UNIVERSITY OF CHICAGO
At Chicago I had, besides great teachers, the assistance of study groups formed with other students. Memorable names are Donald Dawson from Canada, Mahar Mangahas from the Philippines, and Lucio G. Reca from the Argentine. Above all, the Economics Department was efficient and productive. Times to graduation were remarkably short. I was registered for a total of only 3½ years, and even that could have seemed too long. My graduate student advisor at the University of Chicago was H. Gregg Lewis. I now regret that I did not take one of his courses.
Coming from the Argentine I had no difficulty with Milton Friedman's course on Money. Morris Teubal gasped at my B+ in that course, which was considered tops, but "inflation as a monetary phenomenon" was pretty self-evident to any Argentine, whereas other students with a Keynesian background found this subject more difficult.
The Argentine background also provided term-paper topics. One was for George S. Tolley's Agricultural Economics (Economics 353), Spring 1967. That paper showed how the extension of railways into remote areas of the Argentine North-West brought about a change in the composition of farm output and an associated two-way migration. The hypothesis was that emigrants had skills made obsolete by the opening of trade facilitated by new railways, while the immigrants brought skills useful in new occupations. Professor Tolley suggested that this study be continued. I regret that I did not follow his advice.
The study of the demand for railway transport begun in the Argentine was continued in a term paper for George J. Stigler's Industrial Organization course. That paper was later published in Desarrollo Económico with a summary in the Review of the River Plate. The conclusion was that there was ample room to raise railway rates, eliminate the railway deficit, and thus eliminate most of the government deficit blamed for chronic inflation.
In the Fall of 1970 I wrote a paper on inputs and outputs of Argentine railways for Larry Sjaastad's Economic Development course (Economics 396). In that paper a model of production and consumption of two outputs, passenger and freight services, was calibrated and solved with the conclusion that, instead of disguised unemployment, there was quite the opposite. A technical novelty in that paper --- first introduced by Powell and Gruen in 1968 --- was the use of a constant elasticity of transformation curve to disaggregate railway output into two components. The historical introduction to the topic made a revision of history soon confirmed by Pedro Skupch*.
For a dissertation I turned to theories of railway rates. The extant ones seemed unsatisfactory because they did not explain why one found the same enduring pattern of rates in different countries. The observed pattern had been discovered by Charles Ellet and Wilhelm Launhardt without, however, noticing that it was close to optimal. The theory was expressed as one of optimal taxation and applied to industrial organization, economic development and history with some history of railway rates in the U.S., England, and elsewhere. A committee of three professors was required for the dissertation work. I was lucky to have had the assistance of an unusually large committee of four: Arnold C. Harberger, the committee and department Chairman, and public finance specialist; Donald McCloskey, the economic historian; Larry Sjaastad, the economic development specialist; and Lester Telser, the industrial organization specialist. Telser wanted to be the fourth man in. One thing that interested him was that railway rates are not determined only by competition but also by cooperation among firms involved in through traffic, and that competition turns them back into their primitive form. He gave me a boost by remarking in the hallway that "Sylvester has something really important" while I was in Harberger's office trying to interest the chairman in my topic. Harberger's interest could have been in the optimum tax aspect of railway rates. McCloskey was taken by the derivation of optimum rates from a maximization of Ricardian rent.
The thesis was, among other things, that competitive railway rates are sub-optimal. That was written at a time when deregulation was a public policy objective and so my thesis went against the trend, a trend influenced by Chicago economists. Telser had no problem with that and the whole committee was most supportive.
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