Up through the academic year 1945-46, Arthur F. Burns offered the first core economic theory course, Economic Analysis (Economics 153-154), in the Columbia graduate program. The following year, 1946-47, the course was taught by the visiting professor of economics (who would be offered and accepted a regular appointment that same year), Albert G. Hart. In 1947-48 Economic Analysis was given a new course number, Economics 103-104, and taught in three sections by Hart, Stigler, Vickrey.
From Hart’s materials for Economic Analysis (1946-1947), I provide below transcriptions of “Introductory Notes” along with the “Prospectus and Background” and the “Outline of Economics 153—154” that includes reading assignments from a 92 page set of typed course notes. Midterms and final semester exams have been appended to this posting.
Introductory Notes
Prospectus and Background
Outline of Economics 153-154
Midterm exam, ca. late November 1946
First term final examination, January 21, 1947
Midterm exam, April 14, 1947
Final examination, May 22, 1947
_____________________________
*Economics 153-154—Economic Analysis. 3 points each session. Professor Hart.
M. and W. at 10. 301 Fayerweather.
Character, uses, and limitations of received economic theory. “Equilibrium” of economic units, markets, and clusters of markets; “process analysis.” Translation of policy problems into questions of theory, and of theory problems into questions of fact.
*Designed primarily for candidates for the degree of Doctor of Philosophy in Economics.
Economics 159—160—Economic Theory. 3 points each session. Mr. Vickrey.
Tu. and Th. at 9. 301 Fayerweather.
A systematic course in neoclassical economics, designed to prepare students for more advanced studies. Emphasis is placed on economic theory as a tool for analyzing economic changes.
[Note that Vickrey was listed in the Bulletin of Information that announced the courses for 1946-47. From the January 1947 examination below it is clear that Stigler taught either an additional section of Economics 153 or he taught Economics 159 instead of Vickrey in the autumn 1946 term. In any event the next year found all three (Hart, Stigler and Vickrey) teaching separate sections of the new core theory course, Economics 103-104.]
Source. Columbia University Bulletin of Information, 46th Series, No. 37 (August 10, 1946). History, Economics, Public Law, Sociology, and Anthropology: Courses offered by the Faculty of Political Science (Winter and Spring Sessions, 1946-1947),p. 40-41.
_____________________________
Economics 153-154
“ECONOMIC ANALYSIS”
Outline
A. G. Hart, October 15, 1946
Economics 153—i
ECONOMIC ANALYSIS
Introductory Notes
The attached outline is aimed to clarify the general structure of the 153-143 course. Note that the topical outline becomes increasingly vague as to reading assignments toward the latter part of the course; this will be filled in later, as I get the feel of the class’s effective reading pace and as I improve my forecast of the time-table.
Arrangement of Outline
By way of orientation, the topical outline has been carried clear through to May. The detailed sentence outline, however, is brought only up to the current date; “to be continued”.
The sentence outline is intended to serve as at least a partial substitute for classroom notes. It is based on the notes from which I speak in class, and aims to carry the main thread of the argument. My own experience as a graduate student was that trying to get detailed notes interfered with thinking things through in classes; and I want to put the class in a position where class notes can be somewhat sketchy. If facilities can be managed, I hope at least part of the time to be able to give out installments of the sentence outline in advance, to maximize the extent to which I can accept interruptions in class without losing the thread.
From time to time there will be written exercises, supplementary reading suggestions, etc.
Why This Sequence of Topics?
The organization of the material is intended to minimize the chief normal learning-difficulty of economic theory, which arises from having to carry seemingly unrelated pieces of analysis some time in separate packages before they fit together. I am trying by my first and second “approximations” to keep the various special topics continuously in perspective; to fit in each piece almost as soon as it is developed; and to avoid carrying forward excess baggage in the way of gadgets which later prove useless.
The “first and second approximations” should not be identified with either “statics and dynamics” or “perfect and imperfect competition”. In my view, the best stopping-place for a first approximation is a good way short of a full account of “statics”; in particular, it leaves out a good many institutional insights which can be handled after a fashion in “static” terms. The “second approximation”, needless to say, will stop a good deal short of a well-rounded account of “economic dynamics”—for the very good reason that a satisfactory “dynamics” is not yet worked out. As to imperfect competition, some elements of the subject go into the first approximation; and a good many, to my taste, classify as useless gadgets and go out altogether.
Acquaintance with Authors
It is not a primary objective of the course to acquaint students with authors. But part of the process of learning theoretical analysis is to observe the theoretical frameworks set up by a few of the masters. The reading list will give the elements of the point of view of Marshall, Keynes, Hicks, Stigler or Boulding, and one aspect of the thinking of Lange; Fisher, Knight, Pigou and J. M. Clark will be represented only by fragments, and many other important writers not at all. The foregoing constitutes a minimum list of theorists whose mark should be represented in an economist’s bookshelf.
____________________________________
PROSPECTUS AND BACKGROUND
I. Conceptions of the Course. I propose to treat economic theory not as an auxiliary to the economist’s work (like statistical method), but as the core of economics.
A. It is tempting to think of economics as composed of two classes of sub-fields: subject-matter fields (money, international trade, labor, etc.) relating to particular sets of institutions and their working: tools (theory, statistics, history, perhaps law).
B. Theory has a claim to be the distinctive feature by which economics can be identified.
C. In essence, theory is a systematic check list of questions: an economist is one who knows the questions.
D. The course aims at coverage (an “advanced principles”) rather than at maximum proficiency on a small number of topics.
E. I refuse to accept the view that theoretical and institutional approaches are competitive:
1. Neither type of knowledge of economics makes the other dispensable.
2. Each type of knowledge contributes to the applicability of the other.
II. Content of Economic Theory. Economic theory is a way of dealing with economic quantities; but it deals also with people and social groups.
A. Considering that economics purports to be a social science, it is astounding how far it turns out to operate by manipulation of abstract quantitative symbols.
B. The human side of economics comes in through the choice of hypotheses; but the central questions economics asks about people are quantitative.
C. In general, economic theory deals with choice among alternatives; with substitution of one means to an end for others; and with compromises among partially conflicting goals by maximizing something. It has to criticize goals themselves, with an eye on the degree to which goals are set to make the game interesting.
D. The quantities with which economics deals are in the first instance events (final services, productive services, transactions). “Goods” turn out to be “bundles of services”: wealth has the dimensions rate-of-service X time.
III. Plan of the Course. The course is planned as a “spiral” progression across a wide range of topics:
A. Its first stage is an analysis of national income and product, following Hicks.
B. Beyond that stage, analysis will run in terms of:
1. The economic unit (firm or household)
2. Markets as inter-relations of units
3. Unemployment and fluctuations
4. “Welfare economics”
C. In the second stage, these four problems will be considered in “Statics”—i.e., they are carried up to the point at which anticipations and uncertainty take on importance, but not further. The idea is to postpone refinement of analysis till after looking at the theorist’s concept of a “system of economics”.
D. In the third stage, elements of uncertainty will be brought to the surface, and the more general theoretical consequences of institutionalist insights not recognized in the second stage will be drawn.
E. In view of numbers, class meetings cannot be conducted primarily as discussions; but I shall welcome questions and argument, and hope to provide much of the benefit of discussion via written assignments and conferences. Student reliance must be largely on learning cooperatively.
IV. Economics as a Field. The field of economics deserves the best of human intelligence; and the profession is one in which its members can take pride.
A. The critical importance of economics is visible in the policy field: whether or not our society cracks up depends largely on whether a minimum of wisdom (or good luck) guides our economic policy.
B. Waiving the question whether economics is “a science”, it is a field in which it takes a great deal of mental power, and a heroic effort to correct biases, to make major contributions.
C. Economics has its weaknesses and its record of failures (though nothing like as black a record as the public may think); but its professional standards deserve respect, and its prospects seem hopeful.
____________________________________
AGH—10/9/46
OUTLINE FOR ECONOMICS 153-154
[PART I]
I. Introduction. (Sept. 30-Oct. 2: 2 hours)
Required:
Hicks and Hart, Social Framework of American Economy, Chapter 1
Suggested Supplements:
Stigler, Economics of Price, Chapter 1
II. The Economic Process. (National Income and Output: Oct. 7, 9, 16: 3 hours)
Required:
Hicks and Hart, Parts I and IV; over II-III lightly.
Suggested Supplements:
F. H. Knight, teaching materials reproduced from Social Science II Syllabus (Univ. of Chicago Bookstore)
[PART II]
III. The Economic Unit: schematic view
A. The Firm and Costs (Oct. 18, 23, 25, perhaps 30: 3 to 1 hours hours)
Required:
Option:
Stigler, Chapters 7-9; 1st Section of Chapter 10 or
Boulding, Economic Analysis, Chapters 22-23, followed by 21
B. The Household (perhaps October 30; Nov. 4, 6, 11, 13,18, perhaps 20: 5 to 7 hours)
Required:
Option:
Stigler, Chapter V, or Boulding, chapters 29-30,
Hicks, Value and Capital, Chapters I-II
Marshall, Book III
Hicks, Note to Chapter II; Chapter III
IV. Inter-Relations of Units: “Markets”, First Approximation
A. Introduction: Interplay of units; aggregation; clearing the market (Oct. 30: 1 hour)
B. Monopoly: One unit versus many. (Nov. 4, 6
Required: Cournot, Chapter V
C. Perfect Competition on inter-related markets: factor markets; “general equilibrium”. (Nov. 18, 20, 25, 27: 3-4 hours)
Required: Cournot, Chapter V
D. Monopoly: One unit versus many. (Nov. 4, 6
Required:
Stigler, Chapter 10
Cassel, Theory of Social Economy
Hicks, Value and Capital, Part II (Chapters IV-VIII)
E. Variations on a Classical Theme: monopolistic competition (Dec. 2, 4, 9, 11: 4 hours)
Required:
Stigler, Part III (Chapters 11-15) (or alternative to be assigned)
Reserve of time: December 16, 18: 2 hours.
F. Inter-temporal and inter-spacial markets. (Jan. 6, 8, 13: 3 hours)
Required:
I. Fisher, or alternative to be assigned.
[Assignment: Irving Fisher, Theory of Interest, pp. 99-149, 178-230 or Rate of Interest, pp. 117-177. If possible, also Theory of Interest,pp. 231-315 or Rate of Interest, pp. 374-415 Cf. Stigler, Ch. 17, and Boulding, Ch. 33.]
Reserve of time: January 15: 1 hour.
V. Welfare Economics—First Approximation: (Feb. 3, 5, 10, 12: about 4 hours)
Losses through unemployment and through inefficient use of employed resources; equalization of returns at the margin as welfare criterion; system-wide external economies; inequality and incentives; substantial identity of welfare economics for capitalist and socialist economies.
Readings: Lange on Socialism; Lerner; Robbins-Kaldor-Hicks journal discussion; Simons.
[Marshall, Principles, Book V, Ch. XIII (pp. 462-476
A.P. Lerner, Economics of Control, pp. 1-105
O. Lange, Economics of Socialism (with Lippincott and Taylor; Lange essay) or “On the Economic Theory of Socialism”, Rev. Ec. Studies, Oct. 1936, pp. 53-71, and Feb., 1937, pp. 123-142
H. C. Simons, Positive Program for Laissez-Faire
L. Robbins, “Interpersonal Comparisons”, Econ. Jour., Dec., 1938, pp. 635-641
N. Kaldor, “Welfare Propositions” Ibid., Sept., 1939, pp. 549-552
D. H. Robertson, “Wage Grumbles” in Readings in Theory of Income Distribution, pp. 221-236]
VI. Unemployment Fluctuations—First Approximation (Feb. 17, 19, 21, 26: about 4 hours)
Effects of general inadequacy of demand with limited price flexibility; “propensities” to save, invest, as influenced by government budgets, foreign trade, money, etc.; basis for expecting fluctuations in demand; the prescription of “Flexibility”.
Readings: Keynes, Lerner, NPA, A. F. Burns
[A. P. Lerner, Economics of Control, Chapters 22-23 (pp. 271-301)
Gardiner C. Means, Monetary Theory of Employment, Chapters V-VI (mimeographs; on reserve)
National Planning Association, National Budgets for Full Employment (pamphlet, Washington, 1945)
Additional stuff if time:
J. M. Keynes, General Theory of Employment, Interest and Money, Books III-IV (pp. 89-254)
A. F. Burns, Economic Research and the Keynesian Thinking of Our Times (New York, National Bureau of Economic Research, 1946) pp. 3-29
Oscar Lange, Price Flexibility and Employment, Bloomington, Indiana, 1944
(following mentioned with regard to use of numerical Keynesian models for forecasting)
Nicholas Kaldor in Beveridge’s Full Employment in a Free Society, Smithies and Mosak in Econometrica, for critical discussion cf., the 1945-1946 volumes of American Economic Review]
PART III: FIRST STEPS TOWARD REALISM
VII. The Unit—Second Approximation (March 3, 5, 10, 12, 17, 19: about 6 hours)
Imperfect access to markets; anticipations and planning; uncertainty, flexibility and liquidity; qualifications to first approximation arising from fact unit is social group; “just prices”, confederations of units and price rigidity.
Readings: Knight, Hart, Keynes, Hicks, Berle and Means;_______________]
[Assignment:
Hicks, Value and Capital, Chapters IX-X; XIV-XVIII (pp. 113-140, 171-236)
Hart, Anticipations, Uncertainty and Dynamic Planning (Chicago, 1940)
Means, Monetary Theory of Employment (mimeo) Chapter V.
Ad lib., A. A. Berle and G. C. Means, Modern Corporation and Private Property]
VIII. Markets—Second Approximation (March 24, 26; Apr. 7, 9: about 4 hours)
Gradations of price rigidity; imperfect clearing of markets; peculiarities of markets for productive services, perishables and durables; consistency, and inconsistency of expectations and locus of surprises; unintended saving and investment; differences of opinion and speculation.
Readings: Lindahl, Hicks, Keynes;_________________________
[Assignment:
Means, Monetary Theory of Employment (mimeo), Chapter VI.
E. Lindahl, Money and Capital, pp. 21-69
Mentioned with respect to “locus of surprises”: Hart, AER, Supplement, March 1938 and Rev. Econ. Stat., May, 1937 “of a sketch by Lindahl mimeographed in 1934).]
IX. Unemployment and Fluctuations—Second Approximation (April 16, 18, 23, 25: about 1 hour)
Uses and limitations of “modes”; uncertainty and interest; “stagnations”; inevitability of fluctuations in major comments; the policy issues.
Readings: To be worked out.
[For details and bibliography see National Planning Association, National Budgets for Full Employment and Hart and Mosak in AER, 1945-46.]
X. Welfare Economics—Second Approximation (May 5, 7, 12, 14: about 4 hours)
The economists’ struggle against proposals to enable groups to “earn” more by producing less; “social justice”; economic warfare within the nation and conditions of disarmament; adaptation of economic policy to social structure; role of reason in contemporary society.
Readings: To be worked out.
Reserve of time: Nil! Whence it becomes urgent to jam V into January if possible, pushing all of IV back before Christmas. By bet is that this can’t be done, however, and that in consequence Part III (especially VIII) must be skimped.
____________________________________
ECONOMICS 153
[Undated but would fit into syllabus between Sections III and IV in November 1946]
Answer 4 questions:
1) What is Marshall’s theory of demand? In what direction has this theory been extended by modern research? What problems in demand theory deserve, in your judgment, the greatest attention in the years ahead? Why?
2) What are indifference curves? What can they contribute to the understanding of consumers’ behavior? To the understanding of producers’ behavior? To pure economic theory?
3) What does a demand curve of unitary elasticity mean? What does an average cost curve of unitary elasticity mean? Is the Marshallian demand curve equivalent to an average revenue curve, an average cost curve, or a marginal revenue curve? Why? Assuming a linear demand curve, indicate the elasticity of demand at ‘critical points’ on this curve. Will farmers benefit more from a short crop than from a bumper crop? Is there any conflict in this respect between the interests of farmers as individuals and as a class?
4) (a) What, briefly, does the principle of diminishing return mean to Lucretius, Mill, Marshall, Stigler?
(b) Over what range of industry does ‘the’ principle of diminishing return apply? over what range of factors? over what range of output?
(c) What is ‘the’ principle of increasing return and how is it related to ‘the’ principle of diminishing return?
5) (a) Suppose that two factors of production are used in producing a certain commodity, one factor being fixed and the other variable. How much of the variable factor will a producer seeking the least-cost combination use, if the variable factor is free? If the fixed factor is free? if neither factor is free? if the price of both factors is doubled? if the price of the fixed factor is doubled while the price of the variable factor remains unchanged? Explain your answers.
(b) Suppose that both factors may be varied freely and that each costs money. How much of each factor will the producer use? Why?
(c) Same as (b), but suppose the number of factors is ten instead of two.
____________________________________
ECONOMICS 153-159
Composite Final Examination
January 21, 1947
306 Mines
1:10—4:00
Answer enough questions to add up to 120 “minutes”. Students in Stigler’s section must include question 1. Do not answer both 1 and 6, nor both 1 and 9.
1. (60 minutes) There are 100 each of A and B farms in a competitive economy. The product schedules of one farm are
|
Total Product |
| Number of Laborers |
A Farm |
B Farm |
| 1 |
40 |
40 |
| 2 |
90 |
80 |
| 3 |
140 |
115 |
| 4 |
185 |
145 |
| 5 |
225 |
170 |
| 6 |
260 |
190 |
| 7 |
290 |
205 |
| 8 |
315 |
215 |
i. Determine wages and rents on both types of farms when there are 240 laborers.
ii. Determine wages and rents on both types of farms when there are 900 laborers.
iii. And 910 laborers, no laborer divisible.
iv. With 900 laborers, those on the A farms organize and succeed in setting a wage rate of 40.
v. And then they raise the standard rate to 47.
vi. Congress, dominated by radicals, levies a 20 per cent tax on wages. There are 900 laborers, and full competition.
2. (30 minutes) Explain as briefly as possible each of the following statements.
i. For a monopolist, marginal cost is greater than marginal revenue at any output at which the demand is inelastic.
ii. Demand has no influence on the price of the product of a competitive industry that uses no specialized resources.
iii. The elasticity of a straight line demand curve varies from point to point.
iv. The imposition of a license fee does not affect short-run normal price.
3. (30 minutes) Write a short essay on utility theory, in one of its variants, taking into account:
i. The need for “going behind” the demand curve to explain observable behavior.
ii. The empirical evidence that supports the utility theory.
iii. The uses, if any, to which the utility theory can be put.
4. (15 minutes) Define each of the following concepts and write a brief paragraph on its place in contemporary economic theory:
a) Opportunity cost
b) Economic rent
c) Net profit
d) Consumer’s surplus
e) Marshallian long-run
f) Quasi-rent
g) Factor of production
5. (15 minutes) Explain the difference between the “marginal utility” and “indifference curve” approaches to the theory of consumption, and evaluate the advantages attributed to the latter.
6. (30 minutes) Explain the meaning and implications of “constant returns to scale”, Under constant returns to scale, what is the relation between the amounts of the factors used, their respective marginal productivities, and the total product.
Illustrate the meaning of increasing, constant, diminishing and negative returns to one factor–amounts of other factor being held constant—within the framework of constant returns to scale. In a range where there are increasing returns to one factor, what is implied about returns to other factors?
7. (15 minutes) Give an exposition, illustrated as well as decorated by diagrams, of one of the standard special cases of monopolistic competition theory—such as (a) a price leader “holding up the umbrella” for a fringe of small “independents”; (b) product differentiation with free entry; (c) substitution of selling-cost competition for price competition; (d) cartel with enforceable output quotas but open membership; (e) spatial competition with free entry but tabu on price competition (gasoline stations with fixed per-gallon markup).
8. (15 minutes) Do the same for one other of these cases. DO NOT TREAT MORE THAN TWO ALTOGETHER.
9. (30 minutes) Suppose a perfectly competitive industry, with long-run constant costs, is in long-run equilibrium. Trace adjustment to a new short-run and long-run equilibrium when a tax per unit of output is put into effect unexpectedly but permanently.
What difference will it make if the tax is per unit of input instead (the input affected accounting for, say, ¼ the industry’s costs)?
Where the tax is per unit of output, what difference will it make if the industry is subject to long-run increasing costs?
10. (30 minutes) Suppose a household has its “income” given in kind—in a “commodity X” rather than in “money”. Draw up a diagram with “money” graphed vertically and “X” horizontally, and trace out the loci of accessible combinations of X and money (“opportunity paths” alias “budget lines”) for several different prices of X.
Assuming both X and money to be necessities (in the sense that the household will always prefer a some-of-each combination to any alternative comprising some of one and none of the other), is it possible to draw on this diagram a field of indifference curves so shaped that the points of maximum attainable satisfaction along these opportunity paths will show the household retaining more X (“supplying” less X) at higher prices than at lower prices of X? If so, draw such a field of curves; if not, show geometrically why it cannot be done.
Relate this analysis to the supply by households of agricultural commodities for which overhead costs overshadow variable costs (apples?). To the supply of labor (regarding X as leisure, of which less is retained as more time is devoted to work).
11. (15 minutes) Is the “law of diminishing returns”, construed in terms of variable proportions of inputs, a “law” of engineering, social relations, or individual psychology? (or is it strictly a parlor accomplishment for economists?) Justify your answer.
12. (30 minutes) (a) Economists generally accept a strong presumption that demand curves have a “negative slope”: i.e., that increasing a price reduces the amount demanded. What are the main pieces of evidence by which this presumption can be supported? Do you consider the evidence adequate?
(b) On the supply side, economists feel a much weaker presumption that increasing a price will increase the amount supplied, particularly where many of the suppliers have only one type of commodity (or service) to sell. What are the grounds for this difference in the strength of the presumption?
13. (30 minutes) Describe the Walrasian equations and discuss their significance in relation to the determinateness of the general equilibrium of a simple exchange economy.
14. (15 minutes) Discuss bilateral monopoly (monopolistic seller facing monopsonistic buyer) in relation to the efficiency of the bargaining and exchange process, the determinacy of the general equilibrium, and factors affecting the result.
15. (15 minutes) Distinguish between impatience and marginal time preference as a basis for interest. What other factors besides interest affect the supply of savings and capital?
16. (30 minutes) The following table shows the estimated yearly traffic over a proposed bridge at various rates of toll:
| Toll |
Cars per year |
| $2.00 |
None |
| 1.50 |
1,000,000 |
| 1.00 |
2,000,000 |
| .50 |
3,000,000 |
| .00 |
4,000,000 |
If the bridge can be built at an annual cost of $3,500,000 for interest, depreciation, and repairs, would it be worth while, from the point of view of the community as a whole, (a) if no toll is to be charged; (b) if a toll of $1 is to be charged, the balance of the cost coming from taxes. Can such a bridge be undertaken privately? If so, how?
If the bridge costs only $2,000,000 and a private company undertakes it, charging $1 toll, what is the net social loss as compared with operating without a toll? If the cost is $1,500,000 and the necessary toll is 50 cents? Discuss the qualifications, if any, to be attached to your conclusions. Note: Consider the demand curve to be continuous, not a series of steps; i.e., at a toll of $.10, traffic is 3,800,000, at $.20, 3,600,000, etc. Ignore wear & tear on bridge.
____________________________________
Economics 154
Hour Examination
April 14, 1947
- (30 minutes) Write a brief essay on “external economies and diseconomies of large scale production”, touching upon:
a) Economies external respectively to firm and to industry
b) Distinction between external economies operating via changes in production functions and via price changes
c) Effects analogous to external economies in the affairs of households
d) The Marshall-Pigou tax and subsidy proposal
- (20 minutes) Comment on the sense and degree in which “welfare economics” is handicapped by limitations on the “interpersonal comparison of utilities”.
____________________________________
Final Examination
Economics 151 and 160
May 22, 1947
Answer one question in each group and four questions in all.
Group I
1. Explain the following propositions:
a. If the proportion in which two factors of production are used in producing a commodity in a certain industry is not alterable, the industry’s demand for factor A will be less elastic (1) the less elastic is the demand for the commodity, (2) the smaller the proportion of total costs that factor A accounts for, and (3) the less elastic is the supply of factor B.
b. If the proportions in which the two factors are used can be altered, the demand for A will be less elastic the less easily it can be substituted for factor B.
2. What reasons are advanced by Adam Smith and J. S. Mill to explain persistent differences between the wages of labor in different occupations? Under what conditions would demand be important?
3. What deviations from the “social optimum” of welfare economics result from monopolistic competition? Discuss (a) the use of existing resources; (b) investment; (c) income distribution.
Group II
4. Explain two of the following propositions and indicate how imperfections in the loan market affect their validity.
a. To maximize their satisfaction from income, individuals borrow or lend in a volume that equates their marginal rates of time preference with the market rate of interest.
b. It pays investors to undertake all ventures in which the rate of return over cost (internal rate) is as high as the market rate of interest.
c. Current rates of interest for loans of different maturity imply specifiable expectations of rates of interest to rule in the future.
5. “For the individual, the rate of interest will determine the choice among his optional income streams (investment opportunities), but, for society as a whole, the order of cause and effect is reversed. The rate of interest will be influenced by the range of options open to choice.”
6. Which of the following statements about interest have been supported by which of the economists listed below, and which of the statements have not been supported?
a. Interest equates the supply and demand for capital.
b. Interest reflects the superiority of roundabout methods of production.
c. Interest represents the rate at which the total stock of capital in the community increases.
d. The rate of interest corresponds to the rate of decline of the marginal productivity of capital.
e. Interest is the reward for the sacrifice of liquidity.
f. Savings tend towards the point at which interest equals the marginal propensity to consume.
g. Interest arises from the exploitation of labor by capital.
h. Interest is a monopoly profit exacted by bankers through the exercise of the sovereign power to coin money.
Böhm-Bawerk, J. B. Clark, Commons, Fisher, Keynes, Marx, Nobody, Soddy, Veblen.
Explain the reasoning behind one of the statements.
7. What are the relations between the spot price of a commodity (cotton), the spot price expected to rule six months from now, and the (“futures”) price at which a contract will be entered into now for execution six months from now? Explain with allowance for uncertainty.
Group III
8. “…it is not the rate of interest, but the level of incomes which ensures equality between saving and investment.” Explain.
9. Expound and criticize Means’s doctrine of price rigidity as cause of unemployment.
10. Comment on F. H. Knight’s view that “in the absence of uncertainty the velocity of circulation of money would be infinite.” How far and what sense does uncertainty explain the “transactions, precautionary and speculative motives” to hold money?
Source: Columbia University Libraries, Manuscript Collections. Albert Gailord Hart Collection, Box 62, Folder “Sec (4) Ec 153-154 Columbia = 103-104 Micro, grads”.
Image Source: Obituary in The Columbia Spectator, October 3, 1997.
