Tag: Modigliani

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Economics Programs Economists M.I.T.

M.I.T. Department of Economics Annual Report by E. Cary Brown, 1975-1976

The following annual report of the M.I.T. department of economics was most likely written for the care and feeding of administrators and the members of the department’s visiting committee. This report covers what was my second year of graduate school, so for folks from that time it reads like an annual Holiday newsletter to the family.

_______________________

Department of Economics
1975 – 76

Undergraduate Program

The long-run impact of the past year’s changes in the Institute Requirement in the Humanities, Arts, and Social Sciences is not yet clear. Unquestionably they have increased the Department’s enrollment, but the precise amount is uncertain because simultaneously a major revision was made in the two introductory economics subjects. In the past year enrollments were larger than previously, but smaller than in the transition of the previous year. Nearly 200 of the Class of 1976 concentrated in economics for their Humanities, Arts, and Social Sciences Requirement. Of all students presently enrolled, 327 (primarily juniors and seniors) have elected to concentrate in economics.

Undergraduate majors remain steady in numbers. As in 1974-75, 20 degrees were awarded. In the spring term the Undergraduate Economics Association was reactivated. Its weekly meetings with faculty led to several proposals for revision of the undergraduate program, and several student-faculty socials were organized.

Graduate Program

Enrollment has been remarkably steady in the graduate program. The number of applications for admission was virtually identical to the average of the previous six years. Next year’s entering class of 32 will be slightly larger than average, and will have fewer foreign students and more women, reflecting a shift in the percentage of applications from these groups. Four students from minority groups are expected to be in this class.

Financial support for the graduate student has changed very little over the last several years. We are still fortunate in having from one-third to one-half of the entering students on National Science Foundation Fellowships. For the whole student body, there has been an increase in the support by US foundations (other than NSF) and a decrease in support provided by M.I.T.

The number receiving the Doctor of Philosophy increased somewhat in the past year to 21. For the first time, two American blacks received degrees.* The class fared well in placement, their median salary offer totaling 24 percent above that of 1971. Like the past average, 86 percent went into teaching and 14 percent into non-teaching positions.

*Samuel Myers, Jr. Ph.D. thesis: “A Portfolio Model of Illegal Transfers”, supervised by Robert Solow.
Glenn Loury. Ph.D. thesis: “Essays in the Theory of the Distribution of Income”, supervised by Robert Solow.
See: William Darity Jr. and Arden Kreeger, “The Desegregation of an Elite Economics Department’s PhD Program: Black Americans at MIT“, History of Political Economy 46 (annual suppl.)

The Graduate Economics Association awarded the outstanding teacher in the Department prize to Professor Stanley Fischer.

PUBLIC SERVICE ACTIVITIES

The faculty has always been involved in public service activities tying research to the public interest. In connection with M.I.T.’s participation in the Bicentennial Celebration, Professor Jagdish N. Bhagwati set up a recent conference on the New International Economic Order: Professor Ann F. Friedlaender is planning one for this fall on Air Pollution and Administrative Control. Through the German Marshall Fund, Professor Richard S. Eckaus is organizing a fall conference on economic problems of Portugal. Professor Franco Modigliani arranged a conference through the Bank of Finland on International Monetary Mechanisms.

Various Congressional committees and government agencies have been advised. Professor Peter A. Diamond served on the Consultant Panel on Social Security for the Congressional Research Service. Professors Rudiger Dornbusch and Fischer and Institute Professor Paul A. Samuelson prepared a report for the US Department of Commerce on international financial arrangements. Professor Robert E. Hall was a member of the Advisory Committee on Population Statistics, Bureau of the Census. Professor Jerry A. Hausman served on the Econometrics Advisory Committee to the Federal Energy Administration. Institute Professor Modigliani was a consultant and member of the Committee on Monetary Statistics, Board of Governors of the Federal Reserve System. Institute Professor Samuelson consulted with the Board of Governors of the Federal Reserve System, the US Treasury, and the Congressional Budget Office. Professor Charles A. Myers was a member of the National Manpower Policy Task Force. Institute Professor Robert M. Solow served as Deputy Chairman, Federal Reserve Bank of Boston.

Several faculty members have been involved with the National Academy of Sciences and its related organizations. Professor Eckaus prepared a report, Appropriate Technology for Developing Countries, for the Board on Science and Technology for Developing Countries of the National Academies of Science and Engineering. Professor Franklin M. Fisher served on a National Academy panel on the Effects of Deterrence and Incapacitation; Professor Friedlaender was on the Executive Committee, Assembly of Behavioral and Social Sciences, National Research Council; Institute Professor Modigliani was on the Finance Committee; Institute Professor Samuelson served on the Editorial Board of the Proceedings; and Institute Professor Solow chaired the Steering Committee on Environmental Studies.

Professor Eckaus led an OECD Mission to Portugal that included Professors Lance Taylor and Dornbusch.* Professor Paul L. Joskow was a consultant to OECD in energy. Professor Evsey D. Domar was a member of a delegation of economists sent by the American Economic Association to the Soviet Union. Institute Professor Modigliani, who gave much time to the problems of stabilization in Italy, was a member of the Board of Directors of the Italian Council for Social Sciences.

*Along with several graduate students among whom were Paul Krugman, Andrew Abel and Jeffrey Frankel. Paul Krugman has written a short note about this experience with a picture!

The Brookings Institution Panel for Economic Activity included Professors Dornbusch and Hall, with Institute Professors Modigliani, Samuelson, and Solow as senior advisors to it. Professor Friedlaender served on the examining committee, Graduate Records Examination, Educational Testing Service. Institute Professor Modigliani served on the Committee on Economic Stabilization, Social Science Research Council. Professor Fisher is a member of the Board of Governors of Tel Aviv University. Institute Professor Solow continues as Trustee for the Institute of Advanced Study.

RESEARCH

International topics seem to dominate the research interests of the faculty. Professor Bhagwati, in addition to his work in developing countries and international trade theory, has given attention to a proposal for applying taxation to the brain drain. Professor Eckaus studied the role of financial markets and their regulation and the behavior of income distribution in economic development. Professor Taylor had three major areas of research: the development of nutrition planning models in Pakistan, international food aid and reserve policies, and growth and income distribution in Brazil.

Professor Morris A. Adelman’s continuing research on the world oil market, Professor Joskow’s analysis of the international nuclear energy industry, and Professor Martin L. Weitzman’s examination of OPEC and oil pricing involve applied microeconomics with international implications.

Research in various applied microeconomics areas was responsible for the second largest fraction of faculty effort. Institute Professor Solow continued to research the economics of exhaustible resources, and Professor Weitzman completed his analysis of the optimal development of resource pools. Professor Joskow has explored the future of the electric utility industry and its financing, the future of the US atomic energy industry, and the pattern of energy consumption in the US. He is developing a simulation model of the energy industry, and is reviewing the regulatory activities of government agencies in general and the health care sector in particular. Professor Hausman examined the Project Independence Report and is analyzing the choice of new technologies in energy research.

In the transporation field, Professor Friedlaender surveyed the issues in regulatory policy for railroads and alternative scenarios in federal transporation policy. Professor Jerome Rothenberg examined such problems in urban transportation as pricing policies, demand sensitivity to price, and modeling locational effects. Professor William C. Wheaton considered an optimal pricing and investment policy in highways under a gasoline tax.

Inextricably intertwined with urban transportation are questions of urban location and housing. Professor Rothenberg carried out research in such aspects of this problem as microeconomics of internal migration, supply-demand for housing in multizoned areas, the impact of energy costs on urban location, and the development of a model of housing markets and of metropolitan development and location that can be applied to general policy questions. Professor Wheaton developed an equilibrium model of housing and locational choice based on Boston experience.

Institute Professor Modigliani also conducted research on the housing market, but his interest comes primarily from the side of stabilization policies and similar macroeconomic problems. He also participated in a review after 20 years of his life cycle hypothesis of saving, made monetary policy prescriptions for both the US and Italy, reflected on the description of financial sectors in econometric models, and explored more deeply the application of optimal control to the design of optimal stabilization policies in economic models. Institute Professor Samuelson reviewed the art and science of macromodels over the 50 years of their development. Professor Friedlaender completed a quarterly macromodel of the Massachusetts economy. Professor Hall developed a model to deal with income tax changes and consumption.

Public economics has both macro and micro aspects, both of which are represented in the Department’s research. With Visiting Professor James A. Mirrlees, Professor Diamond theorized about public shadow prices with constant returns to scale, and about the assignment of liability. He also has generalized the Ramsey tax rule and continued his research into an optimal Social Security system. Professor Hausman is reexamining the cost of a negative income tax; Professor Rothenberg analyzed the distributional impact of public service provision; and Professor Wheaton explored intertemporal effects of land taxes, fiscal federalism in practice, and the financial plight of American cities.

Besides such theoretical research, there was significant research of an entirely pure nature. Professor Robert L. Bishop reexamined the measurement of consumer surplus. Professor Fisher extended his exploration of the stability of general equilibrium and of aggregate production functions. Professor Weitzman investigated the welfare significance of national product in a dynamic economy. Professor Hal R. Varian further explored the theory of fairness, non-Walrasian equilibria, and macromodels of unemployment and disequilibrium. Professor Hausman examined the econometric implications of truncated distributions and samples, of probit models, and of simultaneous equation models. In historical research, Professor Domar was concerned with serfdom, while Professor Charles Kindleberger investigated the role of the merchant in nineteenth-century technologic transfer.

Publications

Professor Bhagwati edited Taxing the Brain Drain: A Proposal and Brain Drain and Taxation: Theory and Empirical Analysis, and coauthored Foreign Trade Regimes and Economic Development: India. Professors Dornbusch and Kindleberger published numerous papers on implications of the new international monetary exchange structure for exchange rates, price stability, international trade, and international capital movements. Professor Weitzman continued his study of the Russian economy with a paper on the new Soviet incentive model.

With Visiting Professor of Management Ezio Tarantelli*, Institute Professor Modigliani published Labor Market, Income Distribution and Private Consumption (in Italian) and various papers on stabilization policy in Italy. He also wrote papers on inflation and the housing market and edited New Mortgage Designs for Stable Housing in an Inflationary Environment. Professor Hall’s labor market research resulted in papers on persistence of unemployment, occupational mobility, and taxation of earnings under public assistance. Professor Michael Piore wrote on labor market stratification and the effect on industrial growth of immigration from Puerto Rico to Boston. Professor Fisher had several publications on indexation and adjustment of mortgages to inflationary episodes. In the realm of economic history, Professor Temin published Reckoning with Slavery and Did Monetary Force Cause the Great Depression?

*Ezio Tarantelli was the victim of a Red Brigades’ assassination in 1985.

Institute Professor Samuelson published theoretical papers on factor price equalization and trade pattern reversal. In the realm of pure research, he put out papers on nonlinear and stochastic population analysis, optimal population growth, and the optimal Social Security system implied in a lifecycle growth model. He also brought out the tenth edition of his famous text, Economics: An Introduction Analysis.

FACULTY

Visiting Professor John R. Moroney was here from Tulane University; Visiting Professor Mirrlees came in the spring term from Nuffield College, Oxford University. Regular faculty on leave were Professors Fisher and Joskow in the fall and Professor Weitzman in the spring.

It is a pleasure to report the promotion to Associate Professor of Jerry A. Hausman. A new appointee, Professor Jeffrey E. Harris, with the unusual background of an M.D. and a Ph.D. in economics, will provide long-sought coverage in health economics.

Professor Kindleberger will retire as Ford Professor and become a Senior Lecturer on a half-time basis. Since 1948, when he came as an Associate Professor, Professor Kindleberger has been an effective teacher, scholar, participant in faculty governance, and counselor to governments and the public. He has trained the leading international economists of the next generation; he has produced a dozen books and more than a hundred articles in international trade and finance and in economic history. He epitomizes the highest kind of academician.

Several honors were bestowed on members of the Department. Institute Professor Modigliani will complete his year as President of the American Economic Association. Professor Myers received a Distinguished Alumni award from Pennsylvania State University. Professor Fisher was F.W. Paish Lecturer to the Association of (English) University Teachers of Economics. Institute Professor Solow received a D. Litt. from Warwick University, and Institute Professor Samuelson, a D.Sc. from the University of Rochester.

EDGAR CARY BROWN

Source: MIT Libraries, Institute Archives and Special Collections. MIT Department of Economics Records, Box 1, Folder “Annual Report 1975-6”.

Image Source: Building E52, Alfred P. Sloan Jr. Building, later Morris and Sophie Chang Building

 

https://mitmuseum.mit.edu/collections/subject/building-e52-alfred-p.-sloan-jr.-building-later-morris-and-sophie-chang-building-52

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Chicago Funny Business Harvard M.I.T. Princeton

M.I.T. Faculty Skit, Playing Monopoly at Lunch, 1986

 

It has been a while since I have added an artifact to the MIT economics skits wing of the Funny Business Archives here at Economics in the Rear-view Mirror. Apparently the following script was a, if not the sole, late-20th century MIT faculty skit not written by Robert Solow. I can believe that. In any event, today’s post is further grist to the mill for social historians of economics.

Again a grateful tip of the hat to Roger Backhouse is in order.

__________________

1986 FACULTY SKIT

(Skit opens with Dornbusch, Fischer, Diamond, Eckaus and McFadden seated around MONOPOLY board. Farber is standing alongside, watching the game. Fisher and Hausman are in the wings to make walk-on appearances).

ANNOUNCER: One of the most important unwritten rules in the Economics Department is that no one but Bob Solow writes the skit. This year, Bob reportedly outdid himself and wrote a sitcom in which Bob Lucas is struck by a blinding light while driving to work and transformed into a neo-Keynesian. The skit, titled “I’m OK, You’re OK,” follows Lucas’ attempts to explain why he is estimating Phillips curves to Lars Hansen and Tom Sargent.

Unfortunately, Bob is unable to be with us tonight, since he is delivering the presidential address to the Eastern Economic Association in Philadelphia. When we opened the envelope marked “SKIT” which Bob left for us, we were surprised to discover only a copy of his presidential address. We suspect he had a somewhat bigger surprise when he opened his envelope in Philadelphia. [Address published as “What is a Nice Girl Like You Doing in a Place Like This? Macroeconomics after Fifty Years” Eastern Economic Journal, July-September 1986]

We were of course scared skitless when we realized our predicament, and we were tempted to re-run some of the great Solow skits of the past. There was the 1974 Watergate Skit, in which Paul Colson Joskow testifies to Senator Sam Peltzman that he would run over his grandmother to get a t-statistic above two. There was the 1978 Star Wars skit, in which Milton Vader and his minions capture the wookie Jerrybaca and hold him captive in the Chicago Money Workshop. And in the incredible 1973 MASH skit, Hawkeye Hall and Trapper Jerry Hausman find Radar Diamond and Hot Lips Friedlaender cavorting in the Chairman’s office. (If that doesn’t give Solow Rational expectations, what does?)

We guessed that you had all seen these re-runs on late-nite channel 56, however, and therefore decided to try something new and provide a partial answer to the age-old question: What Really Goes On in the Freeman Room at Lunchtime on Wednesdays? We now invite you to join us for a brief look at one of these infamous gatherings…

 

MCFADDEN: (Rolling dice). “Who owns Oriental Avenue?”

DORNBUSCH: Me. That’s six dollars.

FISCHER: My turn? (Rolls dice). Damn. Inflation tax again; Here’s ten percent of my cash balances. I passed go, didn’t I?

DIAMOND: Uh huh. Here’s $186 dollars.

FISCHER: I should get $200.

DIAMOND: Not since Gramm-Rudman. Everything’s reduced seven percent across the board.

DORNBUSCH: My turn. (Rolling dice). Four. (Reaches over and moves marker).

ECKAUS: No way, Rudi—you just moved six places. No overshooting in this game. (Hands Dornbusch Chance card)

DORNBUSCH: Ah. Go directly to Brazil. Do not return until the day classes start.

HAUSMAN: (Walking in from side of stage) How come you guys are playing MONOPOLY? I thought you usually played RISK…

DIAMOND: Oliver [Hart] took that game home. You know, his contract calls for RISK-sharing…

HAUSMAN: Can you believe the graduate students scheduled the skit party for the Friday before income taxes are due? The only people who’ll come are graduate students and people like theorists who file 1040 EZ’s. (walks off)

(FISHER walks in)

DIAMOND: (Rolling dice). My turn. Oriental again. Six more dollars for Dornbusch.

FISCHER: That’s a pretty profitable property, Rudi.

FISHER: How many times do I have to say it! You can’t possibly tell that from accounting numbers! (Pause). Why don’t we ever play fun games, like Consultant?

ECKAUS: I hear Jorgensen and Griliches play that all the time up at Harvard. Maybe you should give them a call.

FISHER: They’re never around.

DIAMOND: Of course not, Frank—that’s how you play consultant.

(FISHER exits.)

FARBER: Speaking of Harvard, how are we doing on graduate recruitment this year? I heard there was some Princeton scandal.

DIAMOND: The AEA put them on probation for recruiting violations. People could look the other way when they offered prospective students money and cars, but this year Joe Stiglitz promised to write a joint paper with all entering students.

FARBER: They’re really giving out cars?

DIAMOND: Sure. Yugo’s.

FARBER: All I got was a motorcycle…

MCFADDEN: Harvard and Princeton have been dumping all over us. Every prospective student has heard that Jerry Hausman cashed in his Frequent Flyer miles for a 727. And some even know that Marty Weitzman has a Harvard offer.

FISCHER: Well, that offer was certainly no surprise. The Harvard deans read THE SHARE ECONOMY and decided they should hire more workers.

DIAMOND: Still, we’re getting the best students. This morning I signed a Yale undergrad by offering him Solow’s office. I figured Bob can share E52-390 with Krugman, Eckaus, and Farber next year. But what happens when we run out of river-view offices?

FARBER: How’s Harvard doing on recruiting?

ECKAUS: Not too well. They’re on a big kick to look relevant. Mas-Collel’s going nuts—Dean Spence has a new rule that any agent in a theoretical model has to have a proper name. Andreu’s having real problems with his continuum papers…

MCFADDEN: I hear the Kennedy School’s helping their visibility. Have you heard about the new Meese Distinguished Service Medal?

DIAMOND: No. Who’s getting them?

MCFADDEN: Sammy Stewart for Distinguished Relief Pitching,
Martin Feldstein for Distinguished Empirical Work,
Larry Summers for Distinguished Dress,
NASA for distinction in Travel Safety,
Bob Lucas and Bob Barro for Distinguished Plausible Assumptions,
Ferdinand Marcos for Distinguished Contributions to Charity,
and John Kenneth Galbraith for Distinguished Use of Mathematics.

DORNBUSCH: Harvard’s visibility campaign’s paying off. Just last week one of their junior guys hit the cover of PEOPLE magazine with a paper about marriage rates among movie stars.

FISCHER: You read PEOPLE?

FARBER: The National Enquirer had a story about a Harvard student who claimed to have a picture of Jeff Sachs in Littauer. Just like the old days with Howard Hughes…

DORNBUSCH: Perhaps we should return to the game.

(MODIGLIANI walks on).

DIAMOND: My turn again? (Rolls dice and moves piece). Community Chest. (Looking at card) You are elected department head. Lose three turns.

(Someone walks up and hands DIAMOND a telephone message. He stands up.)

DIAMOND: I nearly forgot. I’m scheduled to join Mike Weisbach who is taking a prospective student windsurfing this afternoon. Figured it was the least I could do to convince him we were as laid back as Stanford. Franco—do you want to take my place?

MODIGLIANI: (Sitting down in Diamond’s place) So, what are the new developments on the Monopoly front? [Famous Modigliani paper “New Developments on the Oligopoly Front,” JPE, June 1958] (Pause) Now, which of these pieces is Peter’s?

MCFADDEN: The coconut. [Reference here to Diamond’s coconut model of a search economy.]

MODIGLIANI: My turn now?

FISCHER: No Franco—but go ahead. [presumably a reference to Modigliani’s propensity to talk, and talk, and talk.]

MODIGLIANI: (Rolls dice and moves marker). Chance. (McFadden hands him a card). What is this? You have won second prize in a Beauty Contest, Collect $10? This is NOT POSSIBLE. This year I win only FIRST PRIZES [reference to 1985 Nobel Prize for Economics].

DORNBUSCH: (To audience) Wait till he gets the bequest card… [cf. the JEP Spring 1988 paper by Modigliani that surveys the bequest motive]

FISCHER: Franco, I have a deal for you. I’ll trade you Mediterranean and the Water Works for North Carolina and an agreement that you never charge me rent on either property. If you renege, I’ll order Chinese food.

MODIGLIANI: No deal. But what’s this about Chinese food?

FISCHER: It’s a new thing I learned from Garth [Soloner]—it makes the deal sub-gum perfect.

MCFADDEN: My turn. (Rolls and draws a Chance card). My favorite card: Advance Token to the Railroad with the Highest Logit Probability Value. Let me see which one that is… (pulls out a calculator)

FISCHER: While we’re waiting for Dan to converge, how did we do in junior hiring? Did we get that Princeton theorist?

ECKAUS: No dice. All the Princeton guys told him not to come.

DORNBUSCH: Why?

ECKAUS: They said “Go to Yale, go directly to Yale.”

MODIGLIANI: What about senior appointments?

FARBER: Ask Peter [Temin]. He’s on the Search Committee.

MCFADDEN: (Looking up from calculator). I’m having convergence problems. Maybe we should postpone the game for a few minutes while I run down to the PRIME.

[the image of the last page at my disposal is very blurred, fortunately it is only the wrap-up by the announcer]

ANNOUNCER: As you all know, NOTHING takes a few minutes on the PRIME. So until next year, when the [?] [?] Solow who accompanied Stan, 3PO and R2D2 to [?] the [?] [?] from Chicago returns to produce another skit. Good night.

 

Source: Duke University, David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Papers of Robert M. Solow, Box 83.

Categories
Economics Programs M.I.T. Regulations

MIT. Revising Economics Ph.D. General Examinations. E.C.Brown, 1975

 

What makes this memo from E. Cary Brown particularly useful is that it provides us with a list of the graduate economics fields along with the participating faculty members as of 1975. Also the major revision proposed was to have a system of two major fields (satisfied with general examinations) and two minor fields (satisfied by course work). Interesting to note that graduate student input was clearly integrated into the revision procedure.

________________________

Memo from Chairman E. Cary Brown
on a Revision of General Exams, 1975

April 28, 1975

To: Economics Department Faculty and Graduate Students
From: E. C. Brown
Re: Revision of General Examinations

While it has been left that a Committee would be appointed to review the procedures of the general examination (see minutes of the Department Meeting of April 23, 1975), further informal discussion has moved toward a proposed concept of these examinations that I am submitting for consideration and agreement.

  1. There seems reasonable satisfaction about the structure of the present examinations, subject to clarification of the final 2 field examinations and their relationship to the 2 field write-offs.
  2. It is proposed that the 2 fields satisfied by passing the “general” examinations be designated major The examination will be offered in a field, will cover the field in a general way, and will be separated from course examinations. Minor fields will be satisfied by course work. A somewhat lower standard will be imposed in minor fields than in major fields. The “generals” examination, therefore, would apply to the fields of the candidate’s expected expertise, and emphasis would be on a broad coverage of the field.
  3. Each field should, therefore, describe its general requirements for the field as a major one, and list the subjects that may reasonably be offered as a write-off to satisfy the field as a minor one. There should also be some details on the requirements when fields are closely linked (e.g., the proposal for the transportation field and its relationship to urban economics).
  4. Assuming this proposal to be agreeable, the question of term papers still needs settling.

I propose, therefore, the following procedures:

  1. Would each of you give Sue Steenburg a list of your graduate subjects for this academic year, with an indication of whether or not a term paper was required and, if so, the percentage of final grade it represented.
  2. Would faculty in each field submit a list of subjects that may be used to satisfy major and minor requirements in their field as it would ultimately appear in the brochure. The fields to be covered are as follows, the faculty in the field are listed, and the responsible member underlined.
Advanced Economic Theory Bishop, Diamond, Solow, Fisher, Samuelson, Varian, Hausman, Weitzman
Comparative Economic Systems Domar, Weitzman
Economic Development Eckaus, Bhagwati, Taylor
Economic History Kindleberger, Temin, Domar
Finance Merton
Fiscal Economics Diamond, Friedlaender, Rothenberg, Brown
Human Resources and Income Distribution Thurow, Piore
Industrial Organization Adelman, Joskow
International Economics Kindleberger, Bhagwati
Labor Economics Piore, Myers, Siegel
Monetary Economics Fischer, Modigliani
Operations Research Little, Shapiro
Russian Economics Domar, Weitzman
Statistics and Econometrics Hall, Hausman, Fisher, Kuh
Transportation Friedlaender, Wheaton
Urban Economics Rothenberg, Wheaton

If there are any difficulties with these suggestions, let me know right away. If we can proceed along these lines, it appears to be simply a clarification of our recent past and a substantial timesaver. The reports can be looked at this summer by a student-faculty group, with responsibility for faculty on me and for students on Dick Anderson.

Source:  M.I.T. Archives. Department of Economics Records, Box 2, Folder “Grad Curriculum”.

Image with identifications: Economics Faculty group portrait, 1976.

Categories
Economics Programs M.I.T.

M.I.T. Economics and Political Science, excerpt from President’s Report, 1961

 

M.I.T.’s department of economics has done historically well in attracting graduate students who have received third-party funding, e.g. National Science Foundation Graduate Fellowships. Besides offering a top-down report of the position of the economics department at M.I.T., the excerpt from the President’s 1961 Centennial Year Report transcribed below offers the factual nugget: “This year, too, M.I.T. was selected as first choice by more Woodrow Wilson Fellows in economics — eighteen out of eighty — than any other school in the country”.

_____________________

Also from 1961

M.I.T. Graduate Economics Brochure of 1961.

General Examinations in Economic Theory at M.I.T. from 1961: Microeconomics; Macroeconomics.

Fun antique video. Round table discussion with Jerome Wiesner, Jerrold Zacharias, and John Burchard of MIT with Raymond Aron of the Université de Paris-Sorbonne, Isidor Rabi of Columbia University, and Sir Eric Ashby of Cambridge University was filmed as part of the Tomorrow television series produced by CBS Television Network for MIT on occasion of MIT’s Centennial in 1961.

_____________________

From the President’s Report 1961, M.I.T.

The Social Sciences In the light of the concerns of the Centennial for the larger influences of science upon society, I think it appropriate to review this year the state of the social sciences at the Institute. That we should have become occupied with these areas was inevitable, and the Institute has a clear obligation to cultivate especially those that relate most directly to modern developments in engineering, science, and mathematics. M.I.T. has recognized this responsibility and has responded with strong and growing support to work in the social sciences in the School of Humanities and Social Science and elsewhere. These activities are giving to the Institute an entirely new dimension that few not associated intimately with M.I.T. yet appreciate.

It is a simple truth that the interests of the great physical and social sciences were never more interwoven than today. The overriding practical problems of our time — defense; disarmament; the economics of change; the politics of peace; the relationships among industry, science, and government — require joint technical and social analysis. The very progress of science is influenced by the broader social context, and the advances of engineering affect all our human institutions.

In our decision to encourage the growth of certain key social sciences at M.I.T., we determined not only to build on strength, but also to exploit particularly those that have special relevance to our central concerns with science and engineering. We hope to create more points of contact between the social and physical sciences and to foster more fruitful collaboration between them. In this way, in spite of enormous pressures for growth, we can delimit the domain of our interests and the way in which we allocate our resources to them.

We have given special attention to those fields in which mathematics and statistical techniques are playing an increasingly important role. This is, of course, completely compatible with our M.I.T. style, with our desire to be governed in our approach to problems by a sense of the quantitative, the analytical, the mathematical. But by no means are we seeking to build our social sciences in the image of the physical. We recognize full well the many differences in set and attitude that distinguish them. An exaggerated insistence on emphases that are too narrow or criteria that are too rigid will only defeat our long-range objective of making the social sciences an integral part of the modern scientific university. Each field must be free to develop in its own way, to follow with complete freedom its own professional instincts.

From this point of view, the flowering of the social sciences at M.I.T. represents a new experience for us. Accustomed as we are to the demonstrable factual data of the physical sciences, we must accept the larger subjective element of judgment that enters into the social sciences in their present state. Since developments in many of these areas are open to a variety of interpretations, we must foster, within the limits of our aims and resources, a range of views and interests. The ultimate safeguard, however, lies not in seeking an impossible balance among modes of thought, but in recruiting a faculty of the highest intellectual power and integrity. This we have done.

In my report of a year ago I touched on a faculty survey of the social sciences which gave highest priority for development to fields of economics and economic history, political science, and psychology. I want now to comment briefly on the current status of these fields at the Institute and to examine in passing our commitments and our hopes in these areas.

ECONOMICS The oldest social science at M.I.T., economics is still by a sizable margin the largest. The teaching of economics goes back to 1881 and Francis Amasa Walker. General Walker, the Institute’s third president and one of its great builders, was an authority on political economy — as economics was then called — and his understanding of the processes in American industrial development notably influenced his views on the education of engineers. He gave an outstanding lecture course on political economy and was the author of a distinguished text in the field. He also brought other economists to the Institute.

Yet, until well into the modern era of M.I.T., economics remained largely a service department for the School of Engineering. Only since World War II has the department matured and assumed a truly professional character. Today it is universally conceded to be among the most distinguished. Indeed, by any of the usual measures — the stature of its teachers, the quality of its research, the achievements of its graduates — it ranks in the small handful of leaders. This year the president of the American Economic Association [Paul Samuelson] and the presidents-elect of the Econometric Society [Franco Modigliani] and of the Industrial Relations Research Association [Charles A. Myers] are members of this department. This year, too, M.I.T. was selected as first choice by more Woodrow Wilson Fellows in economics — eighteen out of eighty — than any other school in the country. The strengths which have won this kind of recognition within the profession are substantial indeed. They were achieved, essentially, by encouraging economics at M.I.T. to chart its own professional course; by the development of a distinguished graduate curriculum and of a major research program; and by insistence on the same standards of excellence we demand of our scientific and engineering departments. As a consequence, we have accomplished in economics the same kind of comprehensive renovation of purpose that Karl Compton undertook at an earlier date for the School of Science.

Economics at M.I.T. is also an important resource for other areas of teaching and research, and for the School of Industrial Management in particular. Management education at M.I.T. grew out of our teaching in economics, and today the teaching and research of the Department and the School reinforce one another more strongly than ever. Much of the research of the Department bears directly on the interests of the School — research on the economics of particular technologies; on the problems of measurement of productivity and output; on the contribution of technical progress to economic growth; on the origin and growth of new enterprises. Through this close relationship between the Department and the School, we also enjoy a fruitful interchange of theoretical and practical points of view.

The history and current role of economics at M.I.T. is the model for our development of other social sciences. We have now established sections of political science and of psychology within the Department of Economics and Social Science. Both are fields in which student and faculty interest is keen and in which we have unusual opportunities to make important contributions.

POLITICAL SCIENCE Because of the interweaving of technology with all the affairs of the modern world, and especially with those of government, we have set high priority on the development of political science. It is an area in which we have been moving rapidly ahead. This June we awarded our first Ph.D. degrees in this field, and there are now about thirty doctoral candidates within the Section. In addition, some five hundred undergraduates take elective courses in political science each year.

The Section now offers courses in six fields of political science, all of which are related to other interests of the Institute: international relations and foreign policy, political communication, defense policy, government and science, political and economic development, and political theory and comparative politics. Besides providing opportunities for combining work in political science with a scientific or engineering field, the faculty of the Section maintain close ties with their colleagues in economics, psychology, industrial management, and city and regional planning.

In the past two years, we have developed superlative strength in the field of comparative politics of developing areas, and through the association of the Section with the Center for International Studies we probably have as strong a faculty as is to be found anywhere in the politics of development. In support of this work, the Institute received two notable gifts this year. One, the donation of $500,000 from Dr. Arthur W. Sloan and Dr. Ruth C. Sloan of Washington, D.C., establishes a professorship in political science with emphasis on African studies. Not only does this gift provide an important new endowed professorship, but it also recognizes in a most dramatic way the growing stature of political science at the Institute.

The second grant is one of $475,000 from the Carnegie Corporation for research in training on the politics of transitional societies. The grant will make possible expansion of our research on the problems of nation-building in transition countries such as the newly emerged African and Asian nations. It, too, gives substantial recognition to the quality of our program. The Carnegie grant, among other benefits, establishes graduate fellowships both for course work at M.I.T. and for field work towards the doctoral thesis. We are enthusiastic about the values to be derived from this aspect of the grant which will permit us to send our students overseas for on-the-spot research in developing areas.

We have enjoyed magnificent opportunities for field studies in other areas of our political science activities through the generous support of the Maurice and Laura Falk Foundation, the Ford Foundation, and the Rockefeller Foundation. The Ford Foundation has also underwritten much of our work on government and science, and the Rockefeller Foundation this year supported a new seminar on arms control. This seminar brought together some thirty individuals in the Cambridge academic community with strong interests in both the technological and political aspects of this subject. We very much hope that this may prove to be the beginning of a substantial new research program on defense policy.

This brief sampling of our progress in political science is intended only to suggest the vitality of this field at the Institute. It has grown quickly, but without over- stretching itself. It has set high standards in research, and it has developed both its undergraduate and graduate courses in a most creative and constructive spirit. This new venture for M.I.T., in sum, has met with outstanding success.

[Reports on Psychology and Linguistics complete this  section of the President’s Report]

 

Source: Massachusetts Institute of Technology. The President’s Report 1961. pp. 11-16.

Image Source: The M.I.T. mascot beaver on the cover of its yearbook, Technique 1949.

Categories
Gender M.I.T. Modigliani Race Suggested Reading Syllabus Undergraduate

M.I.T. Undergraduate Finance Reading List. Kuh, 1962

 

Edwin Kuh (1925-86) was hired by the Sloan School at M.I.T. in 1954, completing his Harvard Ph.D. in 1955. He was promoted to full professor of economics and finance in 1962 and was a joint appointment of the Sloan School and the department of economics. Mostly known as a pioneer in the application of econometric methods to forecasting, his New York Times obituary notes that in 1971 he worked together with Lester Thurow and John Kenneth Galbraith to devise proposals to promote affirmative action.

The undergraduate course reading list for finance transcribed for this post was fished out of Franco Modigliani’s papers at the Economists’ Papers Archive at Duke University.

_______________________

15.46 FINANCE
E. Kuh
Fall Semester, 1962

I. CAPITAL MARKETS (2 weeks)

W.L. Smith, “Monetary Policy and Debt Management”, Chapter 9, Staff Report on Employment, Growth and Price Levels, Joint Economic Committee, 1959, pp. 315-407.

R. L. Rierson, The Investment Outlook, Bankers Trust Co., 1962.

II. CAPITAL BUDGETING (8 weeks)

A. Decision Criteria—New Asset Demand

P. Massé, Optimal Investment Decisions, Ch. 1.

V. L. Smith, Investment and Production, Ch. 1, Ch. 3, pp. 62-72, Ch. 9.

E. Solomon, editor, The Management of Corporate Capital, Essays II—3, 5, 6, 7, 8.

D. Bowdenhorn, “Problems in the Theory of Capital Budgeting”, Journal of Finance, December 1959, pp. 473-92.

B. Decision Criteria—Replacement Demand

V. L. Smith, Investment and Production, Ch. 5.

P. Massé, Optimal Investment Decisions, Ch. 2.

C. Cost of Capital—Risk and Uncertainty

H. Markowitz, Portfolio Selection, 1959, pp. 1-34, 180-201, 287-97.

J. Hirschleifer, “Risk, the Discount Rate and investment Decisions”, Proceedings of the American Economic Association, May, 1961, pp. 112-120.

F. Modigliani and M. H. Miller, The Cost of Capital, Corporation Finance and the Theory of Investment, American Economic Review, June, 1958, pp. 473-492.

L. Fisher, “Determinants of Risk Premiums on Corporation Bonds”, Journal of Political Economy, June, 1959, pp. 217-37.

E. Kuh, “Capital Theory and Capital Budgeting”, Metroeconomics, (August-December, 1960), pp. 64-80.

D. Cost of Capital—Rationing

V. L. Smith, Investment and Production, Ch. 7.

E. Kuh, Capital Stock Growth, excerpts from Ch. 2 (mimeo).

E. Solomon, ed., The Management of Corporate Capital, Essay II-4.

III. DIVIDEND POLICY (2 weeks)

J. Lintner, “Distribution of Incomes of Corporations Among Dividends, Retaining Earnings, and Taxes,” American Economic Review, Supplement, May, 1956.

S. Dobrovolsky, Corporate Income Retention, 1915-1943.

IV. CURRENT POSITION (1 week)

D. Greenlaw, “Liquidity Variations Among Selected Manufacturing Companies,” M.I.T. Masters Thesis, 1957.

C. H. Silberman, “The Big Corporation Lenders,” in Readings in Finance from Fortune, Holt, 1958.

V. DEPRECIATION (2 weeks)

R. Eisner, “Depreciation Allowances, Replacement Requirements and Growth,” American Economic Review, December, 1952.

E. C. Brown, “The New Depreciation Policy Under the Income Tax: An Economic Appraisal,” National Tax Journal, March, 1955.

Article on Depreciation Practices in Europe, National City Bank Newsletter, September, 1960.

E. C. Brown, “Tax Incentives for Investment”, Proceedings, American Economic Review, May, 1962, pp. 335-45.

William H. White, “Illusions in the Marginal Investment Subsidy”, National Tax Journal, March 1962.

E. C. Brown, “Comments on Tax Credits as Investment Incentives”, National Tax Journal, June 1962, pp. 198-204.

 

Source:  Duke University. David M. Rubenstein Rare Book and Manuscript Library, Economists’ Papers Archive. Franco Modigliani Papers, Box T1, Folder: “Capital Markets, 15.432. Spring 1963”.

Image Source: MIT Museum website. People: Kuh, Edwin.

Categories
M.I.T. Suggested Reading Syllabus

M.I.T. Reading list for graduate Monetary Economics I. Modigliani and Poole, 1977

In the previous post we find the reading list for the nominally second course for the money field at M.I.T. However typically the courses were taken in the reverse order (Monetary Economics II (14.463) in the Fall followed by Monetary Economics I (14.462) in the Spring. 

I will go out on a limb here and assert that Ben Bernanke’s graduate training in monetary economics was, if not exactly these two courses, then observationally equivalent content-wise to this and the previous course. 

_____________________

Earlier versions

Albert Ando and Franco Modigliani’s reading list for monetary economics at M.I.T. in 1960/61.

William Poole’s 1964 reading list at Johns Hopkins University for Monetary Theory.

_____________________

14.462—Monetary Economics
Franco Modigliani and William Poole
Spring 1977

Asterisks indicate required reading

Abbreviations

AER: American Economic Review
BPEA: Brookings Papers on Economic Activity
EI: Economic Inquiry
IER: International Economic Review
JEL: Journal of Economic Literature
JF: Journal of Finance
JMCB: Journal of Money, Credit, and Banking
JME: Journal of Monetary Economics
JPE: Journal of Political Economy
NBER: National Bureau of Economic Research
NEER: New England Economic Review
OQM: Milton Friedman, The Optimum Quantity of Money and Other Essays
QJE: Quarterly Journal of Economics

General References

Shapiro, Solomon and White. Money and Banking. Fifth edition. Hot, Rinehart and Winston, 1968.

Jacobs, Farwell and Heave. Financial Institutions. Fifth edition. Irwin, 1972.

I. Introduction—The Nature of Money and Other Claims

Einzig, Paul, Primitive Money, Pergamon Press. 1966.

*Federal Reserve System, Flow of Funds Accounts, 1967-1975. Washington, D.C.

*Friedman, Milton and Anna J. Schwartz, Monetary Statistics of the United States, pp. 86-198.

*Patinkin, Donald, “Money and Wealth: A Review Article,” JEL 7 (Dec. 1969), 1140-60.

Robertson, Dennis Money. Cambridge University Press. Chapters 1-3.

*Tobin, James, Manuscript. Chapters 1 and 2.

II. The Supply of Money and the Balance Sheets of Commercial Banks

Brunner, Karl and Allan Meltzer, “Some Further Investigations of Supply and Demand Functions for Money,” JF, May 1964.

Burger, Albert, The Money Supply Process. Wadsworth, 1971.

Cagan, Phillip, Determinants and Effects of Changes in the Stock of Money, 1876-1960. NBER, 1965. Chapters 2 and 3.

Federal Reserve Bank of Boston, Controlling Monetary Aggregates, I and II. Conference Series Number 1 and 9.

Fouzek, P.G., Foreign Central Banking, Federal Reserve Bank of New York.

Frost, Peter, and Thomas Sargent, “Money Market Rates, the Discount Rate and Borrowing from the Federal Reserve,” JMCB, February 1970.

Goldfeld, Stephan and Edward Kane, “The Determinants of Member Bank Borrowing,” JF, September 1966.

Hester, Donald and James Pierce, Bank Management and Portfolio Behavior, Cowles Foundation, 1975.

*Meade, James, “The Amount of Money and the Banking System,” reprinted in Readings in Monetary Theory, American Economic Association Series.

*Meek, Paul, Open Market Operations, Federal Reserve Bank of New York, 1973.

*Modigliani, Franco, Robert Rasche and J. Phillip Cooper, “Central Bank Policy, the Money Supply and Short Term Interest Rates,” JMCB, May 1970.

*Poole, William, “Commercial Bank Reserve Management in a Stochastic Model: Implications for Monetary Policy,” JF 23 (Dec. 1968), pp. 769-91.

Poole, William and Charles Lieberman, “Improving Monetary Control,” BPEA, 1972:2.

*Thomson, Thomas, James Pierce and Robert Parry, “A Monthly Money Market Model,” JMCB, November 1975.

Tobin, James, Manuscript, Chapter 8.

___________, “Commercial Banks as Creators of Money,” Chapter 16 of his book, Macroeconomics.

Willis, Parker, Federal Funds Market, Federal Reserve Bank of Boston, 1970.

III. Other Financial Intermediaries and their Balance Sheets

Committee on Banking, Currency and Housing, House of Representatives, “Financial Institutions and the Nation’s Economy,” November 1975.

Dougal, Herbert E., Capital Markets and Institutions, Prentice Hall, Third edition, 1975.

Federal Reserve Bank of Boston, Policies for a More Competitive Financial System, Conference Series #8.

Federal Reserve Staff Study: Ways to Moderate Fluctuations in Housing Construction (Board of Governors of the Federal Reserve System, 1972); see especially papers by Gramley, Fisher and Seigman, and Poole.

Goldsmith, Raymond, Financial Instiutions, Random House, 1968.

Gurley, John and Edward Shaw, Money in a Theory of Finance, Brookings, 1960.

Guttentag, Jack and Robert Lindsay, “The Uniqueness of Commercial Banks,” JPE, September/October 1968.

New Mortgage Designs for Stable Housing in an Inflationary Environment (Federal Reserve Bank of Boston Conference Series, No. 14); see especially papers by Lessard and Modigliani, and those reviewing foreign experience.)

*Patinkin, Donald, “Financial Intermediaries and the Logical Structure of Monetary Theory,” AER, March 1961.

*Treasury, “Recommendations for Change in the U.S. Financial System,” Washington, D.C., August 1973.

IV. The Demand for Money

Note: Familiarity with the material on the demand for money covered in 14.451 and 14.463 will be assumed.

Brunner, Karl and Allan Meltzer, op. cit.

Chow, Gregory, “On the Long-Run and Short-Run Demand for Money,” JPE, April 1966.

Fisher, Irving, The Purchasing Power of Money, Macmillan, 1931. Chapters 1-4 and 8.

Friedman, Milton, “The Quantity Theory of Money, A Restatement,” OQM, Aldine, 1969.

*___________, “The Demand for Money: Some Theoretical and Empirical Results,” OQM.

___________, “Interest Rates and the Demand for Money,” OQM.

*Goldfeld, Stephen, “The Demand for Money Revisited,” BPEA, 1973:3.

*___________, “The Case of the Missing Money,” BPEA, 1976:3.

Gould, John P. and Charles R. Nelson, “The Stochastic Structure of the Velocity of Money,” AER, 64 (June 1974), pp. 405-18.

Hicks, John, “A Suggestion for Simplifying the Theory of Money,” Readings in Monetary Theory, op. cit.

Keynes, J.M., “A Treatise on Money,” The Collected Writings, St. Martin’s Press, 1971.

___________, The General Theory, Chapters 13, 15, 17.

Laidler, D.E.W., The Demand for Money: Theories and Evidence, International Textbook Company, 1969.

Miller, Merton and Daniel Orr, “A Model of the Demand for Money by Firms,” QJE, August 1966.

Modigliani, Franco, “Liquidity Preference,” International Encyclopedia of the Social Sciences, Vol. 9, MacMillan Company & Free Press, 1968, pp. 394-409.

___________, Rasche and Cooper, op. cit.

Tobin, James, “The Interest Elasticity of [the] Transactions Demand for Cash,” Chapter 14 of Macroeconomics.

V. Interest Rate Determination and Term Structure

*Fama, Eugene, Short-Term Interest Rates as Predictors of inflation,” AER, June 1975.

Fisher, Irving, The Theory of Interest, Macmillan, 1930.

Fisher, Lawrence, “Determinants of the Risk Premium on Corporate Bonds,” JPE, June 1959.

*Friedman, Benjamin, “Financial Flow Variables and the Short-Run Determination of Long-Term Interest Rates,” unpublished.

*___________, “Substitution and Expectation Effects on Bond Supply and the Long-Term Interest Rate,” unpublished.

Kane, Edward and Burton Malkiel, “Expectations and Interest Rates: A Cross-Sectional Test,” JPE, August 1969.

*Lutz, Friedrich, “The Structure of Interest Rates,” in AEA Readings in the Theory of Income Distribution.

Malkiel, Burton, The Term Structure of Interest Rates, Princeton University Press, 1966.

Modigliani, Rasche and Cooper, op. cit.

*Modigliani, Franco and Robert Shiller, “Inflation, Rational Expectations and the Term Structure of Interest Rates,” Economica, February 1973, pp. 12-43.

___________, and Richard Sutch, “Debt Management and the Term Structure of Interest Rates,” JPE, August 1967, Supplement No. 4, pp. 569-589.

Nelson, Charles, The Term Structure of Interest Rates, Basic Books, 1972.

___________, and William Schwert, “On Testing the Hypothesis that the Real Rate of Interest is Constant,” AER, 1977 (forthcoming).

Rutledge, John, A Monetarist Model of Inflationary Expectations, Lexington Books, 1974.

Roll, Richard W., The Behavior of Interest Rates.

Tobin, James, “An Essay on the Principles of Debt Management,” Chapter 21 in Macroeconomics.

VI. The Transmission Mechanism, etc.

Note: Familiarity with the standard IS-LM and related models, as covered in 14.451, will be assumed.

Andersen, Leonall and Keith Carlson, “A Monetarist-Model for Economic Stabilization,” Federal Reserve Bank of St. Louis Review, April 1970.

Ando, Albert and Franco Modigliani, “Econometric Analysis of Stabilization Policies,” AER, May 1969.

___________, and ___________, Robert Rasche and Stephen Turnovsky, “On the Role of Expectations of Price and Technological Change in an Investment Function,” IER, June 1974.

Baily, Martin Neil, “Contract Theory and the Moderation of Inflationary Expectations by Recession and by Controls,” BPEA, 1976:3.

Bischoff, Charles, “Business Investment in the 1970’s: A Comparison of Models,” BPEA, 1971:1.

Blinder, Alan and Robert Solow, “Analytic Foundations of Fiscal Policy,” in Economics of Public Finance, Brookings Institution, 1974.

*De Menil, George and Jared Enzler, “Prices and Wages in the FMP Econometric Model,” in The Econometrics of Price Determination, Otto Eckstein, ed., 1970.

*Friedman, Milton, “The Role of Monetary Policy,” in OQM.

___________, and Anna Schwartz, The Great Contraction, Princeton, 1965.

*Gordon, Robert J., “Recent Developments in the Theory of Inflation and Unemployment,” JME, 2, (April 1976), pp. 185-219.

Gramlich, Edward, “The Usefulness of Monetary and Fiscal Policy as Discretionary Stabilization Tools,” JMCB, May 1971.

Jaffee, Dwight and Franco Modigliani, “A Theory and Test of Credit Rationing,” AER, December 1969.

*Holt, Charles, “Job Search, Phillips’ Wage Relation, and Union Influence: Theory and Evidence,” in E.S. Phelps, ed., Microeconomic Foundations of Employment and Inflation Theory, Norton, 1970.

Keeton, William, “An Analysis of Interest Rate Ceilings,” unpublished.

*Lucas, Robert, “Some International Evidence on Output-Inflation Tradeoffs,” AER, June 1972.

___________, “An Equilibrium Model of the Business Cycle,” JPE, 83 (Dec. 1975), pp. 113-44.

Modigliani, Franco, “Monetary Policy and Consumption: …,” in Consumer Spending and Monetary Policy, The Linkages, Federal Reserve Bank of Boston, Conference Series #5, June 1971.

___________, “The Channels of Monetary Policy in the FMP Econometric Model of the U.S.,” in Modelling the Economy, G.A. Renton, ed., Heinemann Educational Books, 1975.

___________, and Lucas Papademos, “Monetary Policy for the Coming Quarters: The Conflicting Views,” NEER, March/April 1976.

*___________, “Models of the Economy and Optimal Stabilization Policies,” June 1976, unpublished.

Mortenson, Dale, “A Theory of Wage and Employment Dynamics,” in Phelps, op. cit.

Sargent, Thomas, “Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment,”BPEA, 1973:2.

VII. Monetary Policy: Optimal Control and Related Issues

Athans, Michael, “The Discrete Time Linear-Quadratic-Gaussian Stochastic Control Problem,” Annals of Economics and Social Measurement, October 1973, pp. 449-493.

*Brainard, William, “Uncertainty and the Effectiveness of Policy,” AER, May 1967.

Fischer, Stanley and J. Phillip Cooper, “Stabilization Policy and Lags,” JPE, July/August 1973.

*Friedman, Benjamin, “Targets, Instruments, and Indicators of Monetary Policy,” JME, October 1975.

Holbrook, Robert S., “Optimal Economic Policy and the Problem of Instrument Instability,” AER, March 1972.

Pierce, James L., “Quantitative Analysis for Decisions at the Federal Reserve,” Annals of Economic and Social Measurement, January 1974.

*Poole, William, “Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model,” QJE, May 1970.

___________, “The Making of Monetary Policy: Description and Analysis,” EI, 13 (June 1975), pp. 253-65.

___________, “Benefits and Costs of Stable Monetary Growth,” in Karl Brunner and Allan H. Meltzer, eds., Institutional Arrangements and the Inflation Problems (Carnegie-Rochester Conference Series on Public Policy, Vol. 3, 1976).

VIII. Monetary Policy: Rational Expectations and Related issues

Barro, Robert J., “Rational Expectations and the Role of Monetary Policy,” JME, 2 (January 1976), pp. 1-32.

___________, and Stanley Fischer “Recent Developments in Monetary Theory,” JME, 2 (April 1976), pp. 133-67.

Fischer, Stanley, “Recent Developments in Monetary Theory,” AER, 65 (May 1975), pp. 157-66.

*Lucas, Robert E., “Econometric Policy Evaluation: A Critique,” in Karl Brunner and Allan H. Meltzer, eds., The Phillips Curve and Labor Markets (Carnegie-Rochester Conference Series on Public Policy, Vol. 1; Supp. To JME).

*Modigliani, Franco, “The Monetarist Controversy Or, Should We Foresake Stabilization Policies?” (AEA Presidential Address).

*Muth, John F., “Rational Expectations and the Theory of Price Movements,” Econometrica, 29 (July 1961), pp. 315-35.

*Poole, William, “Rational Expectations in the Macro Model,” BPEA, 2, 1976, pp. 463-514.

*Sargent, Thomas J. and Neil Wallace, “’Rational’ Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule,” JPE, 83 (April 1975), pp. 241-54.

___________ and ___________, “Rational Expectations and the Theory of Economic Policy,” JME, 2 (April 1976), pp. 169-83.

 

Source: Copy of mimeographed course reading list from the files of Irwin L. Collier. Provided by Robert Dohner (our friendship goes back to our internships at the Nixon Council of Economic Advisers in the year of Watergate).

Image Sources: Nobel Prize Web Page for Franco Modigliani;  William Poole at the Federal Reserve Centennial, 2014.

Categories
Funny Business M.I.T.

M.I.T. Dystopian Faculty Skit by Solow,1969

 

 

The current events of the late ‘sixties are the clear inspiration for this somewhat dark, dystopian skit for the M.I.T. economics departmental Christmas party of December 1969. According to the cover page, it was written by Robert Solow with input from Frank Fisher.

The skit was transcribed from the typed text [that includes a short handwritten addition] from Robert Solow’s papers in the Economists’ Papers Archive at Duke University. A grateful tip of the hat to Roger Backhouse for this artifact that should keep a cultural historian of economics busy for a few hours and be worth a few minutes of procrastination for working economists.

 

Pro-tip: you can summon all of the Economics in the Rear-view Mirror posts with economic humor content using the keyword “Funny Business”:

https://www.irwincollier.com/category/funny-business/

_______________________

Back-story for selected references in the text

SPECTRE. In Ian Fleming’s world of James Bond the acronym for the organization of international evil [Special Executive for Counter-intelligence, Terrorism, Revenge and Extortion].

Chairman Edel. Assistant Professor Matthew D. Edel (Yale, Ph.D.) taught the course Economic Growth and Development. Presumably pronounced to rhyme with “Fidel”. Edel was a regional expert for Latin America, spoke at a colloquium February 4, 1970 on “The Strategy of Cuban Economic Development”

14.463 Monetary Economics in term I, 1969-70 was taught by four instructors.

According to the staffing report for that term in the departmental records at the MIT archive.

Karen H. Johnson, M.I.T. Ph.D. (1973),
Robert K. Merton, M.I.T. Ph.D. (1970), advisor Paul Samuelson
David T. Scheffman, M.I.T. Ph.D. (1971), advisor Paul Samuelson
Jeremy J. Siegel, M.I.T. Ph.D. (1971)

There is no record that Bonnie Parker and Clyde Barrow were ever graduate students of economics in M.I.T.

Bread and Roses. Reference to the Women’s Liberation Organization in Boston, 1969-1971. The name chosen in memory of the Great Lawrence Strike of 1912.

Ted Behr. An M.I.T. Ph.D. (1969) who by 2009 had already gone through seven career changes and twelve jobs. Must have been quite a character judging from this interview.

I think we may assume that no Bulgarians were injured in the writing or performance of this skit.

_______________________

Some Obvious Context

Fall 1964. Berkeley Free Speech Movement

Wikipedia Entry on the Protest Year 1968

April 1968. Columbia Student Strike ; Harvard Student Strike

February 1969. Black student strike at the University of Wisconsin

_______________________

RIP VAN SAMUELSON RETURNS TO MIT AFTER THE REVOLUTION
FACULTY SKIT
Christmas 1969

CAST

P. Diamond
R. Eckaus
R. Engle
F. Fisher
C. Kindleberger
M. Piore

SCRIPTWRITER-IN-CHIEF — R. Solow

HELPED BY – F. Fisher

Is it really true that Samuelson has been asleep all these years? Then how come the 13th and 14th editions of the textbook came out on time?

Well, I don’t know. Samuelson isn’t talking.

Careful, there. If it’s not talking it’s not Samuelson.

It’s got to be. His broker recognizes his fingerprints from soiled sell orders. Actually, there are two schools of thought about how the textbook came out while Samuelson was sleeping. Modigliani claims that the 13th and 14th editions were simply forecasted by the FRB-MIT model, using a long lag. But some people believe that the 13th and 14th editions are just the 2nd and 3rd editions reprinted. Can’t verify that, though. Nobody’s been able to find a copy of the early editions.

Not that it matters. Must be a shock for Paul to realize that nobody uses the text any more, except of course for the Bulgarian translation. They’re the only people reactionary enough to go for that stuff any more.

You mean even Hanoi University has dropped it?

Oh sure, they adopted Best Known Thoughts of Chairman Edel, last year. You know, the one that begins “Equilibrium grows out of a barrel…”

Out of the barrel of a gun?

No, no, a barrel of rum. Chairman Edel never got over that trip to Cuba.

Did you fellows hear that Samuelson is back? When did he disappear anyway?

Oh, a long time ago. Even before Chomsky became President. It’s hard to know the exact date. Things were pretty clear up until April 1972, when we were supposed to have 31 days of moratorium, but the month only had 30 days, so we cancelled the first day of May, only you couldn’t cancel May Day — Christmas you could cancel, but not May Day. So we cancelled the second day of May. But then we were three days short to fit in the 32 days of moratorium for that month, so we had to run into June. From then on it was chaos.

Things are still a little funny. I can’t get used to having summer vacation in the middle of winter, and Fisher pretending to go off skiing when it’s 90 degrees in the shade, when we all know he’s leading rent strikes anyway.

Don’t complain. It might have been worse. Solow claimed to have a proof that the term would never end once we got up to 32 moratorium days a month. But one of the younger mathematical economists made a brilliant application of the theory of Riemann surfaces and showed that you could pack any finite number of moratorium days into one month if you did it right.

It was the last article anyone published in this department. Can you remember when we used to write articles and hope for tenure? That was before tenure was abolished. God, life was easy then. Nowadays it’s all action, action, action. And if you’re lucky, if you happen to win a rent strike, or destroy some draft records, or win an amateur topless contest, then maybe the central committee of SPECTRE will keep you on for a year. But suppose you lose the strike, or you let a white man go to work on a construction site, boy that SPECTRE can be tough. You remember when they threw Domar into the arena with Kampf and gave Kampf the bullhorn?

I looked away. Bloodthirsty crew — they awarded Kampf both ears and the tail that day. We had to take up a collection to send Ricky and Alice [note: Evsey Domar’s daughters] to Bread and Roses Karate School. And today they’re members of SPECTRE, the Student Power Electoral Committee for Teachers of Relevant Economics. It was better in the old days when appointments went on good looks and amiability. Even publishing was better than action all the time. That last piece of work I did, keeping the recruiter for Mars Bars from getting onto the campus, it went well but it was exhausting.

Why are we against Mars Bars?

Space, military, it’s all the same.

Anyhow, now that he’s back, what’s Paul going to do around the department? He’s getting a little old for real action, and he might find it hard to pass the monthly Relevance Check.

It’s going to be a problem. He was falling behind the times when he went to sleep. Of course he looks better now, with 10-15 years growth of beard, but he doesn’t dig the revolution. El Lider Maximo of the Graduate Student Commune asked him what he could contribute, and Samuelson said he’d like to teach the History of Economic Thought.

The History of WHAT???

That’s exactly what the Commune Lider said.

Poor old Samuelson doesn’t know that Thought isn’t Relevant. In fact he didn’t even know that Economics isn’t Relevant. When El Lider explained that it was all action now, old Samuelson said he thought there should be both Thought and Action just so their marginal net productivities were equal.

Gad, I haven’t heard anything like that since the day they fired Diamond for saying “Pareto-optimal” once too often.

Whatever happened to Diamond?

What else, he’s at B.I.T., the Bulgarian Institute of Technology. Boy, if the old stuff ever comes back in style, those Bulgarians will have it made. But go on, what happened when Samuelson pulled that bourgeois bit about marginal whatnots?

Well, Solow was standing there and he muttered something to Samuelson—it sounded like “Check the second-order conditions, Paul old boy”—and then went back to trying to look hip.

That’s living dangerously.  Solow just barely passed last month’s Relevance Check, and he hasn’t been on a successful action in a long time. I don’t think that went over so good when he claimed that skiing Black Mountain was a real action. He better watch out — if B.I.T. won’t take an old man like that, SPECTRE may throw him to Kampf.

Right on. Nothing gets past El Lider. When Solow whispered that to Samuelson about second-order conditions, El Lider asked him right away — Did you say something? Solow replied Negative. Definite. That’s really living dangerously — I think it’s code of some kind.

It certainly doesn’t sound Relevant. I haven’t read anything like that in Ted Behr’s Newsweek column, at least not lately.

What’s going on this week in the department?

In the Theory course we’re holding an obstructive picket line at the drug counter of the Tech Store. Somebody discovered they were selling only white pills.

If I know what the pills are for, I hope the picket line isn’t too obstructive.

Of course not; I told you it was the Theory course. Then in the Economics of Education course we’re going to burn down a school. In the Money course, Johnson, Merton, Siegel, Bonnie, and Clyde are going to rob a bank and distribute the proceeds to the C.L.F.

Is that the California Liberation front?

Oh no, Berkeley has been a free-fire zone for months; nobody is left. It’s the Center for Love and Finance, our answer to the profit motive. Has anyone told you what the Econometrics Commune is doing?

No. Last week somebody had an idea for an empirical paper, but the results only came out at the 10% Relevance Level and half the commune was purged for Type One Error.

Served them right. Any Type II Error executions?

You know we have to have public trials for Type II error.

That’s right—Power to the People…. Well, it’s nice to see that the action curriculum is moving along. Sure beats the Old Days before chairman Edel — remember when they taught about Indifference curves? INDIFFERENCE curves, mind you, with innocent people being napalmed in Laos, Birmingham, Princeton, they taught about indifference curves.

Hard to believe. Of course now, ever since we adopted Bohmer’s best-selling text Economics for Good Guys we handle all that stuff by the tangency of the Relevance Map and the Isoconcern lines. Makes all the difference in the world, takes the subject out of the mind and puts it back in the gut, where it obviously belongs.

The Admissions Commune has been meeting all day.

How does the entering Movement look?

Terrific. There’s one girl who was heavyweight sugar-cane-cutting champion of the Big Ten, and another who had already led three successful rent strikes as a junior — two of them publishable, according to her advisor. Then there are a couple of Black Belts from Bread and Roses — they come on Karate Scholarships of course.

Any amateur topless contest winners?

We’re trying for a few, but most of them will go to Harvard—ever since they hired Brigitte Bardot for the economics faculty—

She was past her peak.

Peaks. And aren’t they all? Anyhow, all the amateur topless winners go to Harvard. But we’ve got some applicants who’ve starred in home movies. Not to mention a few school-burners and a couple of guys who have specialized in destroying computers.

How are their vibrations?

Good.

Fine. If there’s anything I can’t stand it’s bad vibrations. How about GRE scores.

The Graduate Relevance Exam grades just came — most of the people we’re accepting are in the 800’s on Obstructive and at least 750 in Vituperative. Looks like a good class — I mean Movement.

Has anyone heard what the Placement and Appointments Committees have decided?

They decided to eliminate the middleman and merge. That way everybody stays forever — once a Commune always a Commune. It gives new meaning to that old phrase about departmental inbreeding.

We still have this problem about what to do with Samuelson. Here he is after all those years asleep and hardly knowing anything about action and relevance and all the new things. The Bulgarians won’t take him — B.I.T. doesn’t mind using the old textbook, but they’re overloaded with these old-timers. If we can’t find something for him to do we may have to throw him to….

Terrible news. The students are revolting again. There’s a new movement sweeping all the Communes. They want one day of classes this month, two days of classes next month, three days the month after…there’s no telling where it will end, except that nobody can count over 30 any more.

Gad, we may have to go back to teaching again. Well, at least that gives something for Samuelson to do.

Oh didn’t they tell you. When Samuelson saw what the new system was like, he went back to sleep. Better get the Bulgarians on the phone.

 

Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Papers of Robert M. Solow, Box 83.

Image Source: Robert Solow in his office, MIT Museum Website.

Categories
Carnegie Institute of Technology Exam Questions

Carnegie Tech. Final Exam for Advanced Economic Analysis. Modigliani, 1959 & 1960


An earlier post provided the outline for Franco Modigliani’s Advanced Economic Analysis course from the second term of the 1958-59 academic year that had been incorrectly filed in a folder of his notes for Advanced Monetary Theory III, 1953-1960″. A copy of the June 3, 1959 final examination was provided to Economics in the Rear-view Mirror for transcription by Juan Acosta.  I have added the May 27, 1960 final examination to this post as a second observation.

________________________

June 3, 1959

Advanced Economic Analysis I – GI 581
Final Examination

Answer questions I and IV, and either II or III.

  1. Assume that the government fixes by law the price of a commodity and hands out to the public ration coupons equal in number to the number of units of the commodity produced. Assume throughout that the supply is perfectly inelastic.
    1. Use an indifference diagram to show under what conditions the consumer would not use all of his coupons.
    2. Show that consumers would be better off if they were free to buy or sell their ration coupons in a free market.
    3. Supposing now that coupons could be bought and sold in a free market, explain how one could derive an individual consumer’s demand curve for coupons. (Hint: the situation is analogous to the consumer being forced to buy his ration of the good at the legal price and then being allowed to sell it or buy more of it on a free market.)
    4. Explain the formation of the equilibrium market price of coupons.
    5. What can be said as to the relation between the legal price, the price of coupons, and the price which would prevail in the absence of price control and rationing? Under what condition would the sum of the first two be equal to the third?
  2. A producer sells in his home market, in which he has a monopoly, and in a foreign market which is perfectly competitive. How would a sales tax imposed on the home market affect
    1. total output
    2. price in the home market
    3. price in the foreign market
    4. distribution of output between the two markets
  3. A profit maximizing monopolist buys factors of production in a perfect market.
    1. Discuss the long-run effect on his demand for each of the factors he uses and on his selling price of a tax on one of the factors. (Give a graphic treatment for the case of two factors.)
    2. Suppose that one of the two factors is fixed in the short run. Contrast the change in the long-run and short-run demand for both factors when a tax is placed on either.
  4. Discuss the significance of free entry for the relation of the long-run equilibrium size of the firm to the optimum size.

 

Source: Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archive. Franco Modigliani Papers, Box T1, Folder “Advanced Economics,1952-1960”.

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May 27, 1960

GI-581 Advanced Economic Analysis I
Final Examination
F. Modigliani

 

  1. (Answer questions a-f; question g is elective)
    Suppose that the conditions of production for a given firm can be expressed by the production function.
    (1) X = KAaBb
    where A and B represent the inputs of two factors, X the output, and K, a, b, certain constants.

    1. Explain the meaning of a production function.
    2. Given the prices, PA, and PB of the two inputs determine the optimum input of each factor as a function of X, PA, PB.
    3. Exhibit the (minimized) total and marginal cost functions.
    4. Under what conditions is the above marginal cost increasing, decreasing or constant? Relate this result to the degree homogeneity of the production function (1) and to the notion of returns to scale.
    5. Discuss the relation between returns to scale and returns to each factor separately.
    6. How would you obtain the demand function of the firm for each factor, (i) if the firm sells in a competitive market? (ii) if the firm has a monopoly in the selling market?
    7. (Elective)
      Suppose that equation (1) describes the conditions of production for an entire industry, and assume further that the supply of factor A is infinitely elastic at the price PA while the conditions of supply of factor B can be expressed by the supply function PB = LBs, when L and s are constants, (s>0).

      1. The industry is composed of a large number of firms each of which takes the prices of the factors as given and independent of its inputs decisions;
      2. The entire industry is monopolized.
        Obtain the marginal cost for the industry in each of these two cases. What is the relation between this marginal cost and the supply functions? How is the slope of the supply function related to notion of returns to scale and of external and internal economies or diseconomies?
  2. In the figure below, X and Y denote the quantities of two commodities. Shown in the graph are four budget equations and the points chosen on each by a consumer.
    1. State the revealed preference postulate.
    2. Using this postulate, rank as far as possible the four points in order of preference.
    3. Draw a fifth budget line and observed point on it which would make possible an unambiguous ranking of the original four points.
    4. (Optional) Sketch out how the revealed preference postulate can be used to establish the slope of the Marshallian Demand function.
  1. Discuss briefly the meaning and significance of the following concepts and their interrelation in Economics:
    1. Statics;
    2. Dynamics;
    3. Comparative statics;
    4. Long and short run
      Discuss the notion of “long run,” “short run” and “reversibility” as they apply to demand functions.

 

Source: Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archive. Franco Modigliani Papers, Box T8, Folder “Notes on Advanced Monetary Theory III,1953-1960”.

Image Source: Franco Modigliani page at the History of Economic Thought Website.

Categories
M.I.T. Suggested Reading Syllabus

M.I.T. Monetary economics, reading lists. Ando and Modigliani, 1960-61

 

 

Franco Modigliani first came to M.I.T. as a visiting professor in 1960-61 from the Carnegie Institute of Technology before returning in 1962 after only one year at Northwestern. His former Carnegie Tech student Albert K. Ando was already on the M.I.T. faculty and the partial reading lists for their jointly taught courses can be found in Modigliani’s papers at Duke’s Economists’ Papers Archive. 

Readings and final exam from the monetary theory course taught by Modigliani at Northwestern in 1961 have been posted earlier.

Note: I have inserted part of the reading list on monetary policy from Modigliani’s course at Carnegie Tech in the term immediately preceding his visiting professorship at M.I.T. This insertion is motivated by last sentence in the course description in the M.I.T. catalogue that includes the topic “the role of money in policy”.

_____________________

Monetary Economics course enrollments
1960-61

Fall 1960.  14.461 Monetary Economics, A. K. Ando. 14 students.

Spring 1961.  14.192 Economics Seminar—Monetary Economics. Ando/Modigliani. 7 students.

Source: M.I.T. Archives. Department of Economics, Records. Box 3, Folder “Teaching Responsibility”.

_____________________

Course Announcement
Fall, 1960

14.461 Monetary Economics

Prereq.: 14.451 [Theory of Income and Employment]
Year: G(1)

Review of theory of income determination, with explicit attention to monetary parts of the model. Examination of sources and determinants of supply of money with attention to role of commercial banks, Federal Reserve System, and the Treasury. Exploration of both theory and fact about demand for money for transactions and for speculative purposes. Discussion of general equilibrium theory of money, interest, prices and output, and role of money in policy.

Ando, Modigliani

Source:   Massachusetts Institute of Technology Bulletin, 1960-61, p. 243.

_____________________

Modigliani
Ando
Fall, 1960

Monetary Economics
14.461

We assume that students are familiar with the elementary price theory and income theory, i.e., that they have taken 14.121, 14.122, 14.451, and 14.452. We also assume that students have some material ordinarily covered in the elementary course in Money and Banking. Those who feel that they need to refresh their memory of the latter may consult:

Steiner, Shapiro, Solomon, Money and Banking, Parts I, II, and III.

Day and Beza, Money and Income, Parts I and III.

Hart, Money, Debt, and Economic Activity, 2nd edition, Part I.

Chandler, The Economics of Money and Banking, 3rd edition.

  1. The nature of money and the position of money in the balance sheet for the United States: An Introduction

Tobin, J., Manuscript, Chs. 1 and 2.

Robertson, D. H., Money, Chs. 1 to 3.

Meade, J. E., “The Amount of Money and the Banking System,” Readings in Monetary Theory.

The Federal Reserve System—Purposes and Functions, Chs. I to VIII and XIII.

Modigliani, F., Lecture Notes No. 1-3.

Federal Reserve Bulletin, August, 1959, “A Quarterly Presentation of Flow of Funds, Saving, and Investment.”

Roosa, R. V. Federal Reserve Operations with Money and Government Securities Market.

  1. Demand for Money

This year, we shall postpone the discussion of the demand for money arising from various forms of uncertainty until later in the course, and confine ourselves in this section to dealing with the demand for money due to the existence of the cost of transaction.

    1. Why is demand for money different from demands for consumption goods?

Samuelson, P. A., Foundations, pp. 117-124

Marschak, J., “The Rationale of the Demand for Money and of ‘Money Illusion’,” Metroeconomica, August, 1950, Sections 1 and 2.

    1. Classical theory (Equation of Exchange and Cambridge Equation).

Fisher, I., The Purchasing Power of Money, Chs. 1 to 6 and 8.

Robertson, D. H., Money, Chs. 4 to 6.

Marshall, A., Official Papers, pp. 32-54.

Keynes, J. M., A Treatise on Money, Chs. 9-19.

Wicksell, K., Interest and Prices, Chs. 3 and 5 to 8.

Gregory, T. E., The Gold Standard and Its Future, Chs. 1 and 2.

Hicks, J. R., “A Suggestion for Simplifying the Theory of Money,” Readings in Monetary Theory.

Keynes, J. M., The General Theory of Employment, Interest, and Money, Ch. 15.

Pigou, A. C., “The Value of Money,” AEA Readings in Monetary Theory, pp. 162-185.

Friedman, M., “The Restatement of the Quantity Theory of Money,” in Studies in the Quantity Theory of Money.

    1. More modern theory of transaction demand for money.

Tobin, J., Manuscript, Chapter 4, Sections 1 and 2, Appendix to Chapter 4.

Tobin, J., “The Interest Elasticity of Transaction Demand for Cash,” Review of Economics and Statistics, August, 1956, pp. 241-47.

Baumol, W. J., “The Transaction Demand for Cash,” Quarterly Journal of Economics, November, 1952.

Lecture notes, 3-6, 9 and 10.

    1. Some empirical evidence.

Bresciani-Turroni, The Economics of Inflation, Chs. 2, 4, and 5 (see also J. Robinson’s review in Economic Journal, September, 1938).

League of Nations, The Course and Control of Inflation, Part I.

Cagan, P., “The Monetary Dynamics of Hyper-Inflation,” in Studies in the Quantity Theory of Money, (M. Friedman, ed.)

Kisselgoff, A., “Liquidity Preference of Large Manufacturing Corporations,” Econometrica, October, 1945.

Latane, H. A., “Cash Balances and the Interest Rate,” Review of Economics and Statistics, 1954, pp. 456-460.

Polak, J. and White, W. H., “The Effect of Income Expansion on the Quantity of Money,” in IMF Staff Papers, August, 1956.

Stedry, A.C., “A Note on Interest Rates and the Demand for Money,” RENS August, 1959.

Those who are not familiar with the elementary theory of inventory management should consult any one of the following:

Whitin, T., Theory of Inventory Management, Chapters 2 and 3.

Arrow, K. J., Karlin, and Scarf, Studies in the Mathematical Theory of Inventory and Production, Chapters 1 and 2.

Arrow, K. J., Harris, and Marschak, “Optimal Inventory Policy,” Econometrica, July 1951.

  1. Analysis of the place of money in the economy—general equilibrium theory of money, prices, and employment.
    1. Neo-classical theory: the case of flexible prices and perfect markets.

Marschak, J., “The Rationale of the Demand for Money and Money Illusion,” Metroeconomica, 1950, pp. 71-160.

Modigliani, F., Preliminary Notes on the Theory of Money and Interest, Part I, II, and III, Section A to D (2).

Patinkin, D., Money, Interest, and Prices, An Integration of Monetary and Value Theory.

Patinkin, D., “A Reconsideration of the General Equilibrium Theory of Money,” Review of Economic Studies, Vol. 18, 1950-51.

De Scitovsky, T., “Capital Accumulation, Employment, and Price Rigidity,” Review of Economic Studies, Vol. 8, pp. 69-88.

Pigou, A. C., “Economic Progress in a Stable Environment,” Readings in Monetary Theory.

Metzler, L., “Wealth, Saving, and the Rate of Interest,” JPE, April, 1951.

Archibald, G. C., and Lipsey, R.G., “Monetary and Value Theory: A Critique of Lange and Patinkin,” Review of Economic Studies, October, 1958.

    1. Keynesian theory: the effects of rigid prices.

Keynes, J. M., The General Theory of Employment, Interest, and Money, Chs. 2, 6, 10, 11, 18, 19, 21 including appendix.

Hicks, J. R., “Mr. Keynes and the Classics,” Readings in the Theory of Income Distribution.

Modigliani, F., “Liquidity Preference and the Theory of Interest and Money,” Readings in Monetary Theory

Modigliani, Preliminary Notes, Part IV.

Pigou, A. C., Employment and Equilibrium.

Tobin, J., Manuscript, Chs. 5-6.

(To be continued)

Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archives. Franco Modigliani Papers. Box T6, Folder “Economic Fluctuation and Growth, 1961”.

_____________________

From: Course outline and major references, GI-583—Advance Economics III (Monetary Theory and Macro-Economic Analysis), Carnegie Institute of Technology, Spring Term 1960.

[Applications of the model to Economic Analysis and Policy]

  1. a) The causes of unemployment

(i) “Monetary” causes

(ii) Effective demand and the limits of monetary policy—Fiscal policy.

(iii) Real wage rigidity, market structures and the limits of monetary and fiscal policy

b) Creeping inflation and its causes—Cost push and demand pull

c) Implications for economic policy

Modigliani, Preliminary notes, Part IV section A.6 and C.6

Hart, A. G., Money, Debt and Economic Activity, Part V

Timlin, P., A MODEL OF THE CURRENT INFLATION—B.A. Thesis, Swarthmore College (Mimeographed) Ch. I

Joint Economic Committee, U.S. Congress—THE RELATIONSHIP OF PRICES TO ECONOMIC STABILITY AND GROWTH—COMPENDIUM March, 1958

(See especially: A. P. Lerner, “Inflationary Depression and the Regulation of Administered prices”) and G. Ackley, “A Third Approach to the Analysis and Control of Inflation”)

Selden, R., Cost Push versus Demand Pull, JPE Feb. 1959

WAGES, PRICES, PROFITS AND PRODUCTIVITY—The American Assembly, Columbia University

Schultze, C. THE RECENT INFLATION IN THE UNITED STATES. Joint Economic Committee, 1959

 

Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archives. Franco Modigliani Papers. Box T6, Folder “Economic Fluctuation and Growth, 1961”.

_____________________

List of Suggested Books
for Review in 14.461

Pigou, A. C., Employment and Equilibrium

Friedman, M., A Program for Monetary Stability

Hansen, B., Theory of Inflation

Hansen, B., Economic Theory of Fiscal Policy

Gurley, J. G., and Shaw, E., Money in a Theory of Finance

Faxen, K. O., Monetary and Fiscal Policy under Uncertainty

Botha, D. J., A Study in the Theory of Monetary Equilibrium

Hall, C. A., Fiscal Policy for Stable Growth

Buchanan, J. M., Public Principles of Public Debt

Musgrave, R. A., The Theory of Public Finance

Patinkin, D., Money, Interest, and Prices

Robinson, J., Accumulation of Capital

Sraffa, P., Production of Commodities by Means of Commodities

Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archives. Franco Modigliani Papers. Box T6, Folder “Economic Fluctuation and Growth, 1961”.

_____________________

Course Announcement

14.192 Economics Seminar

Prereq.: 14.121 [Economic Analysis (first term)]
Year: G(1)

Special social problems or economic problems of particular industries. (Open to graduate students only.)

Source: Massachusetts Institute of Technology Bulletin, 1960-61,  p. 242.

_____________________

Spring Term, 1961
Franco Modigliani
Albert Ando

14.192
Monetary Economics

  1. Preliminary Discussion of the Theory of Decision Making Under Uncertainty

Friedman, M., “Choice, Chance, and Personal Distribution of Income,” Journal of Political Economy, 1953, pp. 277-290.

Friedman, M., and Savage, L. J., “The Utility Analysis of Choices involving Risk,” JPE, 1948, pp. 279-304, reprinted in AEA Readings in Price Theory.

Dreze, J., and Modigliani, F., Consumer’s Behavior under Uncertaintydittoed notes.

Tobin, J., “Liquidity Preference as Behavior Toward Risk,” The Review of Economic Studies, February, 1958

Tobin, J., Manuscript, Ch. 3

Markowitz, H. M., Portfolio Selection

Hirschleifer—“Risk, the Discount Rate and Investment Decisions”—AER, Vol LI, No. 2 May 1961, pp. 112-120

Those who are not familiar with the standard theory of decision making under uncertainty should consult the following:

Luce, R. D., and Raiffa, H., Games and Decisions: Introduction and Critical Survey, Chs. 2, 13, and 14

Raiffa, H., and Schlaifer, R. O.,Applied Statistical Decision Theory, Preface and Introduction, Ch. 1.

 

Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archives. Franco Modigliani Papers. Box T6, Folder “Economic Fluctuation and Growth, 1961”.

Image Source: Albert K. Ando from the MIT Museum, People Records. Franco Modigliani from Gonçalo L. Fonseca’s History of Economic Thought website.

 

Categories
Exam Questions M.I.T. Suggested Reading Syllabus

M.I.T. Macroeconometric models. Reading list and final exam. Modigliani, 1973

 

Core macroeconomic theory was taught in a sequence of four half-semester courses at M.I.T. In this post we encounter the third course of the sequence (typically taken in the fall term of the second year of residency) that was dedicated to Keynesian macroeconometric models and taught by Franco Modigliani in 1973.

In the same folder is a qualifying exam for 14.454, Macro IV which would be a waiver examination given before the term begins. There is no year indicated on this exam, but the content of the questions clearly matches that of the empirical macro course 14.453 offered in 1973. In the fall term of 1973, the quantitative macro and the dynamic macro switched their order which is probably the reason for the confusion about the course number at the start of the term.

Economics in the Rear-view Mirror thanks Juan C. A. Acosta who copied the course syllabus and final examination that are found in the Franco Modigliani Papers (Box T7) at the Duke University Economists’ Papers Project and has graciously shared them for transcription here. 

___________

14.453 MACRO THEORY III
Fall 1973, 2nd Half

I – ECONOMETRIC MODELS

Tinbergen, J. Statistical Testing of Business Cycles, Theory II. Business Cycles in the U.S.A.
Klein, L. R. & A. S. Goldberger. An Econometric Model of the United States, 1955; Impact Multipliers & Dynamic Properties of the K-G Model, 1959.
Suits, D. B. “Forecasting and Analysis with an Econometric Model”, AER, March, 1962. Reprinted in Readings in Business Cycles.
Hymans, S. H. & H. T. Shapiro. The Michigan Quarterly Econometric Model of the U.S. Economy, 1973.
_____________, Revision as of June, 1973 – Mimeo
Green, G. R., M. Liebenberg, A. A. Hirsh. “Short and Long Term Simulations with the OBE Econometric Model” in Econometric Models of Cyclical Behavior, Studies in Income and Wealth, Vol. 36.
Fair, R. C. A Short Run Forecasting Model of the United States Economy, 1971.
Adams, G. F. & David M. Rowe, “Forecasts and Simulations from the Wharton Econometric Model”, Multilith.

ECONOMETRIC FORECASTING SYSTEM

1 – DR1 Quarterly Model
2 – Operations Overview

Fromm, G. & L. R. Klein. “A Comparison of Eleven Econometric Models of the United States”, AER, Papers and Proceedings, May, 1973, pp. 385-393.
Fair, R. C. “Forecasts from the Fair Model and Comparison of the Recent Forecasting Record of Seven Forecasters – July, 1973”. Princeton University – Multilith. 
Tsurumi, H. “A Comparison of Econometric Macro Models in Three Countries”, AER, May 1973.
Moriguchi, C. “Forecasting and Simulation Analysis of the World Economy”, AER, May, 1973.

THE MPS MODEL

Equations in the MIT-Penn-SSRC Model of the United States, January, 1973.
Data Directory, January, 1973.
Ando & Modigliani, “Econometric Analysis of Stabilization Policy,” AER, May, 1969.
Ando, A. K. “Basic Structure of the MPS Model” –Multilith.
Modigliani, F. “The Channels of Monetary Policy in the FMP Econometric Model of the U. S.” – Multilith.

II – THE CONSUMPTION FUNCTION

Keynes, J. M. The General Theory of Employment, Interest & Money, Ch. 8 & 9.
Modigliani, F. Lecture Notes on Monetary Theory, Part IV, Section A&B, (especially A.4 to B.2)
Brady, D.S. & Friedman, R. D. “Savings and the Income Distribution”, Studies in Income and Wealth, Vol. X, pp. 247-265.
Duesenberry, J. S. Income, Saving and the Theory of Consumer Behavior.
Modigliani, F. “Fluctuations in the Saving Income Ratio: A Problem in Economic Forecasting”, in Studies in Income and Wealth, Vol. XI, National Bureau of Economic Research, 1949.
_____________, “The Life Cycle Hypothesis of Saving Twenty Years Later”, Multilith.
_____________ and Brumberg, F. “Utility Analysis and the Consumption Function: An Interpretation of Cross-Section Data”, in K. Kurihara, (ed.) Post-Keynesian Economics, New Brunswick, 1954.
_____________ and _____________, “Utility Analysis and Aggregate Consumption Functions: An Attempt at Integration”, unpublished.
Merton, R. C. “Optimum Consumption and Portfolio Rules in a Continuous-Time Model”, Journal of Economic Theory, December, 1971.
Dreze and Modigliani, “Consumption Decisions under Uncertainty”, Journal of Economic Theory 5, 1972.
Modigliani, F. “The Life Cycle Hypothesis of Saving, the Demand for Wealth and the Supply of Capital” Social Research, Summer 1966.
_____________, “The Life Cycle Hypothesis of Saving and Inter-country Differences in the Saving Ratio”, in Induction, Growth and Trade, Essays in Honor of Sir Roy Harrod, 1970.
Ando, A. and Modigliani, F. “The Life Cycle Hypothesis of Saving: Aggregate Implications and Tests,” American Economic Review, March, 1963.
Modigliani, F. “Monetary Policy and Consumption: Linkages via Interest Rate and Wealth Effects in the FMP Model”, in Consumer Spending and Monetary Policy: the Linkages, The Federal Reserve Bank of Boston, 1971; and Appendix by Ando and Modigliani, “Consumption and Consumer Expenditure”.
Kaldor, N. Essays in Value and Distribution, London, 1960.
Tobin, J. “Life Cycle Saving and Balanced Growth”, in Ten Economic Essays in the Tradition of Irving Fisher, 1967.
_____________ and Dolde, W. C. “Wealth, Liquidity and Consumption”, in Consumer Spending and Monetary Policy: the Linkages, The Federal Reserve Bank of Boston, 1971.
Mayer, T. Permanent Income, Wealth, and Consumption, 1972.

III – THE INVESTMENT FUNCTION

Keynes, J. M., General Theory, Chapters 11 and 12.
Jorgenson, D. W. “Econometric Studies of Investment Behavior”, Journal of Economic Literature, Dec. 1971.
_____________ and R. E. Hall, “Application of the Theory of Optimum Capital Allocation” in Tax Incentives and Capital Spending, (edited by Fromm).
Bischoff, C. W. “The Effects of Alternative Lag Distributions”, in Tax Incentives and Capital Spending, G. Fromm, ed., Brookings Institution, 1971.
Ando, Modigliani, Rasche & Turnovsky, “On the Role of Expectations of Price and Technological Change in an Investment Function”. Multilith.
Eisner, E., and M. I. Nadiri, “Investment Behavior and Neoclassical Theory.” Review of Economics and Statistics. Vol. 50, August 1968.
_____________, “Neoclassical Theory of Investment Behavior: A Comment.” Review of Economics and Statistics, Vol. 52, May 1970.
Bischoff, C. W., “Hypothesis Testing and the Demand for Capital Goods,” The Review of Economics and Statistics, August 1969.
_____________, “Business Investment in the 1970’s: A Comparison of Models”, Brookings Papers on Economic Activity, 1, 1971.
Nadiri, I. M. “An Alternative Model of Business Investment Spending”, Brookings Papers on Economic Activity, 3, 1972.
Kalchbrenner, J. H. “A Model of the Housing Sector”, Chapter 6, in Savings, Deposits, Mortgages and Housing, Studies for the Federal Reserve-MIT-Penn Economic Model, (eds. Gramlich and Jaffee), 1972.
Ando and Modigliani, “Consumption and Consumer Expenditure”, pages 9-17, (APPENDIX A), Multilith.

IV – FINANCIAL MARKETS

Tobin, J. “A General Equilibrium Approach to Monetary Theory”, JMCB, February, 1969.
Brainard, W. and J. Tobin. “Pitfalls in Financial Model Building”, AER, May, 1968.
Ando and Modigliani. “Some Reflections on Describing Structures of Financial Sectors”. Multilith.
Ando, A. K. “Some Comments on Brainard-Tobin Framework for Financial Analysis”. Multilith.
Modigliani, F., Rasche, R. and J. P. Cooper, “Central Bank Policy, the Money Supply, and the Short-Term Rate of Interest,” Journal of Money, Credit and Banking, 2, 1970.
Modigliani, F. and R. Shiller, “Inflation, Rational Expectations, and the Term Structure of Interest Rates,” Economica, February, 1973.
Jaffee, D. M., and F. Modigliani, “A Theory and Test of Credit Rationing”, American Economic Review, December, 1969.
_____________, Credit Rationing and the Commercial Loan Market, John Wiley and Sons, 1971.
Gramlich, & Jaffee, editors, Saving Deposits, Mortgages and Housing, Chapters 1 to 5, and 7.
Modigliani, F. “The Valuation of Corporate Stock”. Multilith.

V – WAGES, PRICES, EXPECTATIONS

Phillips, A. W. “The Relation between Unemployment and the Rate of Change of Money Wages in the U. K.” Economica, November 1958.
Lipsey, R. G. “The Relation between Unemployment and the Rate of Change of Money Wage Rate in the U. K.: A Further Analysis”, Economica, 1961.
Phelps et al. Macro Economic Foundations of Employment and Inflation Theory, See especially the two contributions of Holt.
The Econometrics of Price Determination Conference, Board of Governors of the Federal Reserve System and SSRCs.

De Menil and Enzler, “Prices and Wages in the FR-MIT-Penn Econometric Model”.
Tobin, “The Wage-Price Mechanism: Overview of the Conference”.
Hyman, “Prices and Price Behavior in Three U.S. Econometric Models”.
Nordhaus, “Recent Developments in Price Dynamics”.
Lucas, “Econometric Testing of Natural Rate Hypothesis”.

Modigliani and Tarantelli, “A Generalization of the Phillips Curve for a Developing Country”, Review of Economic Studies, April, 1973.
Eckstein and Brinner, “The Inflation Process in the United States”, Joint Economic Committee, Congress of the U.S., 92 Congress, 2ndSession.
Modigliani, “New Developments on the Oligopoly Front”, Journal of Political Economy, Vol. 66, June 1958.
Lucas, R. “Some International Evidence on Output-Inflation Tradeoffs”, AER, June, 1973.
Sargent, T. J. “Rational Expectations, The Real Interest Rate and the ‘Natural’ Rate of Unemployment.” Multilith—forthcoming in Brookings Papers on Economic Activity, 2, 1973.
Gordon, R. J. “The Welfare Cost of Higher Unemployment”, Brookings Papers on Economic Activity, 1, 1973.
Turnovsky, S. J. “Empirical Evidence on the Formation of Price Expectations”, J.A.S.A., December 1970.
de Menil and Bhalla, “Direct Measurement of Popular Price Expectations”—Princeton University Econometric Research Program, Memorandum No. 149.
de Menil, G. “Rationality in Popular Price Expectations”. Multilith.

______________________

QUALIFYING EXAM FOR 14.454 (sic)
MACRO IV (sic)

Time Period: Less than two hours
Answer at least 2 questions

  1. Tests carried out for a number of countries of the major alternative models purporting to explain aggregate consumption (Duesenberry-Modigliani, permanent income, life cycle, Kaldorian model) are typically found to fit the data quite well, and the difference in fit is generally not large.
    1. give a brief description of each of the above models
    2. what explanation, if any, can be advanced for the empirical finding that there are no substantial differences in the closeness of fit in the various models
    3. does the fact that the alternative models fit roughly as well imply that it makes little difference which of these equations is incorporated in an econometric model
      1. rom the point of view of forecasting
      2. from the point of view of predicting the effect of alternative monetary and fiscal policies
  2. Consider the coefficient estimates of the St. Louis “reduced form model”.
    1. what are possible and likely sources of biases in these coefficients? (Be sure to explain what you mean by bias in this context.)
    2. are these estimates consistent with the monetarist view of the working of the economy?
    3. with the view embodied in the standard econometric models of the U.S.?
    4. with the view embodied in the MPS model? (optional)
  3. The “multiplier” played an important role in early Keynesian thinking.
    1. review how this notion has developed since that time.
    2. in the light of (i), describe the kind of simulations you would perform in order to evaluate the “multiplier effect of an increase in government expenditure” implied by one of the major contemporary econometric models of the U.S.
    3. can an estimate of the above multiplier be inferred from the coefficients of the St. Louis “reduced form model”?

______________________

14.453 MACRO THEORY
FINAL EXAMINATION

Franco Modigliani
Wednesday, 12/19/73

1 ½ hours

Answer Question I and at least one other question

  1. Enclosed is a forecast for the U.S. economy generated by the MPS Model in October 1973, before the so-called oil crisis. Assume an exogenous reduction in oil imports of 3 million barrels per day (representing somewhat over 15% of the consumption of oil implicit in the above forecast) beginning in the fourth quarter of ’73, and becoming fully effective from the first quarter of ’74.
    1. analyze the likely effects of this event on the above projections of real and money GNP and its components, assuming no change in monetary and fiscal policy.
    2. what changes in economic policy, if any, would you recommend, and why?
    3. can the MPS model (or analogous macro-econometric models) be used without major modification, to simulate the effects of the reduction in oil supply? Explain.

(Note: the monetary policy assumed in the projection is a growth of the money supply at 6% in ’73.4, at 6.5% in the first half of ‘74, and 7% thereafter.)

  1. The “multiplier” played an important role in early Keynesian thinking.
      1. review how this notion has developed since that time.
      2. in the light of (i.), describe the kind of simulations you would perform in order to evaluate the “multiplier effect of an increase in government expenditure” implied by one of the major contemporary econometric models of the U.S.
      3. can an estimate of the above multiplier be inferred from the coefficients of the St. Louis “reduced form model”?
  2. Formulate your model of the short and long run determinants of the price level. Use your theory to evaluate the often expressed view that fiscal policy should be used to control real output and monetary policy to control prices.
  3. Discuss the role of price expectations in macro-economic analysis, and review the present state of knowledge with respect to the modeling of price expectational variables in macro-econometric models.

1973_14453_exam_MPSoutputReduced

Source:   Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Franco Modigliani Papers, Box T7.

Image Source: Franco Modigliani picture from the MIT Museum Website.