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of underdeveloped countries, for "pressures" and "inducements" are es-

sentially social-psychological concepts. But this reviewer is troubled by a
very basic consideration-in fact the point of departure for the study:
Hirschman's characterization of the doctrine of balanced growth. One
gets the feeling that the author has set up a straw man which he then
proceeds to knock over rather easily. He asserts, for example, that balance
is essentially a static concept. This is almost certainly not so. The diffi-
culty is that one cannot find a more or less complete exposition of the
balanced growth thesis. Hirschman makes some point of arguing the
case for "efficient sequences" over time. But surely none of the authors
he cites as favoring balanced growth would deny this. They are as much
concerned with priorities and timing in development planning as with
balance. Hirschman's critique should be a challenge to produce a sys-
tematic exposition of balanced growth theory.
There is a second fairly important point. Right at the end of the book
Hirschman expresses his uneasiness at "the importance and creative
virtue" he has bestowed on inducement mechanisms. In particular, he
raises the question of whether the responses may be destructive rather
than constructive in character. This is a rather damaging admission, one
a reader is likely to take as an invitation to re-examine the entire thesis!
A few minor criticisms may be noted. There are many categorical state-
ments neither theoretically defended nor empirically illustrated. There
is not a single reference to Colombia until halfway through the book, a
result, perhaps, of the desire to present a general theory, but nonetheless
disconcerting in view of the author's experience there. The title may be
somewhat misleading in that a reader may regard the study as a hand-
book for development planners; except for a few isolated statements
(e.g., p. 152) this is not so, for the book is mainly a set of hypotheses about
the development process.
BERNARD GOODMAN
Wayne State University

Microeconomic Theory: A Mathematical Approach, James M. Henderson

and Richard E. Quandt. New York: McGraw-HilI Book Co., Inc., 1958.
Pp. xii, 291. $7.50.
Mathematical economics has not yet found a secure niche in the curricu-
lum of agricultural economics, particularly the undergraduate curriculum.
Of all the recent volumes on the subject to appear, Henderson and
Quandt's will, I predict, best satisfy the growing needs of Departments of
Economics and Argicultural Economics for undergraduate training in
mathematical economics.
By restricting attention to microeconomic theory, Henderson and
Quandt leave out such interesting topics as models of economic growth

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and development, business cycle models and the like. But this is not neces-
sarily an evil, for limits must be set somewhere and microeconomics is
not only a valuable subject in itself but a necessary prolegomenon to the
study of macroeconomics.
The first two chapters of Microeconomics are devoted to the pure
theories of producer and consumer behavior under conditions of perfect
competition as expounded by Allen, Hicks and Samuelson in the 'thirties
and 'forties. Ordinal utility, indifference curves and surfaces, income and
substitution effects, the theory of revealed preference, and the possibility
of utility measurement under conditions of uncertainty are clearly dis-
cussed with the aid of numerical examples and diagrams. The notion of
a production function is introduced and cost minimization and profit maxi-
mization are treated as a mathematical problem in finding the extreme
points of a function of several variables subject to a single constraint. One
of the most useful aspects of these chapters is the explicit derivation of
demand and cost functions from the first-order conditions for maximum
utility and minimum cost, respectively. Euler's theorem is treated a bit
superficially and the authors seem unaware that production functions
homogeneous of degree other than one have been widely used in empirical
work. The chapter on the theory of the firm closes with a brief section
on linear programming showing its relationship to the more general topics
of production functions and profit maximization.
The succeeding two chapters deal with the equilibrium of an isolated
market and a system of multiple, interconnected markets. After deriving
aggregate demand and supply functions and discussing external economies
and diseconomies, the authors treat static equilibrium, qualitative criteria
for stability, and criteria based on explicit dynamic models of adjustment
over time, such as the price adjustment model and the cobweb model.
The theory of static equilibrium in a single market is applied to the prob-
lem of spatially separated firms (an old one in the economic analysis of
the production of dairy products) and to the question of the effects of
different types of taxation. The discussion of multimarket stability in the
chapter on the theory of general equilibrium of a system of markets is
the best elementary treatment I have seen. This chapter closes with a short
discussion of input-output analysis which the authors rightly treat as a
specialization and simplification of general equilibrium theory.
In the derivation of the aggregate demand function for a single com-
modity, Henderson and Quandt hold money income (not real income)
constant. Their flat statement (pages 88 and 95) that the resulting demand
function is monotonically decreasing is false as a general statement. They
have in effect neglected their earlier discussion of the income and sub-

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stitution effects of a price change.' We also find in the chapter on general

equilibrium the misleading notion that the second-order conditions for
maximum utility must be satisfied in order to derive the excess demand
functions from the first-order conditions (pages 130 and 136). This is in
no sense true; what the second-order conditions do in fact is to tell us
something about the properties of the solution once we have it, not permit
us to get it in the first place.
Less an error than a poor choice is Henderson and Quandt's treatment of
external economies and diseconomies by introducing the quantities pro-
duced by other firms in an industry into the cost function of a single,
representative, firm. This approach obscures the fact that the economies
or diseconomies occur because the supply functions for factors are not
perfectly elastic to the industry-though they may be to the individual
firm. A more unified and transparent approach can be obtained by treat-
ing the industry supply function as a partially reduced form. This ap-
proach has the advantage of yielding empirically testable theorems which
Henderson and Quandt's does not."
In many ways the economic theory of monopolistic competition is less
amenable to mathematical treatment than the theory of perfect competi-
tion. Nonetheless, the authors' heroic attempt (Chapter 6) to place the
theory in a mathematical framework, though somewhat unsatisfying,
makes interesting reading and clarifies a number of important points. Es-
pecially useful is their discussion of duopoly and oligopoly models in
which they place the theory of games in proper perspective, i.e., as one of
several possible and meaningful theories.
The chapter on modern welfare economics (Chapter 7) is especially
notable for its clear presentation and proof that, in the absence of external
economies or diseconomies, perfect competition leads to a welfare opti-
mum in a Pareto sense.
In the final chapter, multi-period consumption and production are
treated in a purely formal manner by the simple expedient of the addition
of a time dimension. Though this approach permits the discussion of such
topics as time preference and interest rate determination and is formally
correct, it is not especially enlightening. The essence of dynamic eco-

1 This neglect is reflected in Henderson and Quandt's use of the term «gross sub-

stitute" page (127) without adequate definition. If x is a gross substitute for y, the
cross-elasticities of the excess demand functions are positive; whereas, in order that
x be a mere substitute for y, we need only require that the substitution effects (real
income held constant) be positive.
2 In order to judge for himself, the reader may wish to compare Henderson and

Quandt's discussion of external economies and diseconomies with my own in The

Dynamics of Supply (Baltimore: The Johns Hopkins Press, 1958), pp. 35-44.

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nomies, even on the micro level, lies not in reducing its problems to the
static case through the addition of temporal subscripts, but in examining
the "structure" of optimal solutions."
As a reasonably elementary exposition of economic principles in mathe-
matical form, Microeconomics has no equal. Not only does it cover the
ground well but it puts such esoteric topics as linear programming, input-
output analysis, and the theory of games in their proper places. A brief
but excellent review of the relevant mathematics is contained in an ap-
pendix which, as the authors point out, is not adequate for the reader who
has never been exposed to calculus but is designed primarily as an aid to
memory. Such honesty is as valuable as it is refreshing.
Perhaps the major short-coming of Microeconomics is the fact that the
highly important and useful notion of comparative statics is not once
explicitly mentioned. As Samuelson pointed out over a decade ago, com-
parative statics is the essence of most economic theory and the most
fruitful applications of mathematics in economics have been to problems
in comparative statics.' Emphasis on what comparative statics is and
how it leads to many of the empirically meaningful propositions of eco-
nomic theory would have enhanced the usefulness of this already valu-
able book.
For undergraduates who have had courses in elementary and inter-
mediate calculus, Microeconomics will be a good text for a one-semester
course in economic theory. For students, however, who have had sub-
stantial training in economic theory but little or no training in mathe-
matics, this book must be supplemented. Since mathematics, as taught
in mathematics departments with emphasis on physical applications is
likely to be somewhat forbidding to the economics or agricultural eco-
nomics major, the last mentioned group may well be large. With such a
group one might plan a two-semester course using a standard calculus
text to accompany Henderson and Quandt. The dearth of exercises in
Microeconomics detracts to some extent from its utility in this respect,
but its broad coverage and clarity of exposition more than compensate.
MARC NERLOVE
University of Minnesota
3 The best statement of this position I know of may be found in Richard Bellman,

Dynamic Programming (Princeton: Princeton University Press, 1957), especially pp.

vii-xi. Bellman's book is a comprehensive application of the principle of the unimpor-
tance of mere dimension to the problems of decision making over time.
4 Paul A. Samuelson, Foundations of Economic Analysis (Cambridge: Harvard

University Press, 1947).

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