Abstract
Traditional business cycle theories and the business cycles course were important facets of the development of what is now seen as macroeconomics, and knowledge of their development affords insight into the development of macroeconomic theory. Fortunately there is now available a set of excellent lecture notes and student reports from a course, ‘Commercial Crises and Cycles of Trade’, given at Harvard two-thirds of a century ago. The notes cast light on the early identity and character of the study of what is now within the domain of macroeconomic (and monetary) theory, as well as the quality of teaching in that field, during a period when macroeconomic questions hitherto have appeared to have been largely dormant. They reflect a surprisingly ‘modern’ business cycles course in both coverage and execution, as well as basic conceptualization, and also evidence the considerable intellectual ferment — largely forgotten and thus neglected by both macro theorists and historians of economic thought — that accompanied the acknowledged doctrine of Say’s law.
Originally published in History of Political Economy, vol. 4 (Spring 1972), pp. 140–62.
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Notes
A member of a distinguished English and American family, Hale (1884–1969) received the B.A. (1906), A.M. (1907) and LL.B. (1909) from Harvard and the Ph.D. (1918) from Columbia. His non-law degrees were all in economics. He served as an assistant to Taussig, with whom he developed a friendship which was to last for decades. Hale taught in the Columbia Economics Department both before and after receiving the doctorate. He began teaching in the Law School in 1919, eventually being granted a joint appointment and finally, in 1928, transferring completely to the Law School, from which he retired as professor emeritus in 1949, continuing to teach into the mid-1950s. Biographical information is based upon Joseph Dorfman, The Economic Mind in American Civilization (New York: Viking Press 1959), vol. 4, pp. 160–3, and vol. 5, p. 588;
J. Goebel, Jr (ed.), A History of the Law School (New York: Columbia University Press, 1955), pp. 324–5, 361; Law Alumni Bulletin, vol. 11 (Winter 1969), p. 39. Hale’s research and teaching were concentrated in public utility law and in a unique course, Legal Factors in Economic Society. He produced a stream of important articles in public utility law which had manifest eventual impact on the courts, in part through his friendship with Justices Stone, Brandeis, Cardozo, Frankfurter, Hand, and Frank, among others. He also wrote extensively on the economy as a system of mutual coercion based upon relative power and on the legal bases thereof.See, for example, Hale, ‘Coercion and Distribution in a Supposedly Noncoercive Society’, Political Science Quarterly, vol. 38 (1923), and Freedom Through Law (New York: Columbia University Press, 1952).
Samuels, ‘The Economy as a System of Power and Its Legal Bases: The Legal Economics of Robert Lee Hale’, University of Miami Law Review, vol. 27 (Spring-Summer 1973), pp. 261–371.
Wesley Clair Mitchell, Business Cycles (Berkeley, Calif., University of California Press, 1913).
See also Milton Friedman, in Wesley Clair Mitchell: The Economic Scientist, ed. Arthur F. Burns (New York: National Bureau of Economic Research, 1952), p. 244, and the use still made of Andrew’s material in
Milton Friedman and Anna Jacobson Schwartz, Monetary Statistics of the United States (New York, Columbia University Press, 1970).
Andrew, ‘Criticisms of the Note-Issue Provisions of the Owen-Glass Bill’, Proceedings of the Academy of Political and Social Science, vol. 4 (Oct. 1913), pp. 177–83.
George Charles Seiden, ‘Trade Cycles and the Effort to Anticipate’, Quarterly Journal of Economics, vol. 16 (1902), pp. 293–310.
See John Stuart Mill, in Principles of Political Economy, ed. W. J. Ashley (reprint, New York: Kelley, 1961), bk 3, ch. 14, and bk 4, ch. 4.
Ibid., p. 165. See Joseph A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), p. 743.
Thomas Nixon Carver, ‘A Suggestion for a Theory of Industrial Depressions’, Quarterly Journal of Economics, vol. 17 (1903), pp. 497–500. The article is summarized in the Lecture Notes on pp. 55–6.
Lewis H. Haney, History of Economic Thought, 4th edn (New York: Macmillan, 1949), p. 677.
One of the referees of this paper has sensed a ‘ schizophrenia which must have been prevalent among economists who taught courses in “business cycles” while believing in Say’s Law’, and has suggested the relevance of the following statement from Samuelson concerning the situation three decades after Andrew’s course: ‘To know your own country you must have travelled abroad. To understand modern economics it is good to have lived long enough to have escaped competent instruction in its mysteries. When Archibald and Lipsey try to draw for Patinkin a picture of what a “classical” monetary theorist believed in, they are pretty much in the position of a man who, looking for a jackass, must say to himself, “If I were a jackass, where would I go?” ‘Mine is the great advantage of having once been a jackass. From 2 January 1932 until an indeterminate date in 1937, I was a classical monetary theorist. I do not have to look for the tracks of the jackass embalmed in old journals and monographs. I merely have to lie down on the couch and recall in tranquillity, upon that inward eye which is the bliss of solitude, what it was that I believed between the ages of 17 and 22. This puts me in the same advantageous position that Pio Nono enjoyed at the time when the infallibility of the Pope was being enunciated. He could say, incontrovertibility, “Before I was Pope, I believed he was infallible. Now that I am Pope, I can feel it”. ‘Essentially, we believed that in the longest run and in ideal models the amount of money did not matter. Money could be “neutral” and in many conditions the hypothesis that it was could provide a good first or last approximation to the facts. To be sure, Hume, Fisher, and Hawtrey had taught us that under dynamic conditions, an increase in money might lead to “money illusion” and might cause substantive changes — e.g., a shift to debtor-entrepreneurs and away from creditor-rentiers, a forced-saving shift to investment and away from consumption, a lessening of unemployment, a rise in wholesale prices relative to sticky retail prices and wage rates, et cetera. ‘But all this was at a second level of approximation, representing relatively transient aberrations. Moreover, this tended to be taught in applied courses on business cycles, money and finance, and economic history rather than in courses on pure theory. In a real sense there was a dichotomy in our minds; we were schizophrenics. From 9 to 9:50 a.m. we presented a simple quantity theory of neutral money. There were then barely ten minutes to clear our palates for the 10 to 10:50 discussion of how an engineered increase in M would help the economy. In mid-America in the mid-1930s, we neoclassical economists tended to be mild inflationists, jackasses crying in the wilderness and resting our case essentially on sticky prices and costs, and on expectations. ‘Returning to the 9 o’clock hour, we thought that real outputs and inputs and price ratios depended essentially in the longest run on real factors, such as tastes, technology, and endowments. The stock of money we called M (or, to take account of chequable bank deposits, we worked in effect with a velocity-weighted average of M and M’; however, a banking system with fixed reserve and other ratios would yield M’ proportional to M, so M alone would usually suffice). An increase in M — usually we called it a doubling on the ground that after God created unity he created the second integer — would cause a proportional increase in all prices (tea, salt, female labour, land rent, share or bond prices) and values (expenditure on tea or land, share dividends, interest income, taxes)’ (Paul A. Samuelson, ‘What Classical and Neoclassical Monetary Theory Really Was’, Canadian Journal of Economics, vol. 1 (1968), pp. 1–2. A second referee ‘was not disturbed by the question of “schizophrenia” in economists at the turn-of-the-century on the question of Say’s Law and business cycles. Clearly, Say’s Law was a recognized principle — and the business cycle was a recognized phenomenon (witness the existence of Andrew’s course at Harvard)’. The suggestion in the text is that perhaps Say’s law then meant something different, and had a different status, than it did in the 1930s and thereafter. It is beyond the narrow interpretive limits of this paper to attempt to resolve this question.
On similar and related points see Bernice Shoul, ‘Karl Marx and Say’s Law’, Quarterly Journal of Economics, vol. 71 (1957), reprinted in J. J. Spengler and W. R. Allen (eds), Essays in Economic Thought (Chicago: Rand McNally, 1960), ch. 18;
W. H. Hutt, Keynesianism: Retrospect and Prospect (Chicago: Rand McNally 1963);
and inter alia, Robert V. Eagly (ed.), Events, Ideology and Economic Theory (Detroit: Wayne State University Press, 1968).
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© 1992 Warren J. Samuels
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Samuels, W.J. (1992). The Teaching of Business Cycles in 1905–6: Insight into the Development of Macroeconomic Theory. In: Essays in the History of Mainstream Political Economy. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-12266-0_11
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