Grinnell Professor John C. Dawson died Nov. 22, 2016, at the age of 90. A short biography was included in the Summer 2017 issue [of The Grinnell Magazine, Page 49], which also included an article [Page 50] by James Kissane ’52 that praised Professor Dawson for this commitment and service to the College, but did not discuss the nature of economics that he taught to majors for many years.
The purpose of this brief article is to provide an introduction to that teaching as it was delivered in the early 1960s. At that time the more senior members of the Department of Economics included Kenyon Knopf (Ph.D. from Harvard), Robert Voertman (Ph.D. from University of Texas) and Professor Dawson. Newer members of the department were Robert Haveman and Phil Thomas. Professor Knopf taught economic history and microeconomic theory, but his economic history course was the more sophisticated of the two. Professor Voertman was an institutional economist who taught history of economic thought and comparative economic systems. Professor Haveman was a popular instructor in the one-semester introductory course, and he taught more advanced versions of microeconomic theory as well as economics of industry. Professor Thomas taught international economics. It is clear that, during these years, the department offered a solid, traditional (old-fashioned?) program in economics (that required no mathematics or formal statistical analysis), with one major exception — to which we now turn.
Professor Dawson earned his doctorate at Cornell University and was a student there of Morris Copeland, the inventor of the flow-of-funds system and one of the developers of the national income accounts in the 1930s and 1940s. Professor Dawson’s doctoral dissertation is a study of the flow of funds, and a version was published in the American Economic Review in 1958. He had joined the Grinnell faculty in 1957.
The flow-of-funds system is a part of the larger tradition of American institutional economics that includes earlier scholars Thorstein Veblen, John R. Commons, Clarence Ayres, J. K. Galbraith, and many others. The institutionalist school also includes empirical researchers such as Wesley Clair Mitchell, who was director of the National Bureau of Economic Research (NBER) for many years. The original purpose of NBER was to document what goes on within a business cycle, and NBER is still the organization that officially dates the beginning and end of recessions. Copeland and Dawson were in this tradition of empirical documentation and analysis of the business cycle.
The basic idea of the flow-of-funds system is to pay strict attention of the proper accounting of sources and uses of funds. Every entity in the economy has sources and uses of funds. Indeed, the entire economy, as represented by the gross domestic product accounts, has sources (personal consumption, gross investment, government purchases, and net exports) and uses (payments by businesses to households, business taxes, and funds held within businesses). And every sector has sources and uses of funds as well. For example, households receive payments from businesses and transfer payments from government and use the funds for personal consumption, taxes, and personal saving. And the flow of funds accounts for all of the sectors (households, businesses, governments, and foreign sector) must be consistent. This paragraph is a verbal description of the most important diagram that Professor Dawson handed out in class.
So what did Professor Dawson teach to every economics major? Economics 307, Money and Income, usually taught in the fall semester, was the required course in macroeconomics and was his course. No one else taught this course as he did, as far as I know. Indeed, when Professor Dawson was on leave in 1964–65, Professor Voertman taught the course as a standard course in macroeconomic theory using a textbook. I know because Jim Hamilton ’65 and I were Professor Voertmann’s teaching assistants. In short, economics majors at Grinnell were required to take a course in macroeconomics that was not the typical course offered elsewhere.
Now it is time to say it. Econ 307 earned Professor Dawson the nickname of “Black Jack.” New majors or prospective majors typically signed up for the course after just a one-semester introduction to economics. Most of us knew little or nothing about accounting in the beginning. The course was difficult. Just what did Econ 307 contain? I still have my class notes — my attempt to keep up with Professor Dawson.
The books assigned for the class were classics such as The Great Crash 1929 by J. K. Galbraith and a couple of other books, a textbook on money and economic activity by Lawrence Ritter, and A Guide to Keynes by Alvin Hansen. But readings also included the latest Federal Reserve Bulletin, the Survey of Current Business [U.S. Bureau of Economic Analysis], and a large volume titled U.S. Income and Output published by the U.S. Department of Commerce. I still have my copies of Galbraith, Hansen, and U.S. Income and Output.
Professor Dawson paid little attention to Galbraith and the other standard books. Indeed, he told us to read Hansen’s A Guide to Keynes over a weekend. The Keynesian system as presented in Keynes’ General Theory of Employment, Interest, and Money is complicated, and standard classes take weeks to cover it. Professor Dawson did lecture on Keynes briefly during the semester.
Econ 307 classes began with a basic introduction to classical and Keynesian macroeconomics, but by week three the class turned to accounting of national income and product. Homework was assigned based on data from U.S. Income and Output. This is followed by very detailed examinations of the gross domestic product accounts and of the sources and uses of funds for the various sectors of the economy. Then the course turned briefly to models of the macro economy, mainly the Keynesian model in which the economy is driven by aggregate demand (not supply). This was followed by material on the financial system, mainly the banking system (and how to do basic accounting for banks), leading to the mechanics of monetary policy. The course concluded with two topics: how to include the financial system in the flow-of-funds accounts, and how to use the flow of funds to create a Keynesian-type model.
Professor Dawson taught an elective course in economic fluctuations in the spring semester in which we read a detailed study of the 1957–58 recession and a book by Wesley Claire Mitchell on the 1907 panic and did our own empirical studies. We also purchased our own copy of Keynes, which I still have. Since we knew quite a lot about how the economic data are compiled, we were taught to pull apart economic aggregates to locate the sources of economic fluctuations. For example, it turned out that the 1957–58 recession was driven largely by changes in business inventories (a component of business investment). We used our knowledge of data sources to do papers on the causes of the Great Depression and other fluctuations.
I would wager that few economics majors of the day acquired such extensive training in empirical macroeconomics. And I would wager that no undergraduate program offers a course that consists mainly of flow-of-funds and national-income accounting methods.
John F. McDonald ’65 earned a doctorate in economics from Yale University in 1971 and taught economics and real estate for the next 42 years. He introduced basic accounting concepts in most of his courses but never did research on flow of funds.