Nobel Laureates In Economics

"The dominant social thought shapes the institutionalized order of society... and the malfunctioning of established institutions in turn alters social thought."

"Although it is obvious that people acquire useful skills and knowledge, it is not obvious that these skills and knowledge are a form of capital, that this capital is in substantial part a product of deliberate investment, that it has grown in Western societies at a much faster rate than conventional (nonhuman) capital, and that this growth may well be the most distinctive feature of the economic system."

"He's a transitional figure who bridged the gap between the old-style study of institutions and modern economics [that relies on theory and statistical analysis]"

"Cultural and behavioral scholars are uneasy about this use of their studies. Fortunately, the intellectual tide has begun to turn. Increasing numbers of economists have come to realize that standard economic theory is just as applicable to the scarcity problems that confront low income countries as to the corresponding problems of high income countries."

"Schultz’s domestic agricultural policy views, especially early on, were highly interventionist. In his work on domestic agricultural policy during WWII, Schultz was quite critical of the decentralized price system and envisaged a large role for government in U.S. agriculture. Moreover, government intervention continued to play a key role in his approach to domestic farm policy following the war. But Schultz’s views shifted notably in the classical liberal direction in his economic development work, which emphasized distortions by government programs affecting farmers in low-income countries."

"The advance in knowledge and useful new factors based on such knowledge are all too frequently put aside as if they were not produced means of production but instead simply happened to occur over time. This view is as a rule implicit in the notion of technological change."

"Activities that improve human capabilities [can be divided into] five major categories: (1) health facilities and services, broadly conceived to include all expenditures that affect the life expectancy, strength and stamina, and the vigor and vitality of a people; (2) On-the job training, including old-style apprenticeship organized by firms; (3) formally organized education at elementary, secondary and higher levels; (4) study programs for adults that are not organized by firms, including extension programs in agriculture; (5) Migration of individuals and families to adjust to changing job opportunities."

"Most people in the world are poor. If we knew the economy of being poor, we would know much of the economics that really matter. Most of the world's poor people earn their living in agriculture. If we knew the economics of agriculture, we would know much of the economic of being poor."

"Investment in human capital accounts for most of the impressive rise in the real earnings per worker."

"The adverse economic events following the First World War turned me toward economics... I learned during my youth how hard it was for farm families to stay solvent. Farm product prices fell abruptly by more than half. Banks went bankrupt and many farmers suffered foreclosures. Was politics or economics to blame? I opted for economics."

"Economists have long known that people are an important part of the wealth of nations."

"This branch of economics has suffered from several intellectual mistakes. The major mistake has been the presumption that standard economic theory is inadequate for understanding low income countries and that a separate economic theory is needed. Models developed for this purpose were widely acclaimed until it became evident that they were at best intellectual curiosities."

"Human beings are incontestably capital from an abstract and mathematical point of view."

"[Schultz specifically refers to the manner in which inputs are used when he states that one implication of his] efficient but poor hypothesis... [is] that the combination of crops grown, the number of times and depth of cultivation, the time of planting, watering, and harvesting, the combination of hand tools, ditches to carry water to the fields, draft animals and simple equipment -- are all made with a fine regard for marginal costs."

"There are comparatively few significant inefficiencies in the allocation of the factors of production in traditional agriculture."

"The mere thought of investment in human beings is offensive to some among us. Our values and beliefs inhibit us from looking upon human beings as capital goods, except in slavery, and this we abhor... To treat human beings as wealth that can be augmented by investment runs counter to deeply held values. It seems to reduce man once again to a mere material component, something akin to property. And for man to look upon himself as a capital good, even if it did not impair his freedom, may seem to debase him... (But) by investing in themselves, people can enlarge the range of choice available to them. It is one way free men can enhance their welfare."

"Much of what we call consumption constitutes investment in human capital. Direct expenditures on education, health, and internal migration to take advantage of better job opportunities are clear examples. Earnings foregone by mature students attending school and by workers acquiring on the-job training are equally clear examples."

"To me it is a riddle that , who for most of his life was a fanatical representative of extreme opinions in the social debate, could present a completely different personality in the scholarly context. During the period when I knew him he was the diffident seeker after scientific truth."

"No authors propounded the ideas of economic liberalism in Sweden during the 1920s as vigorously as did Cassel and Heckscher, and in addition they certainly helped in no mean degree to give actual policy a liberal stamp during that decade."

"Nutrition seems to mock the achievements of economic development,"

"The origin of this research was an attempt to extend Cassel’s system of equations of price determination in one market to that of several trading countries. Although the point of departure is totally different, the results of that attempt (presented in chapter III) exhibit important similarities to Heckscher’s treatment in ‘‘The Effect of Foreign Trade on the Distribution of Income,’’ published one year earlier in Ekonomisk Tidskrift, 1920. There is no doubt that the author was unconsciously influenced by Heckscher’s paper both at this and at later stages of the work. The influence of this pathbreaking paper, both conscious and unconscious, has surely been particularly decisive in the development of the material in chapters I–III."

"It is difficult to distinguish another scholar in the history of the twentieth century who contributed as much as him to the fusion of mathematics and economics, the sciences with the antipodal standards of scientific thought. pointed out that he can list only John von Neumann and alongside Leonid Kantorovich among those few of his contemporaries who synthesized the mathematical and humanitarian cultures."

"I started [in 1921] to write on the foundations of an approach to international trade theory that was to some extent new and for which I received the inspiration during a stroll on [the popular promenade] Unter den Linden in Berlin in 1920."

"I am presently at work on a dissertation dealing with the theory of international trade and foreign exchange rates. In dealing with this, studies of the intervention of recent years in the area of trade and exchange rates of different countries is of the greatest importance. I therefore hope to be able to begin a six month study tour to Switzerland, France and England at the end of May this year. After having collected the necessary material I intend — if the economic side can be arranged — during a stay of 6–12 months in England (probably Cambridge) or possibly the United States (in that case probably Harvard University) — to work out the above mentioned dissertation as a specimen for the doctoral degree in philosophy and pursue studies in general. I have not yet any detailed study plan. That should appropriately be set up after the arrival."

"The economic history of the last half century offers two cases of serious international depressions in countries with an essential orientation towards a market economy: In the first half of the 1930ies and in the middle of the 1970ies. With some simplification one can say that in the former case recovery started after a few years without the aid of much conscious expansionist policy."

"The productive factors enter into the production of different commodities in very different proportions."

"In 1965, I was invited to a game theory workshop at Jerusalem which lasted for three weeks and had only 17 participants, but among them all the important researchers in game theory, with few exceptions. Game theory was still a small field. We had heated discussions about Harsanyi's new theory of games with incomplete information. This was the beginning of my long cooperation with John C. Harsanyi."

"When James Tobin, a Nobel Prize winner in economics, was on the US Council of Economic Advisors some years ago, I asked him if he used complicated macroeconometric models in his work for the Council. He responded that he didn’t because he and others could not understand the workings and output of such models and thus did not have much confidence in them. When I asked what he actually did use to analyse problems, he remarked that he used a simple multiplier–accelerator model on the back of an envelope and even though he didn’t have too much confidence in it, he said at least he understood what he was doing."

"The other economic camp made for quite a different story. James Tobin (an east-coast Ivy League policy advisor) had already won the Nobel Prize when I spoke with him. A true gentleman, he spoke softly about his life and his Keynesian approach to economics. With due respect, I worried after a time that the interview sounded so automatic, so “done” before, that it would add little to the book. Then I brought up Lucas’s criticism. Tobin began to speak much louder and faster (on transcribing the tape I actually had to adjust the volume). He remained reasonable and gentlemanly but his voice betrayed his indignation toward Lucas and his camp, about how they were misleading sensible Keynesian economic thought."

"Back in 1982, a brief but brusque exchange … took place between James Tobin … and Robert Nozick … Tobin exclaimed at Nozick: ‘There is nothing more dangerous than a philosopher who’s learned a little bit of economics.’ To which Nozick immediately responded: ‘Unless it’s an economist who hasn’t learned any philosophy.’"

"When I tried to sort out the pernicious disagreements between new classical and new Keynesian economists, I conducted a series of conversations with the protagonists (Klamer 1983). The personal differences were revealing. The viva cious Robert Solow (with a taste for the quick quip), the serious Robert Lucas (never less than self-composed), the chatty Franco Modigliani (not shy of self promotion), and the unassuming James Tobin (wanting an interview at least as long as Lucas’s) quickly taught me how trenchant the rhetorical differences were."

"The important Keynesian insight is that a high propensity to save will not generate high national saving unless it goes into investment, into accumulation of real capital. The "paradox of thrift" makes this point in an extreme way. In certain circumstances, when there is no demand for investment around, the economy can be no better off, or even worse off, if a thrifty public cuts consumption."

"The central message is still that, as Keynes argued, fiscal policy is the answer to liquidity traps, financial or political. The arguments against fiscal policy in Japan, so far as I understand them are intellectually fallacious; they would receive failing grades in an undergraduate macro exam."

"I suspect that many of the world's financial lords are somewhat embarrassed to tell Japan repeatedly at G-7 meetings and elsewhere to adopt a Keynesian solution. Within Europe, central banks and governments think Keynesian theories and policies are absolutely wrong. Despite the remarkable success of pragmatic policies in the United States, true believers in the Invisible Hand reject Keynesian diagnoses and prescriptions. Many observers of Japan have found it intellectually comforting to blame the slump on the plight of the banks, flooded with bad loans dated from the land and equity bubbles and their collapse. They hope that a governmentmanaged and -subsidized rectification of bank balance sheets will trigger overall economic recovery. I think this is a false hope. The bank problem is only a small part of the macroeconomic disaster. It has to be resolved, of course, but resolution that is no substitute for the needed fiscal and monetary stimuli."

"Tobin asked me to come and talk at Yale in 1977, and I was there for a couple of days. He was really nice in a personal way. He made it clear that he respected my work as a professional, so I didn't feel my professional standing was at risk. When I got there he gave me a nice introduction. It wasn't a question of whether I was a competent economist or not; there was nothing personal involved. These guys, however, had lots of disagreements and criticisms. I'd been thinking along these lines for many years, so I thought I did a pretty good job of taking care of the questions, but I don't know how it looked from the other side. It left me with a feeling of being way ahead of the game. It was an exciting feeling."

"Ball, Mankiw, Romer and others style themselves as New Keynesians. Their program is to develop improved microeconomic foundations for imperfectly flexible prices. In the process, they hope to illuminate the paradox that individually rational or near-rational behavior can result in significant collective market failures. These are certainly laudable objectives. In the end, I suspect, the program will not change the essential substance of Keynesian macroeconomics. But it will make Keynes more palatable to theorists."

"I shall argue that Keynesian macroeconomics neither asserts nor requires nominal wage and/or price rigidity. It does assert and require that markets not be instantaneously and continuously cleared by prices."

"Keynes did not challenge the efficacy of price adjustment mechanisms in clearing particular markets in the Marshallian partial equilibrium theory on which he had been reared. He did challenge the mindless application of those mechanisms to economy-wide markets. Founding what came to be known as macroeconomics, he was modeling a whole economy as a closed system. He knew he could not use the Marshallian assumption that the clearing of one market could be safely described on the assumption that the rest of the economy was unaffected."

"With the publication of J. M. Keynes’s General Theory in 1936 and the mathematical formalizations of his theory by J. R. Hicks (1937) and others, the language of macro-economic theory became systems of simultaneous equations. These are general equilibrium systems of interdependence in the sense that the relationships describe an entire national economy, not just a particular industry or sector. The systems are usually not completely closed; they depend on exogenous parameters including instruments controlled by policy-makers. Seeking definite relationships of economic outcomes to policies and other exogenous variables, qualitative and quantitative, these models sacrifice detail and generality, limiting the number of variables and equations by aggregations over agents, commodities, assets, and time."

"The historic terrain of macro-economic theory is the explanation of the levels and fluctuations of overall economic activity. Macro-economists have been especially interested in the effects of alternative fiscal, financial, and monetary policies."

"I had, to be sure, been drawn into economics when the General Theory was an exciting revelation for students hungry for explanation and remedy of the Great Depression. At the same time, I was uncomfortable with several aspects of Keynes’ theory, and I sought to improve what would now be called the microfoundations of his macroeconomic relations."

"I probably always say the same things; I hope people don't remember. One of the same things I say is that Japanese macroeconomic policy is perversely and inexcusably incompetent, and I surely would say that again. It's true-as Paul Krugman, a fellow participant in this program, has been saying and as I have said here in previous years-that Japan has reinvented the Keynesian liquidity trap. It can now reappear in classrooms where it had been long ignored or at best barely mentioned as a curiosum of the Great Depression."

"I want to tell you a story about Tobin. There was a conference at the Minnesota Fed in honor of Walter Heller, and all the old people, the heroes of my youth in economics, were there. It was a really nice occasion. Gardner Ackley was giving a talk; it was very negative about the direction of modern macro. saying that there was too much mathematics and that too many assumptions were unrealistic. He also was very critical of rational expectations and of all sorts of modern theorizing. It occurred after two days of really negative things being said about rational expectations. Nobody on our side said anything, in deference to Heller, I suppose. Then Tobin stood up and said that listening to Ackley's talk reminded him of going to the AEA meetings, after the war in 1946, at which the most-prominent old members of the profession were criticizing the young Keynesians for being unrealistic and too mathematical. Tobin said "We've had our chance, we haven't solved all the problems. There are a lot of problems left, there are unsatisfactory things about our models, and it's time to give these guys a chance." It was very gracious."

"Keynesian economics at a minimum provides a license for welfare state measures and other government efforts towards redistribution of wealth. The license is the faith that macroeconomic stabilization and prosperity are compatible with a wide range of social policies, that modern capitalism and democracy are robust enough to prosper and progress while being humane and equitable. That faith conflicts with the visions of extreme Right and Left, which agree that extremes of wealth and poverty, of security and insecurity, are indispensable to the functioning of capitalism. Keynesian policies helped to confound those dismal prophecies in the past; I think they will do so again."

"The rate of investment – the speed at which investors wish to increase the capital stock – should be related, if to anything, to q, the value of capital relative to its replacement cost."

"Keynesian economics was, in the context of those times, essentially conservative. The message was that capitalism was not doomed; its major failing, chronic large-scale unemployment, could be remedied fairly easily, by intelligent use of the fiscal and monetary instruments governments already had at their disposal. This message was not welcome news to Marxists committed to the view that the system was no longer structurally capable of prosperity and progress."

"Each sector is... constrained by its own net worth... The individual economic unit can neither change the legacy of the past nor... affect by... portfolio choices... market valuations of his assets."

"[C]onsider an economy with only one private sector and only two assets: money issued by the government to finance its budget deficits, and homogeneous physical capital. Let p be the price of currently produced... consumer goods and capital goods. ...[A]llow the value of existing capital goods ...to diverge from their current reproduction cost—let qp be the market price of existing capital goods."

"According to [the general equilibrium approach to monetary theory], the principal way in which financial policies and events affect aggregate demand is by changing the valuations of physical assets relative to their replacement costs."

"I studied economics and made it my career for two reasons. The subject was and is intellectually fascinating and challenging, particularly to someone with taste and talent for theoretical reasoning and quantitative analysis. At the same time it offered the hope, as it still does, that improved understanding could better the lot of mankind."