When Milton Friedman went on leave from the University of Chicago in 1971-72, two assistant professors who had received their Ph.D.’s from M.I.T. were left minding the two core courses in “money” (a.k.a. “macroeconomics”) at Chicago. In this post I first provide the course listings and staffing for the core fields and then the transcription of an exchange of memos between Robert J. Gordon and Stanley Fischer (the two assistant professors just mentioned) on the one hand and their senior colleague Milton Friedman on the other.

The (then) young colleagues have tread most gingerly in the matter of overhauling the Chicago money courses. Friedman for his part has given them a “revise-and-resubmit” sort of response for their efforts. Perhaps Economics in the Rear-View Mirror will get lucky and receive a comment from Messrs. Gordon and Fischer about their memos’ ultimate impact on the Chicago core.

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Graduate Courses in 1971-72

Core Fields and Faculty

PRICE THEORY

300. Price Theory. McCloskey.

301. Price Theory. Becker, Evenson, Harberger.

302. Price Theory. Becker, H. Johnson

303. General Equilibrium Theory. Mundell.

307. Mathematical Methods in the Social and Administrative Sciences. Theil.

309. The Theory of the Allocation of Time. Ghez, Becker.

THEORY OF INCOME, EMPLOYMENT, AND THE PRICE LEVEL

330. Money: The Supply Side. Gordon

331. Money. Fischer, Telser.

332. Theory of Income, Employment, and the Price Level. Sjaastad, Zecher.

337. Special Topics in Monetary Theory. Fischer.

Becker, Gary (Ph.D., Chicago, 1955; John Bates Clark Medal Winner, 1967). University Professor of Economics (at Chicago since 1970).

Recent research: Investment in human capital; the allocation of time; household production functions and non-market behavior; marriage and fertility; law and economics.

Evenson, Robert E. [visiting faculty] (Ph.D., Chicago, 1968; Associate Professor of Economics, Yale).

Recent research: economic development and agriculture.

Fischer, Stanley (Ph.D., M.I.T., 1969). Assistant Professor of Economics (at Chicago since 1969).

Recent Research: Monetary growth models; lags and stabilization policy; trade and capital flows.

Friedman, Milton [on leave, 1971-72] (Ph.D., Columbia, 1946; John Bates Clark Medal Winner, 1951; President of A.E.A., 1967). Paul Snowden Russell Distinguished Service, Professor of Economics (at Chicago since 1946).

Recent Research: The optimum quantity of money; secular and cyclical changes in money and income; a theoretical framework for monetary analysis.

Ghez, Gilbert (Ph.D., Columbia, 1970). Assistant Professor of Economics (at Chicago since 1969).

Recent Research: A theory of life-cycle consumption; consumption and labor force participation; effects of education on consumption patterns.

Gordon, Robert J. (Ph.D., M.I.T., 1967). Assistant Professor of Economics (at Chicago since 1968).

Recent Research: Labor market theory and inflation; econometric models of wage and price determination; problems in measurement of capital.

Harberger, Arnold C. (Ph.D., Chicago, 1950). Professor of Economics (at Chicago since 1953).

Recent Research. Applied welfare economics; measurement of social opportunity costs of labor, capital, and foreign exchange; taxation and resource allocation.

Johnson, Harry G. (Ph.D., Harvard, 1958). Professor of Economics (Joint appointment with London School of Economics) (at Chicago since 1959).

Recent Research: Theory of international inflation; theory of effective protection; the two-sector model of general equilibrium; Keynesianism and monetarism.

McCloskey, Donald (Ph.D., Harvard, 1970). Assistant Professor of Economics (at Chicago since 1968).

Recent Research: Topics in the application of economics to British economic history; the Old Poor Law as a negative income tax; the economic effects of Britain’s move to free international trade.

Mundell, Robert (Ph.D., M.I.T., 1956). Professor of Economics (at Chicago since 1965).

Recent Research: Monetary systems and economic development; world inflation and unemployment; African currency systems; global trade policy.

Sjaastad, Larry A. (Ph.D., Chicago, 1961). Associate Professor of Economics (at Chicago since 1962).

Recent research: Project evaluation in underdeveloped countries; economics of research.

Telser, Lester (Ph.D., Chicago, 1956). Professor of Economics (at Chicago since 1958).

Recent research: Theory of competitive markets; game theory; the theory of the core; economics of information; determinants of the returns to manufacturing industries; equilibrium price distributions.

Theil, Henri (Ph.D., Amsterdam, 1951). University Professor of Economics (at Chicago since 1965).

Recent research: Econometric methodology and applications; mathematical and statistical methods in other social and administrative sciences.

Zecher, Joseph Richard (Ph.D., Ohio State, 1969). Assistant Professor of Economics and Director of the Undergraduate Program (at Chicago since 1968).

Recent research: Models of commercial banking; interest rates and expectations.

Source: Economics at Chicago (Departmental Brochure, 1971-72), p. 23, 26-30. This copy of the brochure found in the Hoover Institution Archives. Papers of Milton Friedman. Box 194, Folder 4.

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UNIVERSITY OF CHICAGO

May 22, 1972

To: Department of Economics Faculty

From: R. J. Gordon

Re: First Year Money Sequence

Stan Fischer, Dick Zecher, and I would like to propose the following reorganization of the topics taught in the first year graduate money-macro sequence. We have long felt that the present organization is suboptimal because (1) the student is taught two approaches to static income determination, one in 331 and one in 332, without sufficient coordination and integration of the two approaches, and (2) the separation between money supply in 330 and money demand in 331 does not work well, because money demand is involved in most of the topics covered in 330. The following reorganization puts static income determination of both the Quantity Theory and Keynesian varieties into course no. 1, in the sequence, then combines the money demand theory from the present 331 with the most important topics in the present 330 in course no. 2, and creates a third course devoted to dynamic topics.

We would like reactions, suggestions, and ideas. Presumably each course would be given twice on a staggered schedule.

COURSE NO. 1, to be called 331

taught in Fall and Winter

Static Income Determination in the style of Bailey and Patinkin

Elements of National Income Accounting

Doctrinal history and issues: General Theory, Patinkin vs. Friedman, Leijonhufvud

Theory of Consumption Function

Theory of Investment Behavior from Wicksell to Jorgenson

COURSE NO. 2, to be called 330

taught in Fall and Spring

Money demand theory

Tobin-Markowitz approach to portfolio allocation

Money supply theory

Financial intermediaries

Term structure and debt management

Modigliani-Miller and other issues in capital market theory

COURSE NO. 3, to be called 332

taught in Winter and Spring

Neoclassical nonmonetary growth models

Monetary growth models in the style of Foley-Sidrauski

Optimum Quantity of Money and welfare economics of inflation

Stability of inflation in Cagan-Mundell-type models

Multiplier-accelerator cycle models, simple inventory models

Models of Labor Market and Inflation

Simple models of open economies (could go in course no. 1)

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UNIVERSITY OF CHICAGO

Date: July 20, 1972

To: Professor Robert J. Gordon, Department of Economics

From: Milton Friedman, Department of Economics

In re: Your Memo of May 22 on First-Year Money Sequence

I have been hesitant to react to your schedule of topics both because I believe a teacher must decide for himself what he is going to teach but also because my reactions naturally derive from my own experience in teaching these courses and I have not re-thought the question afresh, particularly not in the light of 330.

Nonetheless for what they are worth, let me give my offhand reactions. The basic thing that disturbs me about all three courses is that they are set up as a series of separate topics with no organizational structure in them. For both the monetary approach and the income expenditure approach there is a clear logical structure which it seems to me it is desirable to use in organizing the material. For money as for price theory the obvious structure is the demand for money, the supply of money and the equilibrium produced by their interaction. In Course 2 called 330 you have the elements of money demand theory and money supply theory, but they are put in as if they were on the same level as approaches to portfolio allocation, financial intermediaries, term structures, and the like. Obviously they are not. If financial intermediaries have any relevance to the theory of money it is because they partly enter into the money supply process; it is partly because they may affect the demand for money. Similarly, the Tobin-Markowitz approach to portfolio allocation is simply a fuller exploration of the individual decisions that underlie the demand for money. Similarly, in the income expenditure approach the logical organization has to do with aggregate demand on the one hand and aggregate supply on the other side and their interactions. Consumption theory and investment theories of income then become components of aggregate demand.

I can understand elements of national income accounting and institutional and descriptive material about the monetary and banking system coming early in the courses and preceding the kind of formal theoretical apparatus that I have been talking about, but I find it hard to see the optional history and issues coming where they do in your outline. It seems to me that the desirable thing in these courses is to teach, as best we can, the substance of what we know and believe to be the correct theory. The history of the thought enters in both in introducing and motivating the discussion; also it has always seemed to me desirable that so far as possible we should use the writings of the great men in the field to develop the points that remain valid out of their writings, and finally at the very end I can see where in discussing where we go from here and what the open issues are it is desirable to bring out the question of current and past controversies.

In connection with Course 3, that also seems to be a collection of topics. It is very hard for me to see the organizational structure that underlies it. Presumably what really is in the back of this is the notion that Courses 1 and 2 will deal with static equilibria opposition and Course 3 will deal with dynamic change. But yet that doesn’t quite fit the role of the optimum quantity of money and the welfare economics of inflation. What precisely is a logical structure underlying this? Indeed let me repeat that question for all three courses.

Needless to say, there is more than one organization that would be logically coherent and would be effective in teaching the material within these three courses, so I don’t mean to put any special weight on the one I outlined above, but I do believe that you need to bring the skeleton of your organization more clearly in the open than it is brought in the list of topics in these three courses. Incidentally, one minor item is that I do not see anywhere in any of the topics where quantity equations à la Irving Fisher, Marshall, and the early Keynes would be discussed at all.

(Dictated but not read)

MF:gv

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UNIVERSITY OF CHICAGO

Date: July 26, 1972

To: Milton Friedman, Department of Economics

From: Bob Gordon and Stan Fischer, Department of Economics

In re: First Year Money Sequence

Thanks for your memo to Bob of July 20th. Before reacting to your comments in more detail, let us attempt to restate the aims of the proposed revision. There were two major problems with the previous arrangement: (i) overlap of material in 330 and 331, (ii) 332 as a separate course was taught either as a hodge-podge of topics or as Keynesian multipliers run riot – by the time students had got through 331 the excuse for a separate income-determination course was slim.

The basic organizational structure, which the memo admittedly did not spell out, is based on the use of a common static model, as in Patinkin, Bailey, and equations (9) – (14) of your 1970 piece – as a starting point for discussion of both monetary and income-expenditure approaches (in 331). Once the basic issues are discussed in the framework of the common model – and this will occupy much of the 331 course – the examination of the building blocks of the model will begin. Since more time is needed for the building blocks than remains in 331, some pieces had to be placed in another course and it seemed sensible to separate out money supply and money demand. This makes 330 a self-contained course with the unifying principle that each topic contributes to a model of the monetary and financial markets, whereas the building blocks allocated to 331 are those of the commodity market. The placement of the labor market in the third course is the most arbitrary decision; it should probably be shifted to 331 so that the interaction between aggregate supply and demand can be adequately developed. (Incidentally, we apologize for giving the impression that each topic mentioned is to be given equal weight – we had in mind precisely the considerations mentioned in the second half of your second paragraph in writing, for instance, “Money demand theory” followed by “Tobin-Markowitz….”)

The idea in course 3 is indeed to emphasize dynamic elements. Here the intention is to use a simple common dynamic model, which has naturally to involve expectations and intertemporal maximization, and examine its behavior under a variety of assumptions on expectations etc. This leads naturally into the other topics mentioned in 3 – with the exception of the multiplier-accelerator and inventory models which tend to be sui generis and hard to fit into the overall scheme. (The open economy models also do not fit in very well.)

On your specific comments:

We also realize that each teacher decides what he wants to teach, but in view of the facts that these are the basic money courses and that students take them from different people, we feel it important to try to have some uniformity of coverage. On the history of thought: we too use this to introduce and motivate the theories and we intend that it permeate the courses rather than be discussed in the middle of 331, as our memo now indicates. The optimum quantity of money comes right out of discussions of intertemporal optimization by individuals (as in your article) and it does seem that the “Dynamic” course is a good place to discuss it. The early quantity theorist’ views will obviously be discussed in great detail in the demand for money side of 330, and also in 331; this was one of the sub-topics we intended to be included under the 331 heading “doctrinal history.”

We would very much appreciate your commenting on this since we ourselves discussed several alternative organizations for the courses, and are far from certain that our proposal is optimal. Indeed, in the light of the fact that, as you say, everyone teaches what he wants, we felt some diffidence in making our proposal. But we do think it important to have some generally-greed-upon division of material for the three courses, if only to be fair to the students faced with the Core exam.

Source: Hoover Institution Archives. Milton Friedman Papers. Box 194, Folder 5.

Image Source: Milton Friedman (undated). University of Chicago Photographic Archive, apf1-06230, Special Collections Research Center, University of Chicago Library.