Category: Chicago

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Chicago Fields Suggested Reading Syllabus

Chicago. Industrial Organization Reading List. Stigler, 1973

 

While the asterisks in the following reading list probably indicate the subset of required course readings, the  list in its entirety may be considered George Stigler’s universe of readings relevant for a graduate student intending to take a comprehensive examination in the field of industrial organization at Chicago. An autobiographical note by George Stigler from 1982 is included at the Nobel Prize website.

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READING LIST
INDUSTRIAL ORGANIZATION
George J. Stigler

Spring, 1973
Business 305
Economics 380

  1. The Definition and Empirical Determination of Competition and Monopoly
    1. Analytical literature

A. P. Lerner, “The Concept of Monopoly”, Review of Economic Studies, Vol. 1

F. H. Knight, Risk, Uncertainty and Profit, p. 76 ff.

G. J. Stigler, “Perfect Competition, Historically Contemplated”, Journal of Political Economy, 1957 (reprinted in Essays in the History of Economics).

*G. J. Stigler, The Organization of Industry, Ch. 2, 3, 4.

*G. Rosenbluth, “Measure of Concentration”, in Business Concentration and Price Policy.

E. F. Fama and A. B. Laffer, “The Number of Firms and Competition”, AER, Sept. 1972.

T. Scitovsky, “Economic Theory and Measurement of Concentration”, in Business Concentration and Price Policy.

M. O. Finkelstein and Richard Friedberg, “The Application of an Entropy Theory of Concentration”, Yale Law Review, March 1967.

H. Demsetz, “Why Regulate Utilities?”, Journal of Law and Economics, April 1968.

    1. Statistical studies

*A. C. Harberger, “Monopoly and Resource Allocation”, American Economic Review, May 1954.

G. Rosenbluth, Concentration in Canadian Manufacturing Industries.

R. Evely and I. M. D. Little, Concentration in British Industry, Ch. 1, pp. 104 ff., 160 ff.

P. Pashigian, “Market Concentration in the United States and Great Britain”, Journal of Law and Economics, October 1968.

Ralph C. Nelson, Concentration in the Manufacturing Industries of the United States, Ch. I-IV.

Carl Eis, “The 1919-1930 Merger Movement in American Industry”, Journal of Law and Economics, October 1969.

F. L. Pryor, “An International Comparison of Concentration Ratios,” Review of Economics and Statistics, May 1972.

M. Gort, “Analysis of Stability and Change in Market Shares”, Journal of Political Economy, 1963.

R. W. Kilpatrick, “A Choice Among Alternative Measures of Industrial Concentration”, Review of Economics and Statistics, May 1967.

*Irvin Grossack, “the Concept and Measurement of Permanent Industrial Concentration, Journal of Political Economy, July/Aug 1972.

  1. Determinants of the Firm-Size Structure
    1. The Economies of Scale

J. McConnell, “Corporate Earnings by Size of Firm”. Survey of Current Business, May 1945.

J. Johnston, Statistical Cost Functions, esp. pp. 110 ff., Ch. 6.

J. Haldi and D. Whitcomb, “Economies of Scale in Industrial Plants”, Journal of Political Economy, 1967.

J. S. Bain, Barriers to New Competition.

*J. S. Bain, “Economies of Scale…” in Readings in Industrial Organization and Public Policy.

*G. J. Stigler, The Economies of Scale, The Organization of Industry, Ch. 7.

P. E. Hart, “The Size and Growth of Firms”,Economica, February 1962.

*F. Modigliani, “New Developments on the Oligopoly Front”, Journal of Political Economy, June 1958.

D. Osborne, “The Role of Entry in Oligopoly Theory”, Journal of Political Economy, 1964.

L. Weiss, “The Survivor Technique and the Extent of Suboptimal Capacity”, Journal of Political Economy, June 1964.

T. Saving, “Estimation of Optimum Size of Plant by the Survivor Method”, Quarterly Journal of Economics, Nov. 1961.

L. Telser, Competition, Collusion and Game Theory, Ch. 8.

    1. Mergers

A. S. Dewing, “A Statistical Test of the Success of Consolidations”, Quarterly Journal of Economics, 1921.

G. J. Stigler, “Monopoly and Oligopoly by Merger”, The Organization of Industry, Ch. 8.

F. T. C., Report on Corporate Mergers and Acquisitions.

*J. Markham, “Survey of the Evidence and Findings on Mergers”, in Business Concentration.

J. F. Weston, The Role of Mergers in the Growth of Large Firms.

G. J. Stigler, “The Statistics of Monopoly and Merger”, Journal of Political Economy, 1956.

*Ralph Nelson, Merger Movements in American Industry.

H. G. Manne, “Mergers and the Market for Corporate Control”, Journal of Political Economy, April 1965.

  1. The Effects of Concentration
    1. Collusion

*D. H. MacGregor, Industrial Combination, Part II, Ch. 1.

W. Fellner, Competition Among the Few.

W. Nicholls, Imperfect Competition Within Agricultural Industries, pp. 120-130.

F. Machlup, Economics of Sellers’ Competition, Ch. 13.

*G. J. Stigler, The Organization of Industry, Ch. 5.

W. Nutter, “Duopoly, Oligopoly, and Emerging Competition”, Southern Economic Journal, 1964.

Lester Telser, Competition, Collusion and Game Theory, Ch. 5.

    1. Price Discrimination

N. I. C. B., Public Regulation of Competitive Practices, pp. 63-85.

J. P. Miller, Unfair Competition, Ch. 7-9.

J. Robinson, Economics of Imperfect Competition, Bk. V.

F. Machlup, The Basing Point System.

G. J. Stigler, A Theory of Uniform Delivered Prices, The Organization of Industry, Ch. 14.

    1. Price Rigidity

*G. Means, Industrial Prices and Their Relative Inflexibility.

Sweezy and Stigler, articles on the kinked oligopoly demand curve in American Economic Association, Readings in Price Theory.

A. C. Neal, Industrial Concentration and Price Inflexibility.

*Stigler, Administered Prices and Oligopolistic Inflation, The Organization of Industry, Ch. 19.

*Stigler & Kindahl, The Behavior of Industrial Prices, Ch. 1, 4, 5.

Government Price Statistics (Joint Economic Committee, 1961, also, National Bureau of Economic Research), Staff Papers No. 8 and 9.

R. Selden and C. dePodwin, “Business Pricing Policies and Inflation”, Journal of Political Economy, 1963.

L. Weiss, “Business Pricing Policies and Inflation Reconsidered,” Journal of Political Economy, 1966.

    1. Profits

*J. S. Bain, “Relation of Profit Rate to Industry Concentration”, Quarterly Journal of Economics, August 1951.

N. R. Collins and Lee E. Preston, Concentration and Price-Cost Margins in Manufacturing Industries.

G. J. Stigler, Capital and Rates of Return in Manufacturing Industries, Ch. 3.

Y. Brozen, “The Antitrust Task Force Deconcentration Recommendation”, Journal of Law and Economics, October, 1970.

S. I. Ornstein, “Concentration and Profits”, Journal of Business, Oct. 1972.

  1. Topics in Industry Behavior
    1. Advertising

E. Chamberlin, Theory of Monopolistic Competition, Ch. 6-7.

L. Telser, “Advertising and Cigarettes”, Journal of Political Economy, October 1962.

*N. Kaldor, “Economic Aspects of Advertising”, Review of Economic Studies, 1950.

*L. Telser, “Advertising and Competition”, Journal of Political Economy, December 1964.

*G. J. Stigler, “The Economics of Information,” The Organization of Industry, Ch. 16.

J. Peterman, “The Clorox Case and the Television Rate Structure”, Journal of Law and Economics, Oct. 1968.

W. S. Comanor and T. A. Wilson, “Advertising Market Structure and Performance”, Review of Economics and Statistics, 1967.

Phillip Nelson, “Information and Consumer Behavior,” Journal of Political Economy, April 1970.

    1. The Nature of the Firm and Vertical Integration

*R. Coase, “The Nature of the Firm”, Readings in Price Theory.

H. Demsetz, “The Exchange and Enforcement of Property Rights”, Journal of Law and Economics, October 1964.

A. Smith, Wealth of Nations, Bk. I, Ch. 3.

Marshall, Principles of Economics, Bk. IV, Ch. 10-13.

A. Young, “Increasing Returns and Economic Progress”, Economic Journal, 1928 (and in Clemence’s Readings in Economic Analysis, 2 vols.)

G. J. Stigler, “Division of Labor is Limited by the Extent of the Market,” The Organization of industry, Ch. 12.

*M. Adelman, “Concept and Measurement of Vertical Integration”, in Business Concentration and Price Policy.

M. Gort, Diversification and Integration in American Industry.

    1. Conglomerate Mergers

C. Edwards, “Conglomerate Progress as a Source of Power”, in Business Concentration and Price Policy.

J. Lorie and P. Halpern, “Conglomerates: The Rhetoric and the Evidence”, Journal of law and Economics, April 1970.

FTC, Economic Report on Corporate Mergers (1969).

    1. Schumpeter’s Theory

*Schumpeter, Capitalism, Socialism and Democracy, Ch. 7-8.

E. Mansfield, “Size of Firm, Market Structure, and innovation”, Journal of Political Economy, 1963.

A. Plant, “Economic Theory Concerning Patents for Invention”, Economica, 1934.

*John McGee, “Patent Exploitation”, Journal of Law and Economics, Oct. 1966.

P. Swan, “Market Structure and Technological Progress”, Quarterly Journal of Economics, 1970.

  1. Large Number Industries
    1. Cartels

G. J. Stigler, The Theory of Price, (1966), Ch. 13.

Clair Wilcox, Public Policies Toward Business(3rd) Ch. 30.

C. Edwards, Economic and Political Aspects of International Cartels.

    1. Trade Associations

*Mancur Olson, The Logic of Collective Action, esp. pp. 125-167.

T. N. E. C. Monograph No. 18, Trade Association Survey.

    1. Retailing: Resale Price Maintenance

W. Bowman, “Prerequisites and Effects of Resale Price Maintenance”, University of Chicago Law Journal, 1955.

F. T. C., Resale Price Maintenance.

*L. Telser, “Resale Price Maintenance”, Journal of Law and Economics, October 1960.

B. Yamey, The Economics of Resale Price Maintenance.

  1. Anti-trust Policy
    1. History

J. D. Clark, Federal Trust Policy.

W. H. Taft, The Anti-trust Act and the Supreme Court.

H. B. Thorelli, The Federal Antitrust Policy.

Robert Bork, “Legislative Intent and the Policy of the Sherman Act”, Journal of Law and Economics, October 1966.

R. Posner, “A Statistical Study of Antitrust Enforcement”, Journal of Law and Economics, 1970.

G. Stigler, “The Economic Effects of the Antitrust Laws,” Journal of Law and Economics, Oct. 1966.

    1. Major dissolutions

E. Jones, Trust Problem in the United States, Ch. 18.

Hale, “Trust Dissolution”, Columbia Law Review, 1940.

W. S. Stevens, Industrial Combinations and Trusts, Ch. 14-15.

S. Whitney, Antitrust Policies, 2 vols.

    1. Law of Conspiracy

U. S. v. Trenton Potteries, 273 U.S. 392 (1927).

F. T. C. v. Cement Institute, 68 Sup. Ct. 793 (1948).

Report of Attorney-General’s National Committee on the Anti-trust Laws.

 

Source: University of Chicago Archives. George Stigler Papers, Box 2, Folder “1970’s: course notes + related: Industrial org. + microeconomics”.

Image Source: George Stigler (November 1977). University of Chicago Photographic Archive, apf3-00844, Special Collections Research Center, University of Chicago Library.

 

Categories
Chicago Problem Sets

Chicago. Unions and wages problem set. Murphy, 2008

 

 

The following problem was assigned by Kevin Murphy in Economics 301 at the University of Chicago during the Autumn quarter of 2008. Marshall Steinbaum, Friend of Economics in the Rear-view Mirror and Research Director at the Roosevelt Institute), provided a copy to share here with the history of economics community. 

Marshall Steinbaum writes:

Gary Becker and Kevin Murphy would each give one lecture per week. Every weekly problem set had two questions, one assigned by Becker and one by Murphy. This one on unions was Murphy’s, as indeed were all the ones with a vaguely macro cast to them. It was odd how he both denigrated macro in lectures and assigned a whole shadow macro curriculum.

The problem below can be profitably read in light of the contemporary discussion of monopsony power and unions (e.g. Kate Bahn, “Understanding the importance of monopsony power in the U.S. labor market,” Equitable Growth, July 5, 2018)

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Links to 1947 Harvard syllabi on unions

Looking back in the rear-view mirror a half-century earlier, it is interesting to note the depth of coverage of unions in the graduate labor sequence at Harvard taught by John Dunlop:

Economics 81a Labor Organization and Collective Bargaining

Economics 81b  Labor and Public Policy

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Problem by Kevin Murphy on unions (2008)

Consider the impact of unions on wages. Consider a simple economy with a fixed supply of labor, L, which is supplied inelastically. Assume that there is a union that sets wages for workers covered by the union contract so as to maximize the income of its members. Assume that there are three inputs to production, L1, L2 and K. All workers are identical and can provide either type 1 or type 2 labor. Capital is supplied in a competitive market. Assume that all prices are denominated in terms of the output good Y.

  1. If the production function has the form Y=F(K,G(L1,L2)), where both F() and G() are CRS, how would a union that can set wages for L1and L2 desire to set wages? Might the union want to set wages at the competitive level? Would the union want to set equal wages for the two types of labor? Why or why not?
  2. How would your answer to A change if the production function was Y=H(K,L1,L2), where H was CRS?
  3. What would happen in parts A and B if the supply of capital was perfectly elastic? Why?
  4. Now assume that markets are initially competitive which results in competitive prices and usage for each type of labor and capital. Assume that those working as type 2 workers form a union so that they can increase their incomes. In particular assume that the newly formed union seeks to maximize the incomes of its initial members. Under the assumption of part A, how would the union set the wage for type 2 labor? What effect would this have on overall labor income? Could it make workers as a whole worse off? If so when and why?
  5. Now assume that there is only one type of labor so that Y=F(L,K) with F() having CRS. Assume that the union is free to set the real wage picks a wage that will maximize the current income of workers and that the demand for labor is inelastic at the steady state wage rate. Assume that the capital stock is fixed initially but that capital is accumulated via investment as in the neo-classical growth model. If we start at the steady state of the neoclassical growth model, what will happen to wages, capital and employment over time? Why?

Source: Transcribed from a personal copy of Marshall Steinbaum made available to Economics in the Rear-view Mirror.

_____________________

Marshall Steinbaum added

“In this case, I believe the point is that when the union causes labor to be paid in excess of its marginal product, the rate of return on capital is driven lower than the capitalists’ rate of time preference, causing them to cease to supply capital. As the capital stock depreciates away, the labor share remains high even as the wage level declines, causing a downward spiral rather than re-equilibration at a lower level of capital and output.

These problem sets were never explicitly tied to real-world events, but the sense I got was that this was intended to be a theory of the declining manufacturing sector in the United States and Western Europe.”

Source: Personal communication.

Image Source:  Kevin Murphy in “Chicago Schooled” by Michael Fitzgerald, University of Chicago Magazine (September-October, 2009).

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.

________________

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.

________________

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 Exam Questions Problem Sets

Chicago. Problems and exam. Income and Employment Theory. Friedman, 1966-67

 

In an earlier post we saw that Milton Friedman resisted the move to relabel the Chicago courses in (aggregate) income and employment theory “macroeconomics”. Below we have the take-home problem sets for 1966 and 1967 together with the final examination questions for the 1966 version of the course transcribed from copies in Friedman’s papers at the Hoover Institution Archives.

Pro-tip: Incomplete transcripts of his taped lectures for the course are filed at the Hoover Archives along with the material posted here. These await the caring editorial hand of some (other) historian of economics.

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ECONOMICS 332
Winter, 1966
Problems for Reading Period

(Due at Final Exam, Monday, March 14, 1966, 1:30 P.M.)

  1. In an economy using fiduciary money, it costs nothing to create additional cash balances. Hence, it is desirable to encourage wealth-holders to hold additional cash balances so long as they get any additional non-pecuniary return from them. One way to do so is through a deliberate policy of announced deflation.
  2. For individuals, additions to cash balances are a substitute for real saving in the form of direct investment or loans to finance direct investment; hence, the larger the additions to cash balances, the lower will tend to be the volume of real capital formation. Since economic growth depends on the volume of real capital formation, it is desirable to discourage the hoarding of cash. One way to do so is through a deliberate policy of announced inflation.
    Both statements offer plausible, yet they lead to precisely opposite policy conclusions. Can you reconcile them? If not, which, in your opinion, is in error? What is the source of the mistake?

*  *  *  *  *  *  *  *  *  *  *

Milton Friedman

ECONOMICS 332
Final Examination. Winter, 1966
March 14, 1966

[25 Points]

  1. Indicate in each box whether the change in the indicated variable would, under the specified conditions, tend to be an increase (+), decrease (-), no change (0), or is uncertain (?). In each case, of course, assume other relevant variables unchanged.
    Make usual assumptions about behavior functions.

Assumed change

Underemployment
Rigid Wages

 Full Employment
Flexible Wages
Employ-
ment		 Interest
rate		 Real
stock
of
money		 Con-sump-tion Price level Interest rate Real stock of money

Consump-tion
(1) Rise in tariff
(2) Increase in government taxes, no change in government expenditures
(3) Reduction in legal reserve requirements of member banks
(4) Discovery of vast oilfields
(5) Substitution of tax on land values for tax on wages, no change in revenue
(6) Emergence of widespread fear of civil disturbances

 

[30 Points]

  1. An earthquake destroys half the physical capital in a country but miraculously there is negligible loss of life. The earthquake was most unusual, was unexpected and no one expects a repetition.
    1. Show graphically the effect on (1) the stock demand and supply for capital; (2) the flow demand and supply curves.
    2. Assuming flexible prices and full employment throughout, what, if anything, can you say about the initial effects on (1) rental rate on capital goods; (2) sales price of capital goods; (3) interest rate [i.e., ratio of (1) to (2)]; (4) real wage rate; (5) fraction of income consumed; (6) absolute level of investment.
    3. What about ultimate effects on these variables?
    4. Assuming initially rigid wages and underemployment, what, if anything, can you say about initial effects on items listed in (b)?

[15 Points]

  1. “The relation between the volume of economic activity and the price level is not simple. As a first approximation, the classical law of supply and demand leads one to expect that the change in the price level will depend mainly on the size of the gap between capacity and actual output” 1966 Annual Report, Council of Economic Advisers, pp. 63-64.
    “Money prices, as opposed to relative prices, can never be governed by the conditions of the commodity market itself (or of the production of goods)” K. Wicksell, Interest and Prices (1898), p. 24.
    In your opinion, does this shift in economic theory over the past 68 years reflect progress or retrogression? Justify your answer.

[15 Points]

  1. Consider a hypothetical economy in which initially, government expenditures (G) are 100, private investment (I) is 50, and private consumption (C) is 350, so that national product (Y) is 100 + 50 + 350 = 500, and tax receipts (T) are 90. Assume that G and T are both reduced by 10 to 90 and 80 respectively, and that wage rates are rigid.
    1. If you neglect any effects on the rate of interest, what would be the resulting values of C, I, and Y? Prove your answer in general by a simple algebraic analysis.
    2. Would you expect any effects on the interest rate if nominal quantity of money is constant? If so, what effect? How would this in turn affect I, C, and Y? Give hypothetical numbers that might correspond to final outcome.
      Again, prove your answer.
    3. What additional complications, if any, are relevant in generalizing these effects of a balanced budget change to actual circumstances?

[15 Points]

  1. Discuss the “real balance effect,” indicating what you think to be its meaning, and what role it has played in discussions of the possibility of under-employment equilibrium. In the course of your answer indicate what economists have been the main contributors to the discussion and what their specific contributions have been.

*  *  *  *  *  *  *  *  *  *  *

Milton Friedman
Spring Quarter, 1967
Economics 332

ECONOMICS 332
Problem for Reading Period
Due at Final Exam, Wed., June 7, 1967
(Maximum length = 1,000 words)

MONETARY vs. FISCAL POLICY

Define fiscal policy as deliberate changes in the government tax structure or expenditure structure for a given behavior of the quantity of money; monetary policy as a change in the rate of change of the quantity of money for a given tax and expenditure structure.

  1. Using the standard income-expenditure model, and assuming prices are rigid, analyze the effect on real income and interest rates of an increase in taxes which would raise the full-employment surplus (or lower the full-employment deficit) by X billion dollars. Specify the parameters on which the result depends and indicate limiting cases.
  2. Using the same model, indicate how to determine the change in monetary policy that would have the same effect on real income. How would other effects of the two policies differ?
  3. The standard model is in terms of comparative statics, so (1) and (2) would be analyzed in terms of a comparison of two alternative positions at a single date. In addition, the only stock variable in the standard model is the quantity of money. Modify the analysis in (1) in both respects. That is, indicate the time path of adjustment you might expect and why, taking into account any effects on such stock variables as total holdings of government and private securities.
  4. Similarly, analyze the time path of the effect of a decline in the rate of monetary growth by, say, X percentage points, again allowing for effect on stocks.

Source: The Hoover Institution Archives. Papers of Milton Friedman, Box 77, Folder “University of Chicago, Econ. 331 [sic]”.

Image Source: Milton Friedman at Pepperdine University in 1977.

 

Categories
Bibliography Chicago

Chicago. Course Bibliography (books). Economics and Social Institutions. Knight, 1949

 

 

Together Frank Hyneman Knight (Morton D. Hull Distinguished Service Professor of the Social Sciences) and Charner Marquis Perry (Associate Professor of Philosophy) taught a course at mid-century on institutional economics with the title “Economics and Social Institutions”. The course was a joint graduate offering of the departments of economics and philosophy at the University of Chicago. This post provides a transcription of a bibliography of books for the course that was found filed among Milton Friedman’s papers at the Hoover Institution Archives. One presumes from the title “Bibliography A: Books” that there must have been a “Bibliography B: articles and chapters”, but to find a copy of that B-Bibliography, we will need to go elsewhere and have a bit of luck.

_______________

Course Announcement

[Economics] 305. Economics and Social Institutions (identical with Philosophy 305). The relations between the classical mathematical and the institutional historical views of economic phenomena; institutional factors as the framework and much of the content of the price economy; late nineteenth-century economic society as a complex of structural forms. Prereq: Econ 301 and some European economic history. Win: M 3:30-5:30; Knight, Perry.

 

Source:  University of Chicago. Announcements, Sessions of 1950-1951. Volume L, No. 3 (June 1, 1950), p. 29.

_______________

ECONOMICS AND SOCIAL INSTITUTIONS.
(ECON. 305; Philos. 305)

BIBLIOGRAPHY—A:  BOOKS.
(WINTER, 1949)

Ardzrooni, L. (Ed.)—Essays in our Changing Order (Veblen)

Ayres, C.E.—The Theory of Economic Progress

Ibid.—The Economic Order
Ibid.—The Divine Right of Capital

Ballard, L.V.—Social Institutions

Barnes, Harry E.—History and Prospects of the Social Sciences

Ibid.—Intellectual and Cultural His. Of the Western World

Barth, Paul,—Die Philosophie der Geschichte als Sociologie

Barnes, H.E. and Becker,—Social Thought from Lore to Science

Beard, Miriam,—History of the Business Man

Bucher, Karl,–Industrial Evolution

Bury, J.B.—The idea of Progress

Ibid.—History of Freedom of Thought
Ibid.—Evolution and History (in Evolution in Modern Thought)

Clark, John M.—Essays in Social Economics

Commons, John R.—Institutional Economics

Ibid.—Legal Foundations of Capitalism

Dewey, John,–Influence of Darwin on Philosophy

Dickinson, H.D.—Institutional Revenue

Dorfman, Joseph—Thorstein Veblen and His America

Engel-Janozi, Fr.—Growth of German Historicism

Einstein, Lewis,–Historical Change

Evolution in Modern Thought, (Mod. Lib.—Various authors)

Gambs, John S.—Beyond Supply and Demand (Bibliog., short)

Gras, N.S.B.—Introduction to Economic History

Ibid.—Business and Capitalism

Gruchy, Allan L.—Modern Economic Thought; The American Contribution

Hamilton, Walton H.—The Pattern of Competition

Hayes, E.C. (Ed.)—Recent Developments in the Social Sciences (J.M. Clark)

Hertzler, J.O.—Social Institutions

Herskovits, J.M.—The Economic Life of Primitive Peoples

Homan, Paul T.—Contemporary Economic Thought

Hook, Sidney,—From Hegel to Marx

Ibid.—Toward the Understanding of Karl Marx

Huxley, Julian,—Evolution

Jones, Richard,—Introductory Lecture on Political Economy

Keynes, J.N.—Scope and Method of Pol. Econ. (Esp. Chaps. IX, X)

Korsch, Karl,—Karl Marx

Miller, Hugh,—History and Science

Mitchell, Wesley C.—The Backward Art of Spending Money, etc.

Mitchell, William,—The Early History of the Law Merchant

Morgan, C. Lloyd,—Emergent Evolution

Ibid.—The Emergence of Novelty

Mukerjee, R.—The Institutional Theory of Economics

Mumford, Lewis,—Technics and Civilization

Müller-Lyer,—A History of Social Development (Econ. Stages)

Murchison, C. (Ed.)—Psychologies of 1925

Ogburn, William F.—Social Change

Ibid., and Goldenweiser, E.A.—Social Sciences in Interrelations

Parsons, Talcott,—The Structure of Social Action

Pound, Roscoe,—Interpretations of Legal History

Rice, Stuart A. (Ed.)—Methods in Social Science

Robertson, H.M.—The Rise of Economic Individualism

Sapir, Edward—Language (Chs. 7-8 on linguistic change)

Sée, Henri,—The Economic Interpretation of History

Ibid.—Modern Capitalism (Les origins de cap. modern)

Seligman, E.R.A.—The Economic Interpretation of History

Shotwell, J.T.—Introduction to History of History (Introduction and last chapter)

Simiand, François,—La méthode positive en économie politique

Small, A.W.—The Origins of Sociology (Historism and Methodenstreit)

Sombart, Werner,—The Quintessence of Capitalism

Ibid.—Die drei Nationalökonomien; Der moderne Kapitalismus

Spengler, O.—Decline of the West

Sumner, William G.—Folkways

Tawney, R.H.—Religion and the Rise of Capitalism

Teggart, F.J.—The Theory of History

Teggart, R.V.—Thorstein Veblen

Toynbee, A.—The Study of History

Troeltsch, Ernst,—Der Historismus; Other works

Tugwell, R.G. (Ed.)—The Trend of Economics

Veblen, Thorstein B.—The Place of Science in Civilization, etc.

Ibid.—(W.C. Mitchell, Ed.)—What Veblen Taught

Ibid.—(L. Ardzrooni, Ed.)—Essays in our Changing Order

Weber, Max,—Protestantism and the Spirit of Capitalism (Tr. Parsons)

Ibid.—General Economic History (Tr. Knight)

Ibid.—Wirtschaft und Gesellschaft (Tr. in part, Parsons, Anderson)

*  *  * *  *  *

Economic History. Heaton; Knight, Barnes and Fluegel, etc.

Histories of Economic Thought, on “schools”; on the substance, esp. Edmund Whittaker, History of Economic Ideas, first 7 Chaps.

Encyclopedias, especially Encyclopaedia of the Social Sciences. Especially articles on Economics, Secs. on Historical and Institutional Schools and on Economic History; also on Institutions, etc., etc.

 

Source:  Hoover Institution Archives. Papers of Milton Friedman. Box 77, Folder 5 “University of Chicago, Econ. 305”.

Image Source: Frank H. Knight from University of Chicago Photographic Archive, apf1-03513, Special Collections Research Center, University of Chicago Library.

Categories
Chicago Exam Questions Suggested Reading Undergraduate

Chicago. Undergraduate Money and Banking. Exams, readings. Friedman, 1946-49

 

Besides teaching in the core graduate price theory course at Chicago, Milton Friedman also covered undergraduate money and banking upon joining the faculty of the economics department. Below some material transcribed from a folder of course material found in Milton Friedman’s papers at the Hoover Institution Archives. Where answers were provided to some examination questions, they have been transcribed [and placed in square brackets] and included below.

Fun Fact: According to class rolls kept by Friedman, Marc Nerlove was a student in the Autumn 1951 Money and Banking class taught by Friedman.

_________________

Course Announcement and Description

[Economics] 230. Introduction to Money and Banking. Study of factors which determine the value of money in the short and in the long run; and operation of the commercial banking system and its relation to the price level and general business activity. Prereq: Soc Sci 2 and Econ 210, or equiv. Aut: MWF 10:30 Friedman; Win: MWF 2:30; Mints.

Source:   University of Chicago. Announcements. The College and the Divisions, Sessions of 1947-1948. Vol. XLVII, No. 4 (May 15, 1947), p. 224.

_________________

Text for Economics 230:

L. V. Chandler, The Economics of Money and Banking. Harper & Brothers.

The Book will be used again as a text when the course is given in the Winter Quarter. Give the number in class as that of the Autumn, 1947.
Reserve List & Bookstore.

_________________

Economics 230
Autumn 1947
Library Book List

Robertson, D. H. Money

Gregory, T. E. The Gold Standard and Its Future (3rd)

Board of Governors. Federal Reserve System.Its Purposes and Function

_________________

Economics 230
Autumn 1951

Supplementary Readings and Problem for Reading Period

Readings

Text: Lester Chandler, Economics of Money and -Banking

  1. American Economic Association, Readings in Monetary Theory, edited by Friedrich Lutz and Lloyd W. Mints.
  2. Goldenweiser, E.A., American Monetary Policy.
  3. Gregory, T.E., The Gold Standard and Its Future.
  4. Hardy, C.O., Credit Policies of the Federal Reserve System.
  5. Keynes, J.M., Essays in Persuasion.
  6. Mints, Lloyd W., Monetary Policy for a Competitive Society.
  7. Robertson, D.H., Money.
  8. S. Board of Governors of the Federal Reserve System, The Federal Reserve System, Its Purposes and Functions.

 

Problem

            For a convenient date in 1951, estimate the maximum amount of currency and deposits that would have been outstanding if the banking system had used all the possibilities of monetary expansion available under the then existing laws and regulations about reserve requirements of member and non-member banks and about reserve requirements of Federal Reserve Banks. For purposes of the computation, assume (a) an unchanged amount of Treasury currency outstanding; (b) elimination of Treasury deposits with Federal Reserve Banks through purchase of government securities held by the Federal Reserve Banks. With respect to all other factors—such as percentage distribution of public’s money holdings among currency, demand deposits, and time deposits—you are to choose your own assumptions, the choice of reasonable assumptions and the presentation of evidence for them being an essential part of the problem.

_________________

MIDQUARTER EXAMINATION IN ECONOMICS 230
[no date, though likely 1947]

  1. Indicate the factors that principally determine—
    1. (15 points) The ratio of the amount of currency in circulation to the amount of bank deposits.
    2. (15 points) The ratio of the amount of bank deposits to the amount of reserves held by the banking system when there are no legal reserve requirements.
  2. (35 points) In country A, important new discoveries of oil are made, driving down the price of oil in that country relative to the world price. Assume that this is the only important change relevant to international trade. Trace the effects of this change on exchange rates, gold flows, price levels, imports and exports, and incomes, in country A and in the rest of the world on the assumption (a) that a strict gold standard is in operation; (b) that inconvertible paper standards and fluctuating exchanges are in operation.
  3. (35 points) Explain in detail the effects on Bank A and on the banking system as a whole arising from the deposit in bank A of $100 of newly-printed currency. The deposit is made by a worker who has just received the currency from the government. Assume the bank is fully exploiting its lending power.

_________________

Economics 230
Midquarter Examination
November 5, 1948

  1. (25 points) It has been argued that it would be profitable for a member bank to borrow from its Federal Reserve bank even at a rate of interest considerably higher than the rate the member bank charges to its customers; and that this is so because one dollar of additional reserves can support several dollars of additional deposits. For example, if $1 of additional reserves can support $5 of additional deposits, it is argued that it would be profitable (if we neglect the cost of making the loan) for a member bank that can lend at 6% to borrow at any rate up to 30%. Evaluate this argument.
  2. (25 points)
    1. Nondeposit currency currently in circulation in the United States include Federal Reserve notes, silver certificates, United States notes (greenbacks) and National Bank Notes. In addition, there is a large volume of gold certificates outstanding but not in circulation. Indicate brieflythe historical origin of each of these types of currency, and the major episode in our monetary development each one symbolizes.
    2. What is the FDIC? What, in your view, is its essential function (which may not be the same as its announced purpose) in our current monetary structure?
  3. (50 points) Indicate whether the operation described in the first column would, in the first instance, increase (+), leave unchanged (0), or reduce (-) the item listed at the top of each column. For simplicity, assume (a) that nonmember banks are notinvolved in any of the transactions, (b) that the Treasury deposits all funds received in a Reserve Bank and pays for all expenditures by checks on a Reserve Bank, (c) that all nondeposit currency is in the form of Federal Reserve Notes. Take account only of the essentially bookkeeping effects of the operation, not of subsequent effects. For example, in operation (1) the decline in currency outside banks and the Treasury might so disturb the public’s relative holdings of deposit and nondeposit currency as to lead subsequently to a conversion of deposits into nondeposit currency. Do nottake such subsequent effects into account.
    [+1 for each correct, -1 for each wrong, 0 for no entry]

 

Operation Currency outside banks and Treasury Member bank Federal Reserve Bans
Demand Deposits Excess Reserves Deposits Excess Gold Reserves
Purchase of government bond by public
From Federal Reserve Bank
(1) with non deposit currency [-] [0] [0] [0] [+]
(2) by check [0] [-] [-] [-] [+]
From Treasury
(3) with non deposit currency [-] [0] [0] [+] [0]
(4) by check [0] [-] [-] [0] [0]
From public
(5) with non deposit currency [0] [0] [0] [0] [0]
(6) by check [0] [0] [0] [0] [0]
Purchase of government bond by Treasury from
(7) public a [0]
b [+]		 [+]
[0]		 [+]
[0]		 [0]
[-]		 [0]
[0]
(8) member bank [0] [0] [+] [0] [0]
(9) Federal Reserve bank [0] [0] [0] [-] [+]
Conversion of demand deposit by public into
(10) non deposit currency [+] [-] [+] and [0]
[-] and [-]
[only if both]		 [0]
(11) time deposit [0] [-] [0] [0] [0]

_________________

Final Examination for Economics 230
Autumn, 1946
3 hours and overnight.

Part I

  1. Define briefly the following terms:
    1. Required reserves
    2. Open market policy
    3. Gold points
    4. Rediscount rate
    5. Inconvertible paper currency
    6. Transactions velocity of circulation
    7. The equation of exchange
  2. What techniques are available to the Federal Reserve System for controlling the total volume of currency? How does each technique work? Under what conditions is each technique likely to be effective?
  3. It is often asserted that in returning to gold at the pre-first-world-war parity Britain “overvalued” the pound. What does this statement mean? What kind of evidence would be required to test its validity and how should this evidence be interpreted? If the statement is true, what effects would overvaluation of the pound be expected to have on Great Britain? What factors would operate to remove these effects and to correct the overvaluation? What kinds of governmental policy, if any, would speed up the process of correcting the overvaluation?

Part II

  1. (20 points) What is the 100% reserve proposal? Discuss its advantages and disadvantages as compared with the present system.
  2. (30 points) A newspaper story of January 21, 1946, on President Truman’s budget message, had the following headlines and first two paragraphs:

“TRUMAN MAPS FIRST DEBT CUT SINCE 1930
CASH ON HAND TO OFFSET ’47 DEFICIT

“Washington—President Truman’s first budget proposes to spend $4,300,000,000 more than the government will collect, but for the first time since 1930, it won’t increase the national debt.
“Mr. Truman proposes to withdraw from the Treasury cash balance sufficient funds not only to offset this deficit but also to reduce the debt by $7,000,000.”

In answering this question assume that Government cash balances are held on deposit in member banks, and that no reserves are required for government balances.

(a) What is the monetary effect of financing the deficit by use of cash balances? Would this effect be deflationary or inflationary compared with such alternatives as raising additional revenue from taxes, or borrowing additional sums from (1) the nonbanking public, (2) member banks, (3) reserve banks.

(b) What is the monetary effect of using cash balances to reduce the debt? Discuss the effects if the bonds are purchased from 81) the nonbanking public, (2) member banks, (3) reserve banks.

_________________

FINAL EXAMINATION, ECONOMICS 230, FALL, 1947

Part I

  1. In speaking of monetary developments in the United States at the beginning of the nineteenth century, H. L. Reed remarks, “the country was so inadequately provided with specie that the advantages of a money economy were not sufficiently extended and diffused.” What do you think this statement means? Does it make sense as it stands? If not, can you suggest an interpretation of it that makes sense?
  2. Explain in detail how, in a fractional reserve system, a given deficit in reserves may force a much larger contraction in currency. In your statement, indicate the factors that set a limit to the contraction and contrast the single bank with the banking system.
  3. To what causes does Gregory attribute the breakdown of the Gold Standard in Great Britain in 1931?

 

Part II

  1.    a. Assume that there is a free market in which English pounds exchange for American dollars. Indicate whether each of the following would, by itself, tend to raise or lower the price of a pound in terms of dollars.

1) An increase in tourist travel by Americans in England. [A. Raise]
2) A rise in dividend payments on American common stocks owned by British. [A. Raise]
3) A sudden craze in Britain for American films leading to increased showings of American films. [A. Lower]
4) Increased repayment by Britain of loans from the U.S. [A. Lower]
5) The raising of abnormally large amounts of relief funds in the United States to finance the shipment of special food packages to Great Britain. [A. Raise]

b. If England and the United States were both on a gold standard what words would it be reasonable to substitute for “raise the price of a pound in terms of dollars”? [A. “ship gold to Britain”] for “lower the price of a pound in terms of dollars”? [A.“ship gold to U.S.”]

c. You are asked what the total amount of money in the United States is. Discuss the problems of definition that would arise, indicating the considerations that would be relevant in deciding what to count as money.

d. Marriner Eccles, chairman of the Federal Reserve Board, recently proposed to Congress that member banks be required to set up a special reserve of 25 per cent of deposit liabilities in addition to existing reserves. Three members of the Federal Advisory Council—a council composed of private bankers who advise the Federal Reserve Board—testified against the proposal. The N. Y. Times reports them as maintaining that “it would reduce loans needed to finance production, and thus prove inflationary.” Discuss this statement.

_________________

Economics 230
Final Examination
December 16, 1949

  1. (100 points) Indicate whether each of the following statements is true (T), false (F), or uncertain (U) and state briefly the reason for your answer.
    1. Legal reserves held by a bank are a liability of the bank.
    2. Banks that are members of the Federal Reserve System may not count cash in their vault as part of their legal reserves.
    3. Every bank that is a member of the Federal Reserve System must carry Federal Deposit Insurance.
    4. Every bank that carries Federal Deposit Insurance must be a member of the Federal Reserve System.

5 and 6. Bank A sells a government bond to Bank B, both banks being members of the Federal Reserve Stem. This…

    1. …increases total member bank reserves.
    2. …does not change total deposit liabilities of member banks.

7, 8, 9. Bank A, which is a member of the Federal Reserve System sells a government bond to Mr. Jones. Bank A deposits the proceeds in its account with a Federal Reserve Bank. This…

    1. …increases total member bank reserves.
    2. …does not change total deposit liabilities of member banks.
    3. …increases the ratio of reserves to deposit liabilities.
      *  *  *  *  *
    4. Since banks can expand loans by several times the amount of excess reserves, a bank that could make additional sound loans at 5 per cent, could afford to pay much more than 5 per cent to induce individuals to deposit currency in the bank, since such a deposit would increase the bank’s excess reserves.
    5. The economic function of legal reserve requirements is to protect depositors in a bank against undue extensions of loans by banks.
    6. An expansion of investments and an expansion of loans by commercial banks have identical effects on the quantity of money.

13 through 16. Mr. Jones pays his Federal income tax with a check on a member bank. The Federal government uses this check to buy a government bond from a Federal Reserve Bank. This operation…

    1. …reduces total member bank deposit liabilities.
    2. …reduces total member bank reserves.
    3. …increases the ratio of member bank reserves to member bank deposit liabilities.
    4. …increases the excess gold reserves of the Federal Reserve System.
      *  *  *  *  *
    5. The post-war rise in prices in the United States was one of the factors making necessary the recent devaluation of the British pound.
    6. Any phenomena that would lead to an outflow of gold from the United States under a gold standard would lead to a fall in the price of the dollar in terms of foreign currencies under a system of inconvertible currencies and flexible exchange rates.

19, 20, 21. Suppose that under an international gold standard, foreign payments and receipts by the United States balance so that there is no net outflow or inflow of gold.

    1. A sudden increase of gifts by residents of the United States to non-residents would tend to lead to an outflow of gold from the United States.
    2. A reduction in the tariffs imposed by France on goods imported into France would tend to lead to an outflow of gold from the United States.
    3. A large technological advance in Great Britain lowering the price of automobiles produced in Great Britain would lead to an outflow of gold from the United States.
      *  *  *  *  *
    4. Under a gold standard, a decline in the rate of interest will tend to narrow the spread between the gold points.
    5. Under existing laws governing bank reserve requirements, a tendency for people to move from farms and small communities to large cities is, by itself, a factor tending to reduce the total quantity of money.
    6. A lengthening in the average pay-period (through, say, an increase in the proportion of workers paid monthly instead of weekly) is, by itself a factor tending to reduce the price level.
    7. K, in the cash balance equation, will be increased by anything that leads people to expect price to fall.
    8. The numerical value of V in the transactions type of equation of exchange depends on the definition of M.
    9. The equation of exchange demonstrates that an increase in the quantity of money must lead to an increase in prices.
    10. Since one man’s receipts are another man’s expenditures, it follows that the quantity of money can be changed only by capital transactions.
    11. The rediscount rate is used by the Federal Reserve system to discourage purchase of government securities.
    12. Monetary policy can be more effective in preventing inflation than in preventing deflation.

 

  1. (50 points) “In the early history of our country there was a dearth of currency and specie. It was difficult to have cash on hand, especially when most of the specie was used to pay for imports.” (E. R. Taus, Central Banking Functions of the United States Treasury, 1789-1941, p. 22).

Discuss the economic meaning of these sentences. Do they make sense as they stand? If so, explain. If not, can you suggest any interpretation of them that does make sense? In your answer, emphasize analysis, not economic history.

  1. (50 points)

“One method proposed for bringing the reserve position under control while protecting the market for government securities held by banks is to require banks to keep a reserve of government securities against deposits, in addition to present cash reserves…..In all essential respects, raising required reserve ratios by adding a security-reserve requirement is identical with a straight increase of cash reserve requirements, combined with an equivalent purchase of government securities by the Reserve Banks. The only significant difference is that the security-reserve proposal provides the member banks with the equivalent of a subsidy (in the form of interest on the bonds) to compensate for the loss of earnings on additional assets tied up as reserves.”
Do you agree? Justify your answer.

  1. (50 points) Under our present monetary system, a desire on the part of the pubic to hold an increased fraction of its money in the form of currency and a decreased fraction in the form of deposits is said to be a factor making for a decrease in the total amount of money (currency plus deposits) in existence. Explain this statement in detail. In your explanation, distinguish between the effect of an outflow of cash on the individual bank and on the system.
  1. (50 points) Currency in public circulation (“cash in pocket”) was approximately one-sixth of the total amount of money (currency plus demand deposits plus time deposits) in the United States in 1892, it fell fairly steadily to about one-twelfth in 1930, and then rose more or less steadily until it is again approximately one-sixth, or about the same level as in 1892. The initial decline was interrupted by a rise during the first World War; and the subsequent rise was accelerated during the second World War.
    How would you explain the long decline to 1930? The subsequent rise? This tendency for the ratio to rise during war time? (Note that there is no unambiguously “right” answer to this question. So far as I know, those movements have not been exhaustively studied, and hypotheses to explain them have not been tested. You are being asked to construct hypotheses about them).

 

Source:  Hoover Institution Archives. Papers of Milton Friedman, Box 76, Folder 8 “University of Chicago, Econ. 230”.

Image Source:  Cropped from a photograph of Milton Friedman, George Stigler, and Aaron Director at the founding meeting of the Mont Pelerin Society, 1947, Milton Friedman papers, Hoover Institution Archives,

 

 

Categories
Chicago Courses

Chicago. Milton Friedman nixes “Microeconomics” and “Macroeconomics”, 1965

 

From an August 9, 1965 memorandum to the faculty of the Chicago economics department we can see that there was actually a faculty meeting in which adoption of  new course titles, “Micro-Economic Theory” and “Macro-Economic Theory”, had been decided. However, Milton Friedman (presumably not at that meeting) protested this concession to the mainstream and ever since Chicago has faithfully remained home of “Price Theory” and “Income Theory” as seen below in the course titles from 2000-2001 and 2010-2011 (along with course descriptions). Incidentally the two sequences have grown a third quarter since the mid-sixties.

I don’t have a copy of the June 12, 1965 protest letter from Friedman to Lewis, but am reasonably confident that someone will eventually find a copy (most likely a carbon copy of the letter in Milton Friedman’s correspondence with Lewis).

_________________

H. Gregg Lewis to Milton Friedman

THE UNIVERSITY OF CHICAGO
Chicago 37, Illinois
Department of Economics

June 18, 1965

Professor Milton Friedman
Orford,
New Hampshire

Dear Milton:

Thanks for your letter of June 12 regarding the labeling of 301, 302, 331, and 332.

I want to have the decision with respect to the labels reconsidered this summer. Until the decision is reconsidered, I am making no changes in the titles of the courses.

Meanwhile, I would appreciate it if you would suggest alternative titles for the courses that are acceptable to you.

With best wishes to you and Rose.

Sincerely,
[signed] Gregg
H. G. Lewis

HGL/agm

[Friedman’s handwritten notes at bottom of letter:]

301, 302 Price Theory[;] Relative Price Theory

331, 332 Money and Employment Theory[;] Money, Income, Employment[;] Theory of the Price Level and Aggregate Output, Money

Source: Hoover Institution Archives. Papers of Milton Friedman. Box 79, Folder 3 “University of Chicago Minutes. Economics Department, 1965-1966”.

_________________

Memo from H. Gregg Lewis to the economics department

August 9, 1965

To: Members of the Department of Economics

From: H. Gregg Lewis

At the last meeting of the Department (June 4, 1965), the Department decided to change the name of Economics 301 and 302 to Micro-Economic Theory and Economics 331 and 332 to Macro-Economic theory. The purpose of this note is to request that the Department reconsider this action and adopt a different pair of names for these two sets of courses (and the corresponding parts of the Ph.D. Core Examination).

The term micro-economics commonly is used to denote the economics of the individual household and the individual firm. It is, therefore, a misleading title for 301 and 302. Furthermore, it is surely misleading to represent 331 and 332 as not involving consideration of the economics of individual households and firms.

For 301 and 302, I recommend that we keep the present title (Price Theory) or change it slightly to Relative Price Theory. For 331 and 332, I recommend that one of the following be adopted:

The Theory of Income, Employment, and Money
or         The Theory of Employment, Interest, and Money
or         The Theory of Income, Employment, Interest, and Money

Source: Hoover Institution Archives. Papers of Milton Friedman. Box 79, Folder 3 “University of Chicago Minutes. Economics Department, 1965-1966”.

_________________

Course descriptions from the 2000-2001 Brochure

301 PRICE THEORY I (Becker/ Murphy)

Theory of consumer choice, including household production, indirect utility, and hedonic indices. Supply under competitive and monopolistic conditions. Static and dynamic cost curves, including learning by doing and temporary changes. Uncertainty applied to consumer and producer choices. Property rights and the effects of laws. Investment in human and physical capital. (=Law 436)

[Reading List from one year later: Autumn Quarter 2001]

302 PRICE THEORY II (Reny/ Chiappori)

Economics of uncertainty. Models with asymmetric information. Game theory. PQ: Econ 301 or consent of instructor.

303 PRICE THEORY III (Chiappori/ Rosen)

The theory of production, division of labor and organization of work. The economics of the firm and the theory of supply. Cost functions, product differentiation and spatial equilibrium. Investment theory, firm size, and incentive problems. Externalities and the role of markets and prices. PQ: Econ 301 and 302 or consent of instructor.

330 THE THEORY OF INCOME I (Townsend/ Alvarez)

This course begins the study of income and macroeconomics by embedding firms, households, and financial institutions into the standard general equilibrium model. The course thus studies Pareto optima, Walrasian equilibrium, and the core in economies with separation in space, uncertainty, and/or multiple time periods and incorporates private information, incomplete markets, and other impediments to trade. Various phenomena and applications are stressed: private monies and the potential role of the monetary authority; the evaluation of local, regional, and national level financial systems in their ability to reallocate risk; the determinants of economics growth; growth with increasing inequality and financial deepening; occupation choice under wealth constraints and its impact on growth and inequality; the existence of networks such as industrial conglomerates in economies with moral hazard; optimal fiscal policy; and the role of social security. Examples are drawn from Asia, Latin America, Europe, and Africa and well as the U.S.

331 THE THEORY OF INCOME II (Lucas)

This course will deal with modern capital and monetary theory, and with applications of the theory to issues in fiscal, monetary, and banking policy.

332 THE THEORY OF INCOME III (Mulligan)

The course shares with the other two Theory of Income courses the objectives of (1) explaining human behavior as evidenced by aggregate variables and (2) predicting the aggregate effects of certain government policies. The focus of Economics 332 is to assess the empirical success of prevailing theories. Some hypotheses to be considered are consumption smoothing, intertemporal substitution, the q-theory, the neoclassical approach to fiscal policy, and the intergenerational transfer view of Social Security. The course confronts several empirical issues that are also encountered outside the field of macroeconomics such as the construction of aggregate data, choice of data set, and the measurement of expectations.

 

Source:  University of Chicago, Department of Economics Graduate Program. Brochure 2000-2001. Webpage: Courses.

_________________

Course descriptions from the 2010–11 Brochure

30100     PRICE THEORY I  (Murphy / Becker)

Theory of consumer choice, including household production, indirect utility, and hedonic indices. Models of the firm.  Analysis of factor demand and product supply under competitive and monopolistic conditions.  Static and dynamic cost curves, including learning by doing and temporary changes.  Uncertainty applied to consumer and producer choices.  Property rights and the effects of laws.  Investment in human and physical capital.  (=LAWS 43611)

30200     PRICE THEORY II  (Becker / Murphy / Sonnenschein)

The first five weeks of this course are a continuation of ECON 30100, Price Theory I.

The second half of the course will be devoted to the Walrasian model of general competitive equilibrium as developed by Arrow and Debreu.  This will begin with a brief development of the consumer and producer theories, followed by the welfare theorems connecting equilibria and optima and a treatment of the classical existence of equilibrium theorem.  The core of an economy, a limit theorem relating the core to the set of competitive equilibria, and models in which agents are small relative to the market will also be considered.  Finally we will study general equilibrium under some alternative assumptions; such as, informational asymmetries and rational expectations equilibrium, public goods and Lindahl equilibrium, financial general equilibrium and asset pricing.  (=LAWS 43621)

30300    PRICE THEORY III  (Reny / Myerson)

The course begins with expected utility theory, and then introduces the fundamental ideas of game theory: strategic-form games, Nash equilibrium, games with incomplete information, extensive-form games, and sequential equilibrium.   Then the course will focus on the effects of informational asymmetries in markets and the problems of moral hazard and adverse selection. Topics include: optimal risk sharing, signaling and screening in competitive markets, principal-agent problems, strategic and informational incentive constraints, incentive efficiency, and mechanism design for auctions and bilateral trading.

33000     THE THEORY OF INCOME I  (Alvarez)

This course formulates and analyzes aggregate general equilibrium models to study classical questions in macroeconomics. The course starts with the formulation and analysis of competitive equilibrium in the general equilibrium models, including the 1st and 2nd welfare theorem. The first applications of this model are: social security (using an OLEG model), optimal risk sharing, and asset pricing (using a one period model with uncertainty). Most of the remaining applications focus on dynamic models without uncertainty. To do so we study tools to characterize optimal solutions of control problems: Hamiltonian, calculus of variations and dynamic programming. The main application of these tools is the neoclassical growth model in many variations: determinants of steady state and balanced growth path, endogenous growth, effect of variable labor supply, TFP changes and of investment specific technical progress, habit formation, the q-model of investment, taxation of capital and labor, optimal taxation a la Ramsey, among others.

33100     THE THEORY OF INCOME II  (Stokey)

This course will focus on the use of recursive general equilibrium models to study various macroeconomic questions.  On the substantive side, particular topics include models with idiosyncratic (insurable) and aggregate (uninsurable) risk; issues in dynamic fiscal policy (Ricardian equivalence, tax smoothing, capital taxation); models of asset pricing; issues in monetary policy (money demand, the welfare cost of inflation); time consistency; and aggregate models with price setting. On the methodological side, the course will focus on dynamic programming and other recursive modeling techniques.

33200     THE THEORY OF INCOME III  (Mulligan)

The course shares with the other two Theory of Income courses the objectives of (1) explaining human behavior as evidenced by aggregate variables and (2) predicting the aggregate effects of certain government policies.  Economics 33200 considers some of the prevailing business cycle theories, and their application to the recession of 2008-9.  Some hypotheses to be considered are the q-theory of housing investment, the neoclassical approach to fiscal policy, and whether government spending has a “multiplier.”  The course confronts several empirical issues that are also encountered outside the field of macroeconomics such as the construction of aggregate data, choice of data set, and the measurement of expectations.

Source: University of Chicago, Department of Economics Graduate Program 2010-11, Introduction. Webpage: Graduate Course Descriptions, 2010-11.

Image: Irwin Collier (right) taking a break during an earlier archival expedition to the Hoover Institution Archives…Milton Friedman (left).

 

Categories
Chicago Regulations

Chicago. Committee on Ph.D. Outlines & Requirements, 1949-50 (4)

 

 

This post adds to a series of  items related to the University of Chicago Department of Economics’ Committee on Ph. D. Outlines and Requirements chaired by Milton Friedman (1949-50). The first installment, second installment, and third installment were previously posted. This version of the Ph.D. Outlines and Requirements was filed in a different folder in Milton Friedman’s papers at the Hoover Institution Archives from the first three installments. It is essentially the same as seen in the carbon copy dated February 2, 1950 that was transcribed for the third installment. However at the very end of the memo below we now have an explicit sequence of 14 steps required for every successful economics Ph.D. candidate at the University of Chicago going into the second half of the twentieth century.

___________________________

[MEMO #9, February 6, 1950]

[Mimeographed copy. Additions to/changes of the text from the February 2, 1950 carbon draft]

THE UNIVERSITY OF CHICAGO

TO:   T. W. Schultz                                                                  DEPARTMENT: Economics
FROM: R. Blough, M. Friedman, D. G. Johnson              DEPARTMENT: Economics
[handwritten addition: “J. Marschak”]

DATE:   February 6, 1950

IN RE: SUPPLEMENTARY REPORT OF COMMITTEE ON PH. D. OUTLINES AND REQUIREMENTS

The following summary of specific recommendations is a revision of the summary on pp. 4 and 5 of our earlier report, incorporating comments and suggestions made at the department discussion of the problem. It is proposed that the department approve the following actions and rules:

(1) A Ph.D. Thesis submitted for final approval will ordinarily contain a central core not in excess of 15,000 words in length. This central core must be self-contained but may be supplemented by supporting material. In scope and quality, the central core shall be comparable to first-rate journal article.

(2) Preparation of a statement on the role of the thesis and the standards to which it is expected to conform for distribution to candidates.

(3) Establishment of a thesis seminar. Regular participation in this seminar is to be expected of all candidates writing theses in residence. One or more faculty members is to have directresponsibility for the organization and scheduling of this seminar. A session of the seminar will ordinarily be conducted by the chairman of the tentative or final thesis committee of the student presenting a report (see point 7 below). All other faculty members shall be encouraged to attend.

(4) A Ph.D. candidate, whether or not he writes his thesis in residence, shall be expected to make at least two appearances before this seminar.

(5) The candidate’s first appearance before the seminar shall be prior to his admission to candidacy. In advance of this appearance, the candidate shall prepare a brief report (on the scale of a term paper) explaining his thesis topic, the existing state of knowledge on the topic, its potentialities, and his projected plan of attack on the problem. This report shall be duplicated and circulated to all members of the seminar an all members of the faculty in advance of the meeting of the seminar.

(6) A candidate shall be permitted to make this first appearance preparatory to admission to candidacy if he has passed at least two of the three Ph.D. preliminary examinations.

(7) The candidate shall have responsibility for applying for the appointment of a tentative thesis committee prior to his first appearance at the seminar. He shall be permitted to make such application at any time after he has passed at least two of the three Ph.D. preliminary examinations. The chairman of the department shall name a tentative faculty committee for each candidate, and this committee shall be expected to attend the meeting of the seminar at which it takes place. At least one member of the tentative committee shall be a person whose major field of interest is outside of the field of the proposed thesis. If admission to candidacy is granted, a final thesis committee shall be appointed by the chairman of the department.

(8) The candidate’s final appearance before the seminar shall be a definitive report of his findings. A brief resume of this report shall be duplicated and circulated to all members of the seminar and all members of the faculty in advance of the meeting of the seminar. The candidate’s thesis committee shall be expected to attend this final appearance before the seminar. [Handwritten comment: “This resume may be the central core referred to in 9.”]

(9) The central core of the thesis or its equivalent shall be circulated to all members of the faculty before the final acceptance of the thesis. Final acceptance of the thesis shall be by vote of the members of the faculty upon the recommendation of the thesis committee. [handwritten addition: “This vote may take place prior to the final appearance of the candidate before the thesis committee, if the central core has been circulated prior to such appearance.”]

(10) The final examination by the department shall be on the candidate’s major field. The examination shall be a function of the whole department but in any event shall be attended by members of the thesis committee and other faculty members specializing in the field.

(11) The new procedure [for admission to candidacy]should shall apply to all students [in residence at the time of its adoption, and to students not in residence] who have not been admitted to candidacy prior to July 1, 1950 December 31, 1951. [handwritten addition: “It shall however be optional to students between the date of adoption and December 31, 1951.”]

 

The steps involved in the successful completion of Ph.D. work under the above procedure may be summarized in [handwritten addition: “usual”] chronological order as follows:

  1. Student passes 2 or more preliminary examinations
  2. Student applies for tentative committee
  3. Department chairman appoints tentative committee
  4. Student circulates a brief report on his projected thesis
  5. Student appears before thesis seminar
  6. Advisor certifies that student has satisfied all requirements for admission to candidacy
  7. Department admits student to candidacy
  8. Department chairman appoints final thesis committee
  9. Student gets approval of his committee to circulate resume of findings of his thesis
  10. Student makes final appearance before thesis seminar
  11. Thesis committee recommends acceptance of thesis
  12. Central core of thesis or equivalent is circulated to all members of faculty (this may be identical with step 9)
  13. Faculty by vote concurs in recommendation of thesis committee
  14. Student passes final examination on his major field.
    [hand-drawn arrow to move 14. between 11. and 12.]

 

Source:  Hoover Institution Archives. Papers of Milton Friedman, Box 70, Folder “79.2, University of Chicago. Minutes, Economics Department, 1949-1953”.

 

Image Source: Social Science Research Building from University of Chicago Photographic Archive, apf2-07466, Special Collections Research Center, University of Chicago Library.

 

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Chicago. Harry Johnson’s observations and reflections on teaching, 1969

 

The transcribed letter below was written by Professor Harry G. Johnson to (then) graduate student Michael Mussa whose proposal for student evaluations of graduate courses at the economics department of the University of Chicago met with hostile reception. It is always a genuinely nice gesture for a senior professor to take time and effort to recognize a student initiative and this letter is a model of such a response. I presume the copy of this letter I found in Milton Friedman’s papers had been shared by Johnson with his colleagues.

Johnson first reflects on the nature of teaching in a leading graduate institution, concluding on the one hand that some bad teaching will be inevitable but that even the worst teachers could improve their (literal) performances. He then illustrates with his own course (the third of the three quarter sequence in Price Theory) followed by three examples from his own Cambridge training: D. H. Robertson, Maurice Dobbs, and Joan Robinson. 

Pro-tip: the snap-shot of Harry Johnson comes from Robert J. Gordon’s very own personal collection “Photos of Economists”.

Johnson mentioned that Joan Robinson refused to hand out reading lists for her courses. For a rare Joan Robinson reading list: from Williams College 1982.

_________________

From a Photocopy of a letter from Harry Johnson to Michael Mussa

May 28, 1969

Michael Mussa:

I’ve been reading the reports of the faculty-student advisory committee, in which your proposal for student evaluations of courses seem to have fared rather badly. Personally, I am more favorable to the idea than my colleagues seem to have been.

There are of course plenty of problems in defining the function of such evaluations; and at least in a place like Chicago teaching competence can’t be given much weight (a) because a large part of staff work is guiding Ph.D.s and conducting the workshops—i.e. research rather than teaching oriented; (b) because our courses ought to be not only teaching the accepted structure of knowledge, but exposing students to the frontiers of the subject, and this kind of material is often difficult to teach; (c) our competitive position as a leading world graduate school, which among other things determines the quality of the students we get and therefore the “externalities” our students obtain from each other, ultimately depends on the published scientific contributions of our faculty and not on their capacity to teach a particular course well at a particular time.

On the other hand, I do not share the view of some of my colleagues—both here and even more in England—that teaching performance is an absolutely fixed characteristic of the individual that cannot be altered by care and study on his part. Consequently I think that student evaluations can be useful to both the individual teacher and his colleagues, as guides to where some investment in improvement could usefully be undertaken.

One obvious point, with respect to which I benefitted from last year’s evaluation, is the course reading list. As a result of that evaluation, I took off the 302 reading list an article by Champernowne, the approach of which I wanted represented in the course, but which students considered too difficult for what they got out of it; instead, I now present the approach in very simple form. I also took off a number of readings on the poverty problem which were significant when the war on poverty started, but which now appear to have little substantive content. I now link the poverty material more closely to the general theme of the course.

I think that student evaluation of the reading list can be very valuable in indicating what readings are really useful and what are either too hard or too easy for the level of the course. An even more important function, which would be harder to devise, would be for students to suggest from their own current and previous reading of the journals and textbooks better sources for the main parts of the course. The literature is tremendous, and there is no easy way of searching it for the most useful contributions.

As to the teaching itself, it seems to me that there are two separate problems, each of them susceptible of solution by rational investment by the individual teacher. The first is organization of the material; this includes reading list and course organization, organization of the individual lecture and supplementation of the lecture by appropriate hand-outs of crucial data or pieces of analysis. The Chicago course-load is fairly light by most universities’ standards, and the purpose of the lecture I teaching rather than public virtuoso performance. There is little reason why a person who knows or is told that he is disorganized and confusing while on his feet in front of a class should not provide his students with the insurance of a paper version of what he meant to tell them. The second problem is that of personality. A teacher has to understand that in the classroom he is playing a role, which does not have to define or exhaust the full scope of his private personality; and he has to forego the tricks that people use in private conversation to defend themselves and preserve what they think is the respect of others. Specifically, it is not helpful to students to be exposed to an account of all the mental confusion that accompanied the first discovery of a new truth (especially if the truth itself never emerges). Nor does it help for a lecturer to use two methods of disguising uncertainty or insufficient thought in private conversation: (1) vehement assertion of a conclusion without adequate supporting argument; (2) dropping the voice just as the crucial point is reached, so that the audience doesn’t really hear what is being said (Margaret Reid picked me up on this trick when I first came to Chicago).

It seems to me that lecturers have a lot to learn from the acting profession in this respect: even if the lines are lousy, they deliver them with conviction. It also seems to me that student evaluations would help to tell lecturers that, however good the message they thought they were putting across, it was being scrambled in transmission and wasn’t reaching the students.

I would not pretend that everybody can be a good lecturer. All I claim is that most people could do better than they do, by recognizing their weaknesses and trying to correct them. Even so, you could well not get very good lectures.

I remember when I was a student at Cambridge, England. D.H. Robertson was Professor; he had had a lot of acting experience in his youth. He wrote every word of his lectures, and rewrote them every year. He delivered them well, but you had to listen hard and know a lot already to get the points. Yet he would never answer any questions from class; once a year, in the second-last lecture, he would ask the class for written questions; in the last lecture, he would read us his written answers to the written questions. Maurice Dobb, who was my supervisor and whose lectures I attended religiously out of a youthful enthusiasm for left-wing causes, also wrote every word of his lectures on socialist planning, and they were beautifully logical and well-organized constructions; but he read them in a flat monotone that rapidly depressed the audience, with the result that the beachhead of communism he established in Cambridge never got occupied by troops prepared to push on to a major assault on capitalism. Joan Robinson, on the other hand, always claimed she lectured as the spirit moved her, and refused to give out either a reading list or reference (apart from insulting remarks about D.K. Robertson, and favorable references to Keynes and Kalecki). In fact she said the same thing every year; but the students always got excited because to them it came as something new.

In my judgment, Robertson could have learned to answer the questions he could answer, and ask for time to consider the others; Dobb could have learned to modulate his voice to emphasize the difference between major points and supporting arguments; and Robinson could have been persuaded by student demands to produce a reading list. But it is quite likely that none of them would have changed their ways; and I doubt that Cambridge would have been well advised to fire them if they hadn’t.

Yours sincerely,
[signed]
Harry G. Johnson
Department of Economics

HGJ/sf

 

Source: Hoover Institution Archives. Papers of Milton Friedman. Box 194, Folder “194.4 Economics Dept. A-G”.

Image Source:  Harry Johnson. Photo by Robert J. Gordon, Summer 1970 or 1971.

 

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Harvard. Economics Ph.D. alumnus, James W. Ford, 1954.

 

In this latest addition to our series “Get to Know an Economics Ph.D.”  we meet a Harvard Ph.D. from 1954, James William Ford.  His Ph.D. dissertation’s title was “International monetary relations and the British monetary system, 1920-1939”.

Ford’s academic path began as an undergraduate at Oberlin, then he went on to Harvard for his graduate work. Before getting his Ph.D., Ford received one of the very first round of Fulbright Fellowships to attend Cambridge University. He taught at Columbia, Vanderbilt, and Ohio State followed by two years working at the Board of Governors of the Federal Reserve System. His long final career stage was with the Ford Motor Company as a leading financial economist.

_____________

James William Ford (1923-2017)
Obituary

James William Ford, a beloved father, grandfather, and great-grandfather, died at age 94 on November 23 at his home in Ann Arbor, Michigan. Mr. Ford was born February 1, 1923 in Alameda, California, the son of Eunice George Ford and Shelton C. Ford, and older brother of Eunice Ford. He is survived by his second wife, Phyllis Ford; three children, Julian Ford, Amy Milkovich, Carol Arkin; two step-children, Jessica Leix and Peter Leix; 10 grandchildren; 1 step-granddaughter; and 7 great-grandchildren. In the first three decades of his life, Mr. Ford was an outstanding student and a City of Detroit High School Debate champion, served in the Army as a meteorologist during World War II, a graduate of Oberlin College in 1947, a Master of Arts recipient in economics from Harvard University in 1949, one of the first class of Fulbright Scholars in 1951 (at Cambridge University in Great Britain), and Doctor of Philosophy recipient in economics from Harvard University in 1954. Mr. Ford taught economics at Columbia University from 1951 to 1953, at Vanderbilt University from 1953 to 1957, and Ohio State University from 1957 to 1959, before becoming a postdoctoral fellow at the University Chicago with the eminent economist Milton Friedman. Mr. Ford served as Economist to the Board of Governors at the U.S. Federal Reserve from 1959-1961. He then moved to Ford Motor Company where he worked for the rest of his career until retiring in 1988. Mr. Ford was the Assistant Controller for the Ford Motor Company Finance Staff from 1961 to 1975, Executive Vice President for Insurance and Special Finance Operations at Ford Motor Credit Company from 1975-1977, then president from 1977-1980 and Chairman,1980-1987, of Ford Motor Credit Company. At Ford Motor Company he became Vice President from 1980-1987, Executive Vice President from 1987-1988, and President of Ford Finance Services Group from 1987-1988. Under his leadership, Ford Motor Credit Company developed a program and portfolio of financial policies and investments that achieved unprecedented fiscal success for the company. He visited and met with Ford Motor Company dealership executives all over the country, developing a network of successful entrepreneurs and many close friendships that lasted throughout his retirement. After retiring at age 65, Mr. Ford was very active for the next 25 years as a Board member for several nonprofit agencies serving children and families, investment firms, and most especially with the United Methodist Retirement Community and the Towsley Center in Chelsea, Michigan, where a wing is dedicated to his mother and a garden is dedicated to his beloved first wife Anne, and with Starfish Family Services. Mr. Ford was an avid tennis player for most of his life and captained a small sailboat every weekend for many years, and followed in his mother’s tradition by traveling widely around the world. He was a devoted brother to his younger sister, Eunice, and was much loved by many other members of the Ford family and in-laws on the Farley side of his and Anne’s family, and countless close friends including members of a potluck group in Ann Arbor that convened monthly for more than four decades. According to his wishes, a gravesite service will be held at Botsford Cemetery in Ann Arbor in the Spring…

Source:  Published in Ann Arbor News on Dec. 3, 2017.

Image Source: Oberlin College Yearbook, The Hi-O-Hi, p. 32.