Lives of the laureates. Eighteen Nobel economists

368 Pages·2004·1.24 MB·English

by  William Breit

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“No one can tell you how to win the Nobel Prize, but these autobiographical I
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essays bring you as close as you can get. If you are interested in what makes great
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economists tick, this book makes for fascinating reading.”
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Roger Backhouse, Department of Economics, University of Birmingham, United
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Kingdom
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“This is the fourth edition of one of my favorite books. It consists of lectures by Nobel T
laureates, each of whom was asked to describe the development of their H
principal contribution to economics and to do so in language accessible to a lay E
audience. One of these laureates, George Stigler, is famous for denying the
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relevance of biography to intellectual history. Every page of this book refutes his
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thesis. Reading it teaches us more about what makes economics a fascinating
subject than almost anything I have read in years.” U
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Mark Blaug, Professor of the History and Methodology of Economics, University of
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Amsterdam, The Netherlands
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“These rich essays provide a fascinating glimpse of the life experiences that helped T L I V E S O F T H E LIVES OF THE LAUREATES
James Tobin’s decision to enter economics in order to
spawn the most influential work in our profession.” E
understand the ruin caused by the Great Depression and
in Gary Becker’s recourse to economics to help him Robert Frank, Henrietta Johnson Louis Professor of Management and Professor of S EIGHTEEN NOBEL ECONOMISTS
understandinequality, race, and class; the influence of great Economics, Cornell University L A U R E A T E S
FOURTH EDITION
teachers—several cite the charismatic Milton Friedman; FOURTH
the right conditions for creativity and intellectual discovery— EDITION
EDITED BY WILLIAM BREIT AND BARRY T. HIRSCH
as found at the University of Chicago starting in the late #
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1940s and the Rand Corporation in the 1950s; and the role PRAISE FOR EARLIER EDITIONS 3
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of chance in their careers—the “lucky accidents” that set R EIGHTEEN NOBEL ECONOMISTS Lives of the Laureatesoffers readers an informal history of 8
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them on one path rather than another. Together, these “A fascinating survey of the richness of modern economic thought.” E modern economic thought as told through autobiographical 5
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individual accounts give what the editors call a “compre- T essays by eighteen winners of the Nobel Prize in Economics. 0
The Washington Post 3
hensive pictureof the diverseness, richness, and profundity A FOURTH EDITION The essays not only provide unique insights into major /1
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that is the hallmark of contemporary economic thought in “A delightful little book. One cannot put it down till one has finished it.” D economic ideas of our time but also shed light on the pro- /0
America.” cesses of intellectual discovery and creativity. This fourth 4
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International Journal of Development Banking edition adds five new Nobel laureates to its list of contributors:
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WILLIAM BREIT is E. M. Stevens Distinguished Gary S. Becker, recipient in 1992; John C. Harsanyi, co-
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Professor of Economics, Emeritus, and BARRY T. C recipient in 1994; Robert E. Lucas, Jr., recipient in 1995; Myron
HIRSCH is E. M. StevensDistinguished Professor of H S. Scholes, co-recipient in 1997; and James J. Heckman,
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Economics, both at Trinity University. co-recipient in 2000. This edition also includes a new afterword
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D by the editors, “Lessons from the Laureates.”
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T Lives of the Laureatescollects revised presentations from
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a continuing lecture series at Trinity University in San
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Antonio, for which Nobelists from American universities are
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invited to give an account of “My Evolution as an Economist.”
0-262-02562-0
THE MIT PRESS Some common motivating themes emerge: the importance
EDITED BY WILLIAM BREIT AND BARRY T. HIRSCH
Massachusetts Institute ofTechnology ,!7IA2G2-acfgcb!:t;K;k;K;k of real world events and a desire for relevance—as seen in
Cambridge, Massachusetts 02142
http://mitpress.mit.edu (continued on back flap)
Lives of the Laureates

Lives of the Laureates
Eighteen Nobel Economists
Fourth Edition
Edited by William Breit and Barry T. Hirsch
The MIT Press
Cambridge, Massachusetts
London, England
1986, 1990,1995,2004Massachusetts InstituteofTechnology
Fourthedition,2004
Allrightsreserved.Nopartofthisbookmaybereproducedinanyformbyany
electronicormechanicalmeans(includingphotocopying,recording,orinforma-
tionstorageandretrieval)withoutpermission inwritingfrom thepublisher.
This book was set in Sabon by Achorn Graphic Services, Inc., and was printed
andboundinthe UnitedStates ofAmerica.
Library ofCongressCataloging-in-Publication Data
Lives of the laureates: eighteen Nobel economists—4th ed./William Breit and
BarryT.Hirsch,editors.
p.cm.
Includes bibliographicalreferences.
ISBN0-262-02562-0(hc:alk.paper)
1. Economist—Biography. 2. Nobel Prizes—Biography. I. Title: Nobel
economists. II.Breit,William. III.Hirsch,BarryT.,1949–
HB76.L58 2004
330′.092′2—dc22
[B]
2003066580
10 9 8 7 6 5 4 3 2 1
Contents
Introduction to Fourth Edition vii
Acknowledgments xiii
W. Arthur Lewis 1
Lawrence R. Klein 17
Kenneth J. Arrow 35
Paul A. Samuelson 49
Milton Friedman 65
George J. Stigler 79
James Tobin 95
Franco Modigliani 115
James M. Buchanan 137
Robert M. Solow 153
William F. Sharpe 171
Ronald H. Coase 189
Douglass C. North 209
John C. Harsanyi 223
Myron S. Scholes 235
Gary S. Becker 251
Robert E. Lucas, Jr. 273
James J. Heckman 299
Lessons from the Laureates: An Afterword 335
Notes 349

Introduction to the Fourth Edition
Thisbookconsistsofautobiographicalaccountsofthecareersofeighteen
peoplewhohavethreequalitiesincommon.First,theyarealleconomists.
Second,eachofthemhasbeenawardedtheAlfredNobelMemorialPrize
inEconomicScience.Third, eachtraveledtoSanAntonio,Texas,tode-
liver his story in person at Trinity University.
TheNobelPrizeinEconomicswasnotcreatedbyAlfredNobelhimself.
In1901hiswillestablishedprizesinphysics,chemistry,medicineorphys-
iology,literature,and peace.Hewishedto rewardspecificachievements
rather than outstanding persons. In the case of the natural sciences, the
awardsweretobegivenfor“discoveries,”“inventions,”and“improve-
ments.”In1968theCentralBankofSweden,inconnectionwithitster-
centenarycelebration,initiatedanewaward,theCentralBankofSweden
Prize in Economic Science in Memory of Alfred Nobel. This prize was
tobegrantedinconformitywiththestandardsthatgovernedtheaward-
ingoftheoriginalNobelprizes.Accordingtotherulesestablishedbythe
CentralBankofSweden,the“Prizeshallbeawardedannuallytoaperson
who has carried out a work in economic science of the eminent signifi-
cance expressed in the will of Alfred Nobel.”1
The idea for a series of autobiographical lectures by Nobel laureates
in economics was that of the senior editor, who has spent a good part
of his academic career studying, teaching, and writing about the lives
and ideas of leading contemporary American economists.2 This abiding
interest in the relationship between biography and the creative process
led naturally to the thought of providing a forum in which outstanding
economists would express in their own words, in any way that seemed
viii IntroductiontotheFourthEdition
congenial,apersonalmemoirunderthegeneralrubric“MyEvolutionas
an Economist.” At the very least such a forum would preserve part of
therichrecordofaccomplishmentthathelpedtoshapethedirectionand
character of economic science in the post–World War II era. But the
largerpurposewastoprovideimportant sourcematerialforatheoryof
scientific discovery.
Little is known about the process by which original ideas are germi-
natedandeventuallyacceptedbyone’speers.Towhatextentisthesub-
stanceofscientificworkinsocialscienceareflectionofthelivesofthose
whoproducedit?Whatistheroleofinfluentialteachersandcolleagues?
To what extent are the problems that these thinkers addressed a result
oftheirownbackgroundsandtheeconomicandsocialproblemsoftheir
times? What forces were most responsible for leading them to their in-
sights? In short, what is it that enables an individual to discover some-
thingthatseizesandholdstheattentionofalargesegmentofascientific
community?To helpanswersuchquestions wasthemajor rationalebe-
hind the series.
But whom to invite? It was clear that budgetary and time constraints
would limit the number of invitations, and so the roster was restricted
in the following ways: (1) only economists who served on the faculties
ofAmericanuniversitiesatthetimetheNobelPrizewasawardedwould
be included; and (2) the roster would represent as many different facets
of economics in terms of types of contributions, specific areas, methods
ofanalysis,andideologicaldifferences aspossible.Thismeantthatonly
one member of a team of co-recipients of the prize would be invited. In
1983, when the program was being planned, there were twelve winners
of the Nobel Prize who met the first criterion, although one was too ill
to travel. A difficult winnowing process in accordance with the second
criterion narrowed the final list to eight. To our pleasant surprise, only
one invitee declined to participate.
Theautobiographicallecturesthatmadeupthefirsteditionofthisvol-
ume were presented at Trinity University during the 1984–85 academic
year.Thesuccessoftheprojectencouragedustoaskthen-PresidentRon-
aldCalgaardtoallowtheseriestocontinue.Aneconomisthimself,Presi-
dent Calgaard quickly agreed. Each October after the Nobel Prize in
EconomicswasawardedinStockholm,aninvitationwastobesenttoa
Introductiontothe FourthEdition ix
newlymintedAmericaneconomicslaureatetopresentanautobiographi-
cal lecture.
During the three years immediately following the end of the original
series,atrioofAmericanswashonoredwiththeAlfredNobelMemorial
PrizeinEconomicScience:FrancoModiglianiofMITin1985,JamesM.
Buchanan of George Mason University in 1986, and Robert M. Solow
of MIT in 1987. Each of them accepted the request to present a lecture
in which he would chart the route that led him to the highest accolade
ascholarcanreceive.Theselectureswereincludedinthesecondedition
of Lives of the Laureates, published in 1990.
Economists at American universities continued to receive the Nobel
Prize. The third edition, published in 1995, included Trinity University
lectures by William F. Sharpe (co-recipient in 1990), Ronald H. Coase
(1991),andDouglassC.North(co-recipientin1993).Thisfourthedition
of Lives of the Laureates includes five new Trinity University lectures:
John C. Harsanyi (co-recipient in 1994), Myron S. Scholes (co-recipient
in 1997), Gary S. Becker (1992), Robert E. Lucas (1995), and James J.
Heckman (co-recipient in 2000).
Formostofthelaureates,theassignmenthasbeenadifficultone.There
is an understandable reluctance to give a public talk about one’s own
intellectual contributions. As one of the invitees put it, “I do not know
thatIcouldkeepitbetweentheScyllaoffalsemodestyandtheCharybdis
of boastfulness, and I am afraid I would find the whole business rather
stressful.” Moreover, most of their work in its professional formulation
was technical in nature, closed off to those not trained as economists.
Yet each was being asked to make his contribution accessible to a lay
audienceatapubliclectureopentothewholecommunity.Thisprovided
greater difficulties for some than for others. Samuelson’s and Arrow’s
scientific contributions are largely in the domain of mathematical eco-
nomics.KleinandHeckman,amongothers,makeheavyuseofstatistical
techniques and econometrics. All the Nobel economists express them-
selves in the technical vocabulary of their discipline.
And yet in each instance, as the reader of these pages will discover,
each speaker somehow managed to convey the nature and significance
of his contributions. (The essays in this book are in the order in which
they were presented in the Trinity lecture series.) It is hard to imagine a