”, Econometrica, October 1960, Sects. I-IV
Friedman, M.—“The Demand for Money: Some Theoretical and Empirical Results”, JPE, August 1959
Reading List III
- The Modus Operandi of Monetary Policy—Money and Liquidity—Monetary and Fiscal Tools.
Keynes, J.M.—A Treatise on Money—Ch. 13, 31, 37.
Keynes, J.M.—The General Theory of Employment, Interest and Money—Ch. 2, 6, 10, 11, 18, 19, 21.
Hicks, J.R.—“Mr. Keynes and the Classics”—Readings in the Theory of Income Distribution.
Modigliani, F.—“Liquidity Preference and the Theory of Interest and Money”—Readings in Monetary Theory (except sections 10 and 13)
Patinkin, D.—“Price Flexibility and Full Employment”—Reading in Monetary Theory
Tobin, J.—“A Dynamic Aggregative Model”, JPE, April, 1955 (espec. pp. 103-111)
Modigliani, F.—“Long Run Implications of Alternative Fiscal Policies and the Burden of the National Debt”—(Mimeographed)
Roosa, R.V.—“Interest Rates and the Central Bank”—Money, Trade and Economic Growth; Essays in Honor of John H. Williams
Kareken, J.H.—“Lender’s Preferences, Credit Rationing and the Effectiveness of Monetary Policy”, Review of Economics and Statistics, August 1957.
Friedman, M.—“A Monetary and Fiscal Framework for Economic Stability” Readings in Monetary Theory.
American Assembly—United States Monetary Policy Ch. 1, 2, 7.
Friedman, M.—A Program for Monetary Stability, (Fordham University Press)
Axilrod, S.H.—“Liquidity and Public Policy,” Federal Reserve Bulletin, October 1961.
Reading List IV
- The Term Structure of Interest Rates, Monetary Policy and Debt Management
*Lerner, A.P.—“Essential Properties of Interest and Money”, QJE, May 1952
*Lutz, F.—“The Structure of Interest Rates”, Readings in the Theory of Income Distribution.
Hawtrey, H. G.—A Century of Bank Rates, Ch. VI
*Tobin, J.—“Liquidity Preference as Behavior Toward Risk”, Review of Economic Studies, Feb. 1958
*Meiselman, D.—“Expectations, Errors, and the Term Structure of Interest Rates” (mimeographed)
*Riefler, W.W.,–“Open Market Operations in Long Term Securities”, FRB, Nov. 1958
*Young, R.A. and Yager, C.A.—“The Economics of ‘Bills Preferably’” QJE, August, 1960.
Conrad, J.W.—An Introduction to the Theory of Interest. University of California Press, 1959 (especially part Three)
Final Examination
December 14, 1961
8:00-10:00
ANSWER ANY FOUR QUESTIONS
- Under the present system commercial member banks are required to keep a reserve proportional to their demand deposit liability in the form of cash or deposits with the Federal Reserve Banks.
- What is the function and role of these reserve requirements?
- What would be the major implications of requiring a reserve proportional to their commercial loans rather than to their demand deposits. Explain whether and why you would favor or oppose such a change?
- Some authors have maintained that the ability of certain financial intermediaries other than banks to create close money substitutes seriously impairs the effectiveness of monetary policy. Spell out the argument and assess its validity.
- Evaluate the relative merits and shortcomings of monetary and fiscal policies in dealing with “cost push” inflation.
- Explain the essence of the so called “availability doctrine” and its relevance for an understanding of the modus operandi of monetary policy.
- State the main arguments for and against the “bills only” doctrine and give your own evaluation and recommendation.
- The Federal Reserve Board and the Federal Deposit Insurance Corporation have recently raised the maximum rate payable on time deposits from 3 to 4%.
- What are the purposes and the likely effects of this move?
- Even though the new provision does not apply to Saving and Loan Institutions a spokesman for the United States Saving and Loan League was quoted by the Sun-Times of December 2 to the effect that the change “may very well mean some dividend rate increase by Savings and Loan institutions in different parts of the country” and “If Savings and Loans have to pay more for dividends they will have to increase rates on mortgages. This is a surprising development in view of the administration’s announced drive to hold mortgage rates down.” Assess this statement critically.
Source: Duke University, Rubenstein Library. Franco Modigliani Papers, Box T6, Folder “Teaching material, Economics, 1961”.
Image Source: Website Archivio Storico degli economisti.