Frank W. Taussig taught a two term economic theory course offered for both graduates and undergraduates at Harvard for nearly the entire first third of the twentieth century. Some years he taught one term and a colleague would teach the other term, but usually it was his core course in the curriculum. Today’s posting is dedicated to the 1922-23 course examinations and constitutes a first for Economics in the Rear-view Mirror by having links to the pages or sections of economic works that correspond to the questions.
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Course Description
1921-22
[Economics] 11. Economic Theory. Mon., Wed., Fri., at 2.30. Professors TAUSSIG and YOUNG.
Course 11 is intended to acquaint the student with the development of economic thought since the beginning of the nineteenth century, and at the same time to train him in the critical consideration of economic principles. The exercises are conducted mainly by the discussion of selected passages from the leading writers; and in this discussion the students are expected to take an active part. Attention will be given to the writings of Ricardo and J. S. Mill, and to representative modern economists.
Source: Division of History, Government, and Economics, 1921-22. Official Register of Harvard University, Vol. XVIII, No. 20 (April 21, 1921), p. 68.
1924-25
[Economics] 11. Economic Theory. Mon., Wed., Fri., at 2. Professor Taussig
Course 11 is intended to acquaint the student with the development of economic thought since the beginning of the nineteenth century, and at the same time to train him in the critical consideration of economic principles. The exercises are conducted mainly by the discussion of selected passages from the leading writers; and in this discussion the students are expected to take an active part. A careful examination is made of the writings of Ricardo and J. S. Mill, and of representative modern economists, such as Marshall, Böhm-Bawerk, Clark.
Source: Division of History, Government, and Economics 1924-25. Official Register of Harvard University, Vol. XXI, No. 22 (April 30, 1924), p. 71.
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Midyear Final Exam
1922-23
HARVARD UNIVERSITY
ECONOMICS 11
Arrange your answers in the order of the questions
1. (a) “Given machinery, raw materials, and a year’s subsistence for 1000 laborers, does it make no difference with the annual product whether those laborers are Englishmen or East-Indians?”
[Frank W. Taussig, Wages and Capital: An Examination of the Wages Fund Doctrine (New York, 1896), p. 292,
where Taussig discusses a passage in Francis Amasa Walker’s, The Wages Question: A Treatise on Wages and the Wages Class, (New York, 1876), p. 145.]
(b) “In some exceptional industries it happens that the employer realizes on his product in a shorter time than this (a week), so that the laborer is not only paid out of the product of his industry, but actually advances to the employer a portion of the capital on which he operates.”
[Francis Amasa Walker, The Wages Question: A Treatise on Wages and the Wages Class, (New York, 1876), pp. 134-5.]
(c) “On American whaling ships the custom is not to pay fixed wages, but a “lay,” or a portion of the catch, which varies from a sixteenth to a twelfth to the captain down to a three-hundredth to the cabin-boy. Thus, when a whaleship comes into New Bedford or San Francisco after a successful cruise, she carries in her hold the wages of her crew, as well as the profits of her owners, and an equivalent which will reimburse them for all the stores used up during the voyage. Can anything be clearer than that these wages — this oil and bone which the crew of the whaler have taken — have not been drawn from capital, but are really a part of the produce of their labor”?
[Henry George, Progress and Poverty, 25th Anniversary edition, (Garden City,1926), pp. 52-53.]
Are these three situations essentially similar? And what is the bearing of each of them on the question under debate?
- “The extra gains which any producer or dealer obtains through superior talents for business, or superior business arrangements, are very much of a similar kind (analogous to rent). If all his competitors had the same advantages, and used them, the benefit would be transferred to their customers, through the diminished value of the article; he only retains it for himself because he is able to bring his commodity to market at a lower cost, while its value is determined by a higher. All advantages, in fact, which one competitor has over another, whether natural or acquired, whether personal or the result of social arrangements, bring the commodity, so far, into the Third Class, and assimilate the possessor of the advantage to a receiver or of rent.” Did Walker add anything of essential significance to this statement of Mill’s?
Mill, Principles of Pol. Econ., pp. 476-77.
[John Stuart Mill. Principles of Political Economy. Vol. I, Fifth London Edition (New York, 1864) pp. 586-87.]
- (a) “It is not to be understood that the natural price of labour, estimated even in food and necessaries, is absolutely fixed and constant. It varies at different times in the same country, and very materially differs in different countries. It essentially depends on the habits and customs of the people.”
[David Ricardo, The Principles of Political Economy & Taxation. Everyman’s Library Edition (London, 1912), p. 54.]
(b) “A tax on raw produce, and on the necessaries of the labourer, would have another effect — it would raise wages. From the effect of the principle of population on the increase of mankind, wages of the lowest kind never continue much above that rate which nature and habit demand for the support of the labourers. This class is never able to bear any considerable proportion of taxation; and, consequently, if they had to pay 8s. per quarter in addition for wheat, and in some smaller proportion for other necessaries, they would not be able to subsist on the same wages as before, and to keep up the race of labourers. Wages would inevitably and necessarily rise.”
[David Ricardo, The Principles of Political Economy & Taxation. Everyman’s Library Edition (London, 1912), p. 100.]
(c) “If I have to hire a labourer for a week, and instead of ten shillings I pay him eight, no variation having taken place in the value of money, the labourer can probably obtain more food and necessaries with his eight shillings than he before obtained for ten.”
[David Ricardo, The Principles of Political Economy & Taxation. Everyman’s Library Edition (London, 1912), p. 11.]
Are these several statements of Ricardo’s consistent?
- In which of the following passages is the tendency to diminishing returns treated as referring to the amount of the produce, in which as referring to the value of the produce? Which method of treatment seems to you the proper one?
(a) “Whatever rise may take place in the price of corn, in consequence of the necessity of employing more labor and capital to obtain a given additional quantity of produce, such rise will always be equalled by the additional rent or additional labor employed. . . . Whether the produce belonging to the farmer be 180, 170, 160, or 150 quarters, he always obtains the same sum of £720 for it; the price increasing in an inverse proportion to the quantity.” — Ricardo.
[David Ricardo, The Principles of Political Economy & Taxation. Everyman’s Library Edition (London, 1912), p. 67.]
(b) The Channel Islands obtain agricultural produce to the value of £50 to each acre of the aggregate surface of the island. Fifty pounds’ worth of agricultural produce from each acre of the land is sufficiently good. But the more we study the modern achievements of agriculture the more we see that the limits of productivity of the soil are not attained. . . . I can confirm Mr. Bear’s estimate to the effect that under proper management even a cool greenhouse, which covers 4050 square feet, can give a gross return of £180.” — Kropotkin.
[Petr Alekssevich Kropotkin. Fields, factories, and workshops, (New York, 1907), pp. 91,118.]
(c) “Ricardo, and the economists of his time generally were too hasty in deducing this inference [tendency to increased pressure] from the law of diminishing return; and they did not allow enough for the increase of strength that comes from organization. But in fact every farmer is aided by the presence of neighbours, whether agriculturists or townspeople. . . . If the neighbouring market town expands into a large industrial centre, all his produce is worth more; some things which he used to throw away fetch a good price. He finds new openings in dairy farming and market gardening, and with a larger range of produce he makes use of rotations that keep his land always active without denuding it of any one of the elements that are necessary for its fertility.” — Marshall.
[Alfred Marshall. Principles of Economics, 8th ed., Book IV, Ch. III, §6 (London, 1920).]
- “Ricardo expresses himself as if the quantity of labour which it costs to produce a commodity and bring it to the market, were the only thing on which its value depended. But since the cost of production to the capitalist is not labour but wages, and since wages may be either greater or less, the quantity of labour being the same; it would seem that the value of the product cannot be determined solely by the quantity of labour, but by the quantity together with the remuneration; and that values must partly depend on wages.” — J. S. Mill.
[John Stuart Mill. Principles of Political Economy. Vol. I, Fifth London Edition (New York, 1864) p. 564.]
What would Ricardo say to this? and in what way, according to Mill, do wages affect value?
- Explain briefly external economies; internal economies.
It has been said that internal economies cause an increase of demand, external economies result from an increase of demand. Do you agree?
Suppose internal economies to become greater indefinitely, as output enlarges; what consequences would ensue? Suppose the same for external economies, what consequences?
- “There is one general law of demand: the greater the amount to be sold, the smaller must be the price at which it is offered in order that it may find purchasers. . . . The one universal rule to which the demand curve conforms is that it is inclined negatively throughout the whole of its length.”
[Alfred Marshall. Principles of Economics. 8th edition, Book III, Ch. III, §5, and footnote no. 2 (London, 1920), p. 99.]
“The demand curve over short periods — which may be a matter of weeks or months — is not necessarily inclined throughout in the same direction. It may be inclined positively. And similarly the supply curve does not necessarily have that constant positive inclination which is usually assumed. In the course of the higgling of the market this in its turn may have a negative inclination.”
[Frank W. Taussig, “Is the Market Price Determinate?” Quarterly Journal of Economics, p. 402.]
Whom do you believe to be the writers of these passages? Can they be harmonized? If so, how? If not, why not?
- The series of hypotheses made by Marshall concerning “meteoric showers of stones harder than diamonds”; the nature of the incomes derived by those finding them in the several cases; and the general principle which is thus illustrated.
[Alfred Marshall. Principles of Economics. Book V, Ch. IX, §2 (London, 1920), p. 415ff.]
Mid-Year. 1923.
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Academic Year-End Final Exam
1922-23
HARVARD UNIVERSITY
ECONOMICS 11
Arrange your answers in the order of the questions.
- “Labour of different kinds differently rewarded. This no cause of variation in the relative value of commodities.” On what grounds did Ricardo reach the conclusion summarized by him in these sentences? Is it consistent with the general trend of his theory of value?
[David Ricardo, The Principles of Political Economy & Taxation. Everyman’s Library Edition (London, 1912), p. 11.]
- “This doctrine [about non-competing groups] was given its name by J. E. Cairnes. . . . He supposed it to be a rare and remarkable exception to what he believed was the general rule, that the cost-of-production regulated the price of goods — essentially a “labor-theory of value.” We regard it merely as a helpful way of presenting a particular case of the general rule that the value of agents is derived from their products when the market is viewed as a whole.”
[Frank A. Fetter, Economic Principles (New York, 1915), p. 221.]
What would Cairnes say to this? What is your own view on the “general rule” stated in the concluding sentence?
[John E. Cairnes, Some Leading Principles of Political Economy, Newly Expounded, Chapter III, §7 “Nature of Reciprocal Demand as between nations and non-competing industrial groups”. (New York,1874), pp. 87ff.]
- “Suppose that society is divided into a number of horizontal grades, each of which is recruited from the children of its own members; and each of which has its own standard of comfort, and increases in numbers rapidly when the earnings to be got in it rise above, and shrinks rapidly when they fall below that standard. Suppose, then, that parents can bring up their children to any trade in their own grade, but cannot easily raise them above it and will not consent to sink them below it. . . .
[Quote is from Alfred Marshall, Principles of Economics (Second Edition, London, 1891). Vol. I, Book VI, Chapter 1, §3, pp. 557-8.
Frank W. Taussig, International Trade, pp. 53ff.]
On these suppositions, would Cairnes say that value was determined by cost? What would Marshall say?
[John E. Cairnes, Some Leading Principles of Political Economy, Newly Expounded, Chapter III, §7 “Nature of Reciprocal Demand as between nations and non-competing industrial groups”. (New York,1874), pp. 87ff.]
- (a) “We have next to study the conditions of Business Management; and in so doing we must have in view a problem that will occupy our attention as we go on. It arises from the fact that, though in manufacturing at least nearly every individual business, so long as it is well managed, tends to become stronger the larger it has grown; and though prima facie we might therefore expect to see large firms driving their smaller rivals completely out of many branches of industry, yet they do not in fact do so.”
[Quote is from Alfred Marshall, Principles of Economics (Second Edition, London, 1891). Vol. I, Book IV, Chapter XII, §1, p. 349.]
(b) “Since then business ability in command of capital moves with great ease horizontally from a trade which is overcrowded to one which offers good openings for it; and since it moves with great ease vertically, the abler men rising to the higher posts in their own trade, we see, even at this early state of our inquiry, some good reasons for believing that in modern England the supply of business ability in command of capital accommodates itself, as a general rule, to the demand for it; and thus has a fairly defined supply price.”
[Quote is from Alfred Marshall, Principles of Economics (Eighth Edition, London, 1920). Book IV, Chapter XII, §12, p. 313.]
What is Marshall’s solution of the problem stated in the first of these passages? What sort of supply schedule do you suppose him to have in mind in the second? What would Walker say on both passages?
- “If the production of any, even the smallest, portion of the supply, requires as a necessary condition a certain price, that price will be obtained for all the rest. . . . The value, therefore, of an article (meaning its natural, which is the same with its average value) is determined by the cost of that portion of the supply which is produced and brought to market at the greatest expense. This is the Law of Value of the third of the three classes into which all commodities are divided. . . . Rent, therefore, forms no part of the cost of production which determines the value of agricultural produce.”
[John Stuart Mill. Principles of Political Economy. Vol. I, Book III, Chapter V §2, Fifth London Edition (New York, 1864) pp. 579-81.]
By whom do you suppose this passage to have been written? What would Marshall say to it?
- “‘Rent is not an element in price’ — such is the classical statement on the subject. . . . But, if one defines rent as product imputable to a concrete agent, the impossibility of maintaining such a claim becomes apparent. Even if one were to restrict the term rent to the product created by land, the claim that it is not an element in adjusting market values would be absurd; for it would amount to saying that a certain part of the output of every kind of goods has no effect on their market value. The ‘price’ referred to in the formula is, of course, the market value expressed in units of currency.” What do you say?
[John Bates Clark, The Distribution of Wealth Chapter XXIII, (1899, reprint New York, 1908), p. 358.]
- “When the artisan or professional man has once obtained the skill required for his work, a part of his earnings are for the future really a quasi-rent of the capital and labour invested in fitting him for his work, in obtaining his start in life, his business connections, and generally his opportunity for turning his faculties to good account; and only the remainder of his income is true earnings of effort. But this remainder is generally a large part of the whole. And here lies the contrast. For when a similar analysis is made of the profits of the business man, the proportions are found to be different: in his case the greater part is quasi-rent.” Why? or why not?
[Alfred Marshall, Principles of Economics (Eight Edition, London, 1920). Book VI, Chapter VIII, §8, p. 622.]
- (a) “Capital-goods imply waiting for the fruits of labor. Capital, on the contrary, implies the direct opposite of this: it is the means of avoiding all waiting. It is the remover of time intervals, — the absolute synchronizer of labor and its fruits. It is the means of putting civilized man in a position which, so far as time is concerned, is akin to that in which the rude forester stood, when when he broke off limbs of dead trees and laid them on his fire. The very appliances which, in their extent and complexity, seem in one view to mean endless waiting, in another view mean no waiting at all but the instantaneous appearance of the final fruits of every bit of labor that is put forth.”
[John Bates Clark, The Distribution of Wealth, Chapter XX, (1899, reprint New York, 1908), p. 311.]
(b) “Tools are productive, but time is the condition of getting tools — this is the simple and literal fact. The roundabout or time-consuming mode of using labor insures efficient capital-goods. . . . When the hatchet has worn itself completely out, and the fruits of using it are before the man in the large dwelling, he may look backward to the beginning of the process, when he faced nature empty-handed, and say: ‘Labor has done it all. Work and waiting have given me my goods.’ The working and the waiting have, indeed, insured the hatchet, as an incidental result of this way of working. Production that plans to put its fruits into the future will create capital-goods as an immediate effect, but labor and time are enough to make the ultimate effect certain. Let the man work intelligently through an interval of time, and the production of consumers’ wealth is sure.”
[John Bates Clark, The Distribution of Wealth, Chapter XX, (1899, reprint New York, 1908), p. 309.]
(c) “The effort of postponement, or the preference of uncertain future for certain present consumables, necessary for supplying capital, if it is an effort, is a continuous one lasting all the time the capital is in use. The critic who asks, why a single ‘act of abstinence’ which is past and done with should be rewarded by a perpetual payment of annual interest, fails to realise that, so far as saving involves a serviceable action of the saver, it goes on all the time that the saver lies out of the full present enjoyment of his property, i. e. as long as his savings continue to function as productive instruments.”
[J. A. Hobson, Work and Wealth: A Human Valuation (New York, 1914), p. 92.]
What would Clark say to the three propositions here stated? What are your own views?
By whom do you suppose the passages to have been written?
Final. 1923.
Source: Harvard University Archives. Examination Papers in Economics, 1882-1935. Prof. F. W. Taussig. (HUC 7882).
Image Source: Frank W. Taussig in Harvard Class Album 1925.
