The following Harvard course outline with reading assignments and semester final exams are from the year 1960-61. Wassily Leontief taught the second graduate course in economic theory.
I have highlighted in blue boldface additions to the reading assignments in the 1960-61 course when compared to the 1956-57 version of the same course. Items omitted are listed at the end of the post.
Comparing the structure of the mid-year and year-end exams, I would conjecture that one or more of Koopmans’ Three Essays on the State of Economic Science was assigned for the first term’s reading period, though the title does not appear on the printed reading list for the course.
__________________________
Wassily Leontief
HARVARD UNIVERSITY
Ec. 202a
ECONOMIC THEORY
Fall Term 1960-61
The following outline covers the first semester of the two semester course.
I. Analysis of Production and the Theory of a Firm:
- Costs; total, average, marginal.
Theory of the multiple plant firm.
Revenue; total, average, marginal.
Long and short run analysis
Supply under competitive and monopolistic conditions. - Production function, marginal productivity, increasing and decreasing returns.
Stocks and flows.
Joint products.
Demand for factors of production.
Discontinuous relationships and non-marginal analysis (Linear Programming).
Internal and external economies.
Reading assignments:
Oscar Lange, “The Scope and Method of Economics,” Review of Economic Studies, Vol. XIII, (1), 1945-46, pp. 19-32.
H. Simon, “Theories of Decision Making in Economics,” American Economic Review, June 1959.
E. A. G. Robinson, Structure of Competitive Industry, Chs. II, VII, VIII, pp. 14-35, 107-133.
R. C. Heimer, Management for Engineers, Chs. 3-17.
K. E. Boulding, Economic Analysis, (revised edition, 1948) Chapters 20-26, 31, and 32; or (3rded., 1955) Chapters 23-29, 34, and 35.
E. H. Chamberlin, “Proportionality, Divisibility, and Economies of Scale,”Quarterly Journal of Economics, February, 1948, pp. 229-262.
K. E. Boulding, “The Theory of the Firm in the Last Ten Years,” The American Economic Review, Vol. XXXII, No. 4, December 1942, pp. 791-802.
A. Lerner, Economics of Control, Chs. 15, 16, 17, pp. 174-211.
W. W. Cooper, “A Proposal for Extending the Theory of the Firm,” Quarterly Journal of Economics, February 1951, pp. 87-109.
R. Solow, “Technical Change and the Aggregate Production Function,” Review of Economics and Statistics, August 1957.
Robert Dorfman, “Mathematical or ‘Linear’ Programming,” American Economic Review, December 1953, pp. 797-825.
Dorfman, Samuelson and Solow, Linear Programming and Economic Analysis, Ch. 2.
H. M. Wagner, “The Simplex Method for Beginners,” Operations Research, March-April 1958.
R. Dorfman, “Operations Research,” American Economic Review, September 1960, pp. 575-623.
G. Katona, “Business Expectations in the Framework of Psychological Economics,” in M. J. Bowman, ed., Expectations, Uncertainty and Business Behavior.
II. Theory of the Household:
- Theory of utility and indifference lines analysis.
Individual demand, prices and income.
Dependent and independent, competing and complementary, superior and inferior goods. - Measurability of utility.
“Marginal utility of money,” Consumer surplus.
Interpersonal interdependence in consumers’ behavior.
Economic theory of index numbers.
Choices involving risk.
Reading assignments:
J. Hicks, Value and Capital, Part I, Chs. I-III, pp. 1-54.
K. E. Boulding, Economic Analysis, (Revised edition, 1948) Chapters 33, 34; or (3rd ed., 1955), Chapter 36 and 37.
Duesenberry, Income, Saving and the Theory of Consumer Behavior, Chapters I-III, pp. 1-46.
Modigliania and Brumberg, “Utility analysis and the Consumption Function,” in Kurihara, Post Keynesian Economics.
S. S. Stevens, “Measurement, Psychophysics and Utility,” in Churchman and Ratoosh (ed.) Measurement: Definitions and Theories, pp. 18-63.
A. A. Alchian, “The Meaning of Utility Measurement,” American Economic Review, March 1953, pp. 26-50.
D. Ellsberg, “Classic and Current Notions of ‘Measurable Utility’,” Economic Journal, September 1954.
H. Simon, Models of Man, Part IV, pp. 196-206.
III. Theory of Market Relationships:
- Pure competition; individual and market supply and demand curves.
Stability of market equilibrium, statics and dynamics.
Monopoly and price discrimination. - Monopolistic competition.
Duopoly, oligopoly, bilateral monopoly, etc.
“Theory of games.”
Reading assignments:
A. Marshall, Principles of Economics, Book V, Chs. III, V.
E. H. Chamberlin, The Theory of Monopolistic Competition, Chs. II, III, IV, and V.
Joan Robinson, The Economics of Imperfect Competition, Chs. 15 and 16.
Robert Triffin, Monopolistic Competition and the General Equilibrium Theory, Chs. I and II.
William Fellner, Competition Among the Few, Chs. II-V.
W. H. Nicholls, Imperfect Competition within Agricultural Industries, Ch. 18.
F. Modigliani, “New Developments on the Oligopoly Front,” JPE, June 1958.
Leonid Hurwicz, “The Theory of Economic Behavior,” American Economic Review, December, 1945, pp. 909-925.
D. Ellsberg, “The Theory of the Reluctant Duelist,” American Economic Review, December 1956.
T. C. Schelling, “An Essay on Bargaining,” American Economic Review, June 1956.
IV. General equilibrium theory:
- Basic Concepts of a General Equilibrium Theory.
Data and variables. Price system and general interdependence. Linear model of a general equilibrium system. - Theory of Rent and Factor Prices
Reading assignments:
O. Lange, The Economic Theory of Socialism, pp. 65-72.
Cassel, The Theory of Social Economy, Vol. I, Ch. IV, pp. 134-155.
R. G. D. Allen, Mathematical Economics, pp. 314-325.
E. H. Phelps Brown, Framework of the Pricing System, in particular chapters dealing with general equilibrium theory.
T. W. Schultz, Agriculture in an Unstable Economy, Ch. I, pp. 60-70; Ch. IV, pp. 128-137.
R. S. Eckaus, “The Factor Proportion Problem in Underdeveloped Areas,” The American Economic Review, September 1955, pp. 539-565.
N. Georgescu-Roegen, “Economic Theory and Agrarian Economics,” Oxford Economic Papers, February 1960, pp. 1-40.
___________________________
Mid-year Examination
1960-1961 (Jan. 1961)
HARVARD UNIVERSITY
1960-1961
ECONOMICS 202
PLEASE WRITE LEGIBLY
Answer one question from each group, four questions in all.
GROUP I
- Demonstrate that the assumption that the marginal utility of one of the goods purchased by a consumer is constant is more restrictive than the assumption that its utility is independent of the quantity of any other good.
How could the knowledge of the constancy of its marginal utility help to assess the effect of an income tax on the demand for the good in question?
GROUP II
-
Amount Needed Per Unit of Activity Factor Supply Activity 1 Activity 2 Activity 3 Factor 1
6 1 2 12 Factor 2 2 2 1 10
Factor 3
1 5 20 200
Market Value Per Unit of Output
15 3 8 A firm with a fixed supply of three factors has three possible activities, each of which produces a different product selling for a different price. The factor requirements, factor supplies and the product prices are given in the table above. Find the level of activities, including disposal activities, which maximize the firm’s revenue.
Supplemental information which can be used to shorten computation: In the solution of the “dual”, only factor 1 turns out to have a positive imputed price. - A farmer has fixed amounts of two different kinds of land. He can grow two kinds of product, the prices of which are given. The only other input is labor. Its total available amount is also fixed. The amount of land and of labor required per bushel of each one of the two crops on each type of land is known.
Set up the linear programming problem which the farmer would have to solve to maximize the value of his output.
GROUP III
4. (a) Discuss the differences and similarities of the following types of analysis:
-
-
- The derivation of a household’s demand curve for a commodity.
- The derivation of a firm’s demand curve for a factor of production.
-
4. (b) Demonstrate that,
-
-
-
- A household can have a positively sloping demand curve for the commodities it buys.
- A firm cannot have a positively sloping demand curve for any of the factors of production it buys, if it sells its product in a perfectly competitive market.
-
-
- A self-sufficient farmer lives on produce that he grows himself under conditions of decreasing average returns. The length of his working time can be explained in terms of a utility maximizing choice between agricultural produce and leisure.
Among the (real) wage rates which could induce him to quit farming and become a hired worker, one necessarily must be lower than any other. If this minimum wage rate were actually offered to him, and he became a hired worker would the length of his working time a) remain the same b) become shorter or c) become longer than it was when he gained his livelihood as a self-sufficient farmer?
GROUP IV
- What is the principal contribution of the theoretical approach described in Koopman’s State of Economic Science?
Write a critical essay on methodology, rather than substance, except where a discussion of the latter is necessary to a discussion of the former.
Source: Harvard University Archives. Social Sciences. Final Examinations, January 1961. (HUC 7000.28), Vol. 131 of 284.
___________________________
Wassily Leontief
ECONOMICS 202b
ECONOMIC THEORY
Spring Term, 1960-61
V. Economics of Welfare
- Individual maximum and social welfare.
- Efficiency and distributive justice.
- Efficiency of the purely competitive system.
Monopoly and economic welfare.
External economies. - Pricing and allocation for public enterprise.
READING ASSIGNMENTS:
J. Hicks, “The Foundation of Welfare Economics,” Economic Journal, December 1939, pp. 696-712.
Meade and Hitch, An Introduction to Economic Analysis and Policy, Part II, Chs. VI-VII, pp. 159-220.
Francis Bator, “The Anatomy of Market Failure,” Quarterly Journal of Economics, Vol. LXXII, August, 1958, pp. 351-379.
T. Scitovsky, “The State of Welfare Economics,” The American Economic Review, Vol. XLI, June 1951, pp. 303-315.
J. De Graaf, Theoretical Welfare Economics.
Mishan, E. J., “A Survey of Welfare Economics, 1939-1959,” The Economic Journal, Vol. LXX, No. 278, June, 1960, pp. 197-265.
VI. Capital and Interest
- Stock and Flow Concepts.
Productivity of Capital.
Period of production and “turnover” of capital. - Theory of saving.
Risk and uncertainty. - Partial equilibrium theory of interest.
READING ASSIGNMENTS:
Robert Eisner, “Interview and Other Survey Techniques and the Study of Investment,” in Problems of Capital Formation, Studies in Income and Wealth, Vol. 19, National Bureau of Economic Research 1957, pp. 513-583.
Irving Fisher, The Theory of Interest, Chs. VII, VIII, IX, X, XI, XVI, XVII, and XVIII. 1930.
Hirschleifer, “On the Theory of Optimal Investment Decision,” Journal of Political Economy, August, 1958.
Readings in the Theory of Income Distribution (Blakiston, 1946)
F. Knight, “Capital and Interest,” pp. 384-417.
Keynes, “The Theory of the Rate of Interest,” pp. 418-424.
D. H. Robertson, “Mr. Keynes and the Rate of Interest,” pp. 425-460.
Friedrich & Vera Lutz, The Theory of Investment of the Firm, 1951.
Joel Dean, Capital Budgeting, 1951, Chs. VI, VII.
Eckstein, “Investment Criteria for Economic development and Intertemporal Welfare Economics,” Quarterly Journal of Economics, Feb., 1957.
VII: Principles of Dynamics
- Change over time.
Period analysis.
Continuous change - Dynamic stability and instability.
READING ASSIGNMENTS:
W. Baumol, Economic Dynamics, Chs. I-VII, pp. 1-136.
P. Samuelson, “Dynamics, Statics and Stationary State,” The Review of Economics and Statistics, February 1943, pp. 58-68 (also reprinted in Readings in Economic Analysis, Vol. 1, edited by N. V. Clemens).
K. J. Arrow, “Toward a Theory of Price Adjustment,” in The Allocation of Economic Resources, pp. 41-51, Stanford, California, 1959.
Erik Lindahl, Introduction to the Study of Dynamic Theory, pp. 21-73 in Studies in the Theory of Money and Capital.
Dorfman, Samuelson, Solow, Linear Programming and Economic Analysis, pp. 265-281.
VIII: Economic Development and Accumulation of Capital
- Dynamic interrelation of income, investment and the rate of interest.
- Linear theory of economic development.
Non-linear theory of economic development.
READING ASSIGNMENTS:
Bresciani-Turoni, “The Theory of Saving,” Economica; Part I, Feb. 1936, pp. 1-23; Part II, May 1936, pp. 162-181.
Schelling, “Capital Growth and Equilibrium,” American Economic Review, Dec. 1947, pp. 864-876.
Harrod, “An Essay in Dynamic Theory,” Economic Journal, March 1939, pp. 14-33.
Stern, “Capital Requirements in Progressive Economies,” Economica, August 1945, pp. 163-171.
Robert M. Solow, “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics, Vol. LXX, February, 1956, pp. 65-94.
Arthur Smithies, “Productivity, Real Wages and Economic Growth,” Quarterly Journal of Economics, May, 1960, pp. 189-205.
Also, Baumol, see above under VII.
IX: Keynesian Theory and Problems
- Over-all outlines of the General Theory.
Wage and price “stickiness.”
Demand for money. - Saving and “oversaving.”
Multiplier principle.
READING ASSIGNMENTS:
A. P. Lerner, The Economics of Control, Chs. 21, 22, and 25.
A. P. Lerner, “The Essential Properties of Interest and Money,” Quarterly Journal of Economics, May 1952, pp. 172-93.
J. M. Keynes, General Theory of Employment, Interest and Money, Chs. 1, 2, 8, and 18.
G. Haberler, Prosperity and Depression, Ch. 8.
Modigliani, “Liquidity Preference and the Theory of Interest and Money,” Readings in Monetary Theory.
Hicks, “A Rehabilitation of ‘Classical’ Economics?” Economic Journal, June, 1957.
Reading Period Assignment (spring):
Trygve Haavelmo, A Study in the Theory of Investment, Chicago, 1960.
OR
F. and V. Lutz, The Theory of Investment of the Firm, Princeton, 1951.
Source: Harvard University Archives, Syllabi, course outlines and reading lists in Economics, 1895-2003. Box 8, Folder “Economics, 1960-1961 (2 of 2).
___________________________
Year-end Examination
1960-1961 (June 1961)
HARVARD UNIVERSITY
1960-1961
ECONOMICS 202
PLEASE WRITE LEGIBLY
Answer one question from each of the four groups, four questions all together.
GROUP I
- Consider a two commodity, two consumer group economy run along socialist principles. The government fixes the quantities of A and B produced in any one year, fixes ruble incomes going to consumer groups I and II and also fixes ruble prices so that the total income distributed can exactly buy the amounts produced.
Assume that the collective behavior of a consumer group can be described as one of reaching the highest of a set of group indifference curves under collective income and market constraints.
(a) Using the box diagram technique, show what additional
conditions prices must satisfy if the market is to be cleared.
(b) assume that equilibrium is not established at official prices and that the State decides to ration the available amount of the short commodity between the two groups.The rationing is done in such a way that both groups get less than they wish to buy at official prices. Show how one can explain the resulting equilibrium.
(c) Starting from this equilibrium, will the two groups necessarily find some advantage in exchanging commodities on the black market? Will the black market equilibrium be better or worse (in terms of conventional welfare criteria) than that obtained when prices fixed by the government are chosen so as to clear the market? - It has been established that the annual cost of distributing electricity in an Indian city would be 100,000 rupees in capital charges plus one rupee per kilowatt consumed. The following proposal is put to a vote in a city referendum: “To build the system, charge a price of one rupee per kilowatt and tax the public 100,000 rupees to cover capital charges. The proposal is unanimously rejected. The city fathers then undertake a market survey and find that the tax could be reduced to 50,000 rupees, the price increased to 1.5 rupee and all costs still be exactly covered. They adopt this second proposal without further consultation.
Assuming a homogeneous population and equal taxation, can you derive from the above information a preferential ordering of the following alternatives in terms of social welfare:
(a) Charging 1 rupee and raising 100,000 in taxes.
(b) Charging 1.5 rupee and raising 50,000 in taxes.
(c) Not building the system at all.
GROUP II
- A profit maximizing enterprise possesses a fixed plant and uses as its variable inputs a raw material (fixed amount per unit of output) and labor. Its finished product is sold and the raw material is purchased on perfectly competitive markets. On the labor market, however, the enterprise is the only employer; the workers are not organized and thus compete with each other.
What factual information would you require and what theoretical construction would you use to explain the level of that enterprise’s output if,
(a) labor is hired on the basis of straight hourly wages.
(b) labor is hired at a flat hourly wage for the first eight, and a 50% higher overtime hourly rate for two additional hours, the workers being free to choose whether they want to work eight or ten daily hours.
(c) labor is paid flat piecework rates.
To simplify the problem, you are permitted to assume that the preference functions (real income vs. leisure) of all workers are identical.
- The growth of a certain kind of tree requires λ man-hours for planting and entails no other costs. The volume of wood represented by a tree increases at a constant growth rate:
V = EXP(rt). Two alternative assumptions are made with respect to the tree market:
(A) Trees are sold by volume at a price p per volumetric unit.
(B) Trees are sold by volume at a price p’ now depending on the length of the tree. Observing that length is related to age, traders use the formula
p’= α SQRT(t), where α is a constant and t the age of the tree.
(a) Given the amount L of man-hours available per year, describe a “full employment” production process that guarantees constant profits, year after year.
(b) Under each market assumption, discuss the empirical possibility and operational usefulness of measuring the capital stock and its marginal productivity.
(c) Money can be lent and borrowed without limits at an interest rate i, which is larger than r. At what age should the trees be cut under assumption (B) if the grower wishes to establish a stationary production process that maximizes his utility over time?
GROUP III
- A conventional partial equilibrium theory explains the prices and the quantities — produced and consumed — of all goods on the assumption that a supply and a demand curve is given for each market.
In what sense can it be said that, from the point of view of a general equilibrium theory, at least some of such given demand and supply curves must be either incompatible with each other or redundant? In answering this question, please use equations, graphs, or both.
GROUP IV
- To what extent does Haavelmo or the Lutz’s — whomever you have chosen to read — rely on purely technological specifications and considerations in describing and analyzing the role of capital in the operations of an individual enterprise and of the economy as a whole? And to what extent do they use definitions and measurements which “engineers” would not employ in their professional work?
Illustrate your answer by specific examples.
Source: Harvard University Archives. Social Sciences, Final Examinations, June 1961 (HUC 7000.28, Vol. 134 of 284).
___________________________
Reading assignments in the 1956-57 reading list that were dropped from the 1960-61 reading list:
I. Analysis of Production and the Theory of a Firm:
E. H. MacNiece, Production, Forecasting, Planning and Control, 292 pp.
R. Frisch, “Alfred Marshall’s Theory of Value,” Quarterly Journal of Economics, Vol. LXIV, No. 4, November 1950, pp. 495-524.
National Bureau of Economic Research, Cost Behavior and Price Policy, Ch. VII, pp. 142-169; Appendix C, pp. 321-329.
A. G. Hart, Anticipations, Uncertainty and Dynamic Planning, reprinted 1951, 98 pp.
II. Theory of the Household:
J. R. Hicks, A Revision of Demand Theory, Parts I and II, also the summary and conclusion.
G. Katona, Psychological Analysis of Economic Behavior, Part II, #1-7, pp. 63-149.
III. Theory of Market Relationships:
No titles dropped.
IV. General Equilibrium Theory:
No titles dropped.
V. Economics of Welfare
Coase, “Note on Price and Output Policy,” Economic Journal, Vol. LV, April 1945, pp. 112-113.
Samuelson, “Evaluation of Real National Income,” Oxford Economic papers, Jan. 1950.
VI. Capital and Interest
Edward F. Denison, “Theoretical Aspects of Quality Change, Capital Consumption, and Net Capital Formation,” in Problems of Capital Formation, Studies in Income and Wealth, Vol. 19, National Bureau of Economic Research 1957, pp. 215-260.
John Rae, John, New Principles of Political Economy, 1834, Chs. I-V.
Irving Fisher, Nature of Capital and Income, Chs. I, IV, V, XIV, XVII, Macmillan, 1906.
VII: Principles of Dynamics
K. E. Boulding, A Reconstruction of Economics, Ch. I, pp. 3-26.
VIII: Economic Development and Accumulation of Capital
Pigou, Economic Progress in a Stable Economy,” Economica, August 1947, pp. 180-188.
A. Sweezy, “Secular Stagnation?” in Harris, Postwar Economic Problems, McGraw-Hill, New York, 1943, pp. 67-82.
Hansen, “Economic Progress and Declining Population Growth,” American Economic Review, March 1939, pp. 1-15.
IX: Keynesian Theory and Problems
No titles dropped.
cf. The earlier post for Economics 202 in 1956-57.
___________________________
Image Source: Wassily Leontief in Radcliffe Yearbook 1964, p. 98. Colorized by Economics in the Rear-view Mirror.