Nobel Laureates In Economics

"My notion of a fruitful economic science would be that it can help us explain and understand the course of actual economic history. A scholar who seriously addresses commentary on contemporary monthly and yearly events is, in this view, practicing the study of history—history in its most contemporary time phasing."

"Often I’ve stated how I hate to be wrong. That has aborted many a tempting error, but not all of them. But I hate much more to stay wrong. Early on, I’ve learned to check back on earlier proclamations. One can learn much from one’s own errors and precious little from one’s triumphs. By September of 1945, it was becoming obvious that oversaving was not going to cause a deep and lasting post-war recession. So then and there, I cut my losses on that bad earlier estimate."

"I would guess that most MIT Ph.D.’s since 1980 might deem themselves not to be “Keynesians.” But they, and modern economists everywhere, do use models like those of Samuelson, Modigliani, Solow, and Tobin. Professor Martin Feldstein, my Harvard neighbor, complained at the 350th Anniversary of Harvard that Keynesians had tried to poison his sophomore mind against saving. Tobin and I on the same panel took this amiss, since both of us since 1955 had been favoring a “neoclassical synthesis,” in which full employment with an austere fiscal budget would add to capital formation in preparation for a coming demographic turnaround."

"A later writer, such as Leijonhufvud, I knew to have it wrong, when he later argued the merits of Keynes’s subtle intuitions and downplayed the various (identical!) mathematical versions of The General Theory. The so-called 1937 Hicks or later Hicks–Hansen IS–LM diagram will do as an example for the debate."

"The proof of the pudding is in the eating. There was a widespread myth of the 1970s, a myth along Tom Kuhn’s (1962) Structure of Scientific Revolutions lines. The Keynesianism, which worked so well in Camelot and brought forth a long epoch of price-level stability with good Q growth and nearly full employment, gave way to a new and quite different macro view after 1966. A new paradigm, monistic monetarism, so the tale narrates, gave a better fit. And therefore King Keynes lost self esteem and public esteem. The King is dead. Long live King Milton! Contemplate the true facts. Examine 10 prominent best forecasting models 1950 to 1980: Wharton, Townsend–Greenspan, Michigan Model, St. Louis Reserve Bank, Citibank Economic Department under Walter Wriston’s choice of Lief Olson, et cetera. … M did matter as for almost everyone. But never did M alone matter systemically, as post-1950 Friedman monetarism professed."

"However, one last caution. What has happened in Japan for 12 long years warns that an affluent society like America’s might not be immune to a self de-energization of its optimism and free spending. Do not bet on worst case scenarios. But do not ignore them completely either."

"Modigliani's theory was a powerful searchlight on what was happening... It is the best explanation of what has actually been happening in the great swing of American life since the 1950's."

"You must realize how bad, temporarily, capitalism had become in public opinion. I remember seeing a poll of small town attitudes in local newspapers. They asked questions like "should we nationalize the banking system?" More than half of those editors, about the most conservative group in the world, were in favor of nationalizing the banking system. Father Coughlin, the Detroit demagogue who turned anti-Semitic, complained about "fountain pen money, the perpetrator of great wealth, the money changers in the temple." It was kind of a crude expansionism. Huey Long and "every man a millionaire," or whatever it was. So I would say that Keynes thought of himself as saving the system. And lots of the New Dealers ― original New Dealers, Veblenites, technocrats ― did not like Keynesian economics. They said "that is using palliatives, it's not getting rid of the wicked capitalistic ethos." Keynes told Roosevelt when he came here in 1933 that he needed to spend so much more per month in deficit spending. He gave very precise figures with great self-confidence."

"Economics never was a dismal science. It should be a realistic science."

"An economy’s inventory of produced inputs is both complex and simple. Maintaining and improving upon congeries of productive inputs is an indispensable part of economic progress. All such time-phased processes will not evolve automatically: cave-people rose and fell in material well-being; eons passed without much cumulative change; great diversity of performance characterized geographically separated societies. Attempts to generalize simple family’s or related-families’ habit formation to large-group polities—à la utopian experimental cults or in the Lenin-Stalin and Mao pattern have not hitherto succeeded in organizing production with approximate Pareto-Optimality efficiency features. Gradual evolution toward near laissez-faire market mechanism responding to individual’s self-interest, history suggests and advanced economic theory second guesses, will incur areas of market failure and will generate and perpetuate considerable degrees of economic and political inequalities. Just as there is no asymptotic communist utopia, neither is an asymptotic laissez-faire utopia."

"Years ago, I wrote aphoristically: “Inside a classical economist, you discern a neoclassical economist trying to get in.” My archetypical tableaux flesh out this heuristic perception. And, in my considered opinion, these explications cast cogent doubts on that view popular in the 1950s and early 1960s that “going back to the classics” somehow offered a different and better alternative to the post-neoclassical mainstream paradigms."

"Years ago Arthur Koestler edited The God That Failed, whose chapters report the disillusionment of one true believer after another in the promise of Marxian prophecies under the impact of contemporary actuality. It would be boring sawing of saw dust to elaborate on that god that failed. More relevant to the present moment of global economic chaos is an antipodal-polar archetype. I am speaking about the god of pure libertarian capitalism."

"Most of mainstream economics is not "big-picture economics." Our journals and textbooks are full of the grimy details about inventory cycles or the deadweight losses incident to taxes and regulation. Besides, most big pictures are wrong."

"The pre-1800 pattern of commercial panics had to be a case of NON MACRO-EFFICIENCY of markets. We’ve come a long way, baby, in two hundred years toward micro efficiency of markets: Black-Scholes option pricing, indexing of portfolio diversification, and so forth. But there is no persuasive evidence, either from economic history or avant garde theorizing, that MACRO MARKET INEFFICIENCY is trending toward extinction: The future can well witness the oldest business cycle mechanism, the South Sea Bubble, and that kind of thing. We have no theory of the putative duration of a bubble. It can always go as long again as it has already gone. You cannot make money on correcting macro inefficiencies in the price level of the stock market."

"I tell no secret when I repeat that fame and reputation are much a matter of luck and chance."

"What sex is to the biology classroom, stocks and investment riskiness is to the sophomore economics lecture hall."

"The vogue of vulgar and vague Coaseism, one hypothesizes, is strongest among libertarians and other devotees of laissez-faire who believe to find in it ammunition against regulation and voters' activism. Whether this hypothesis is close to or wide off the mark is of no importance. What does matter is how much deadweight-loss obtains in real life."

"The Coase-Samuelson generation were brought up witnessing the great debate between von Mises and Lerner-Lange concerning the feasibility of socialist rational pricing to produce Utopia. (That was a reprise of earlier Pareto-Barone-Wieser-Taylor debates.) Many contemporaries believed Lerner-Lange triumphed in the debate. I came to believe that Friedrich Hayek was the true victor. Under static conditions where all is known or knowable (to whom?), whatever optimal states laissez-faire might occasion, so could some computer solution or some algorithms of play the game of competition also achieve. But in the real world all is changing, even in the time it takes me to write this sentence. Hayek has been persuasive — not in Whig ideology or in declaring that moderate reform of laissez-faire leads inevitably down the road to totalitarian socialism but — in arguing that experience suggests that only with heavy dependence on market pricing mechanisms can there be realized quasi-efficient and quasi-progressive organization of societies involving humans as Darwinian history has bequeathed them. If a reader does not find the Hayek dynamic arguments persuasive, I will not here argue the matter further."

"Economics, even classical economics, is not a finished business. There are still issues relevant to the present debate that have not been definitively explored."

"To the student of economic history the preponderant truth is that technical change has since 1750 tended to raise market clearing real wage rates. This property of the Age After Newton is hard to understand and explicate if you believe that sterile congealed-dead-labor is embodied in machines almost infinitely substitutable for live labor; equally confusing to you will be the truth that inventions which are labor saving may at the same time be wage raising! The doctrines of equated rates of surplus value moved Marxians backward from square one in the understanding of the laws of motion of the capitalistic system or the system of the Mixed Economy."

"Error is a virus that tends to spread. As I have already hinted, the categories of circulating capital and of the wage fund tended and still tend to get confounded together."

"Social Darwinism is a perverted borrowing from what can be validly established for biology. When I contemplate strong claims by a Richard Posner that law has evolved historically a la Pareto, or arguments that a Coase Theorem ensures that deadweight loss is at its feasible minimum, I fear that von Neumann and Morgenstern are spinning in their graves and Charles Darwin is wondering why he left his barnacles, pigeons, and earthworms. An unsupported claim by an economist- Darwinist does not acquire validity from a cited analogy with evolution. Truth must find its own legs to stand on."

"Darwin's evolution is indeed mere sound and fury, signifying nothing normative, rather than denoting a process of meaningful Spencerian triumph. Natural selection is not an empty tautology about survival of those who survive. It is a lawful process subject to shrewd predictions and testable refutations. But in general it does not act to maximize any scalar magnitude. Many of its subprocesses do eschew submaximal configurations, and some may approximate efficiency criteria, but the resultant of them all is only positivistic!"

"Orthodox biologists are like orthodox economists. When confronted by tensions between their paradigms and reality, they work to explain away the aberrations."

"I will not waste ink on face-saving tautologies. When the governess of infants caught in a burning building reenters it unobserved in a hopeless mission of rescue, casuists may argue; "She did it only to get the good feeling of doing it. Because otherwise she wouldn't have done it." Such argumentation (in Wolfgang Pauli's scathing phrase) is not even wrong. It is just boring, irrelevant, and in the technical sense of old-fashioned logical positivism "meaningless.""

"A scientist earns the only mortality worth having. Of the good scholar we say: Rex numquam moritur."

"It is some relief to move from the exalted realm of philosophical ethics to the mundane realm of scientific methodology. However, I rather shy away from discussions of Methodology with a capital M. To paraphrase Shaw: Those who can do science; those who can’t prattle about its methodology."

"As a theorist I have great advantages. All I need is a pencil (now a ball pen) and an empty pad of paper. There are analysts who sit and look vacantly out the window, but after the age of 20 I was not one of them. I ought to envy the new generation who have grown up with the computer, but I don’t. None of them known to me sits idly at the console, improvising and experimenting in the way that a composer does at the piano. That ought to become increasingly possible. But up to now, in my observation, the computer is largely a black box into which researchers feed raw input and out of from which they draw various summarizing measures and simulations. Not having access to look around in the box, the investigator has less intuitive familiarity with the data than used to be the case in the bad old days."

"There were many Moliére characters speaking Keynesian prose in the depression years before 1936. What Keynes’s General Theory gave us, which Ohlin’s inspired journalisms could not at all offer, was a new manageable paradigm that we could explicitly express — and test, and criticize, and improve, ... , and be bewitched by. Long before Kuhn, Schumpeter used to insist that old theories are not killed by simple facts: It takes a new theory to kill an old one. The mind cannot operate in terms of a melange of sensations. It needs a road map to perceive patterns of regularity and persistence."

"Let us summarise the lessons learned. 1. Though achieving private-property perfect competition will achieve productive efficiency, moving toward it may have made matters worse. And, in the land-enclosure problem, the transition must make things worse before they get better when lands are virtually homogeneous. 2. In the realistic case where lands differ in quality, partial privatisation may also worsen efficiency - even though ultimately efficiency will be enhanced by the deregulation process. 3. However, in the realistic case, an optimal choice of lands to be first privatised could be first to improve the commons. The rule for a 'perfectly-discriminating deregulator' to follow is evidently this: privatise those lands first whose 'imputed labour share'- as measured by the MP/AP fraction- is the lowest. That way, the first bit of deregulation can do more good than harm, as labour is transferred away from low marginal-product locations; that way, if there is inevitable transition harm, it can be kept to a minimum. There would seem to be a presumption that things get worse before they get better in such a programme of moving toward laissez-faire."

"The moral I take to be this. The virtues of alternative modern paradigms in science have to be evaluated in modern times and with modern methods. Until one schemata comes to dominate the other, Whig Historians will have interest in a diversified portfolio of archeological researches. As one paradigm loses out in the Darwinian jungle of science, what survives competitively in the agenda for dogmengeschicte cannot help but be altered."

"The goals, methods, and strategies of what borders on science is different from the gyration of fashion and the incommensurability of arts and music in different epochs. Because this different process of cumulative science is imperfect, historians and philosophers of science intermittently downplay this difference."

"What is truly discouraging — or reassuring? — is the considerable evidence that the universe of those who seek to be "timers," and vary the fractional shares of their portfolios committed to common stocks in the hope of enlarging average long-term total return, in fact fail to achieve on the average any plus gain in comparison with simply buying and holding a fixed fraction of common stocks."

"The museums of science are replete with fossils of species that could not last the course. The leading-coinciding-lagging indicators might be buried forever in old footnotes. But occasionally Sleeping Beauty is brought back to life by the kiss of a new Prince Charming."

"My mind is ever toying with economic ideas and relationships. Great novelists and poets have reported occasional abandonment by their muse. The well runs dry, permanently or on occasion. Mine has been a better luck. As I have written elsewhere, there is a vast inventory of topics and problems floating in the back of my mind. More perhaps than I shall ever have occasion to write up for publication. A result that I notice in statistical mechanics may someday help resolve a problem in finance."

"I reproach myself for a gross error. But I would reproach myself more if I had persisted in an error after observations revealed it clearly to be that. I made a deal of money in the late 1940s on the bull side, ignoring Satchel Paige’s advice to Lot’s wife, “Never look back.” Rather I would advocate Samuelson’s Law: “Always look back. You may learn something from your residuals. Usually one’s forecasts are not so good as one remembers them; the difference may be instructive.” The dictum “If you must forecast, forecast often,” is neither a joke nor a confession of impotence. It is a recognition of the primacy of brute fact over pretty theory. That part of the future that cannot be related to the present’s past is precisely what science cannot hope to capture. Fortunately, there is plenty of work for science to do, plenty of scientific tasks not yet done."

"I can claim that in talking about modern economics I am talking about me. My finger has been in every pie. I once claimed to be the last generalist in economics, writing about and teaching such diverse subjects as international trade and econometrics, economic theory and business cycles, demography and labor economics, finance and monopolistic competition, history of doctrines and locational economics."

"After 1929 it was the sturdy middle classes, and not just the lumpen proletariat, who were down and out. It was not all that unfashionable or disreputable to be bankrupt. By the last Hoover years, the states and localities had run out of money for relief. In middle-class neighborhoods like mine, you constantly had children at the door, asking by mouth or with a note for a dime, a quarter, or a potato: saying, in a believable fashion, we are starving."

"An optimist who lived at a time when the world economy was running so badly that clever gimmicks could still work wonders, Keynes's object was to save capitalism from itself. In the end, his prescription in its most simple form self-destructed, as the obligation to run a full-employment humanitarian state caused modern economies to succumb to the new disease of stagflation - high inflation along with joblessness and excess capacity. Economists of the most diverse views are constantly asking themselves: What would Keynes advise if he were now alive. And usually - whether the economist is a free-marketeer like Friederick von Hayek or one with strong interventionist leanings like John Kenneth Galbraith - they pay Keynes the supreme compliment of believing that if brought back to earth, Maynard would be favoring just what each of them happens to favor. One also might wonder what Lord Keynes would prescribe for the huge structural deficit of Ronald Reagan, with the crowding out of investment that it implies once the American economy reattains high levels of employment."

"Yes, Keynes was a genius. Yes, some of his ideas were inchoate and would not have lent themselves usefully to diagramming and symbolic manipulation. Yes, by the time of the Radcliffe committee many of his British admirers were still frozen in the Model T version of his system. And yes, Keynes resented excessive simplifying of his paradigms. Nevertheless, in science it is not the incoherent, inchoate and ineffable that has a cash value. If that were so, Goethe would be a greater scientist than either Einstein or Newton. What matters is the Kuhnian paradigm that people who are not geniuses can use. That which so many scholars independently agreed upon cannot be independent of the text that Keynes wrote down for them to read. What is remarkable is not the cogency of the case that Leijonhufvud manages to muster, which is rather flimsy, but rather how strong was the latent demand in the 1970s for a work to debunk Keynesianism. Harry Johnson put the same point in a different way."

"Mathematics is the handmaiden of the sciences. But mathematics also has a life of her own, gaining as much in her own development and fulfillment from the sciences as she gives to them. To help describe how apples and planets fall, and how ropes hang, Newton and Leibniz developed the calculus. By serendipity, that mode of analysis permitted economists to perfect the theory of general equilibrium two centuries later."

"The recent market run-up that appreciated run-of-the-mill shares also chanced to send up those token gold holdings. Pure luck, undeserved and unlikely to reoccur. Good questions outrank easy answers."

"The small investor can now, for the first time, invest in common stocks and bonds in an efficient and convenient way. I am talking about people who don't have $ 10 million; who don't want to take unnecessary gambles; who operate under no Napoleonic delusions of being able to pick winners that will quadruple their money; who begrudge every minute devoted to keeping tax and personal records, and wish to think about their investments only at New Year's and when preparing their tax returns. Disinterested experts in finance prescribe for such people as follows: 1. Depending on your tolerance for the irreducible risks involved in owning common stocks, decide what portion of your nest egg you wish to keep in common stocks: 0, 100, 30 or 70 per cent. No one can decide this for you. You must decide at what point you'll sleep best at night, and whether eventually stocks will provide a better inflation hedge than they have done these last dozen years. ( Many will settle for 50-50. ) 2. For what common stocks you do decide to own, follow the golden rules of prudence : Diversify broadly, hold down costly turnover, keep all fees (and book- keeping !) minimal. 3. The same rules (diversification, etc.) apply to your holdings of tax-free and ordinary bonds. If you have taxable income of $ 20,000 or more, probably the bulk of your bonds should be " municipals " -i.e., state and local issues that escape all Federal tax because Congress refuses to close this loophole. Less affluent people will probably do as well in local savings accounts as in anything else. Now you know what to do. How do you do it?"

"Inside every classical economist is a modem economist trying to get out. In rereading the Wealth of Nation is, it seems to me that with a little midwifery sleight of hand, one can extract from Adam Smith a valuable model that vindicates him from criticisms of Ricardo and Marx and from the general supercilious discounting of Smith as an unoriginal theorist who is logically fuzzy and eclectically empty."

"I used to joke to Bob Solow that the distance between me and Joan Robinson is less than the distance between Joan Robinson and me. His reply was, “You’ll never convince her of that.” Still one lives in hope."

"An American economist of two generations ago, H. J. Davenport, who was the best friend Thorstein Veblen ever had (Veblen actually lived for a time in Davenport’s coal cellar) once said: “There is no reason why theoretical economics should be a monopoly of the reactionaries.” All my life I have tried to take this warning to heart, and I dare call it to your favorable attention."

"There is really nothing more pathetic than to have an economist or a retired engineer try to force analogies between the concepts of physics and the concepts of economics. How many dreary papers have I had to referee in which the author is looking for something that corresponds to entropy or to one or another form of energy. Nonsensical laws, such as the law of conservation of purchasing power, represent spurious social science imitations of the important physical law of the conservation of energy; and when an economist makes reference to a Heisenberg Principle of indeterminacy in the social world, at best this must be regarded as a figure of speech or a play on words, rather than a valid application of the relations of quantum mechanics."

"With the assistance of mathematics, I can see a property of the ninety-nine dimensional surfaces hidden from the naked eye. If an increase in the price of fertilizer alone always increases the amount the firm buys of caviar, from that fact alone I can predict the answer to the following experiment which I have never seen performed and upon which I have no observations: an increase in the price of caviar alone will increase the amount the firm buys of fertilizer. In thermodynamics such reciprocity or integrability conditions are known as Maxwell Conditions; in economics they are known as Hotelling conditions in honor of Harold Hotelling’s 1932 work."

"The very name of my subject, economics, suggests economizing or maximizing. But Political Economy has gone a long way beyond home economics. Indeed, it is only in the last third of the century, within my own lifetime as a scholar, that economic theory has had many pretensions to being itself useful to the practical businessman or bureaucrat. I seem to recall that a great economist of the last generation, A. C. Pigou of Cambridge University, once asked the rhetorical question, “Who would ever think of employing an economist to run a brewery?” Well, today, under the guise of operational research and managerial economics, the fanciest of our economic tools are being utilized in enterprises both public and private."

"For better or worse, the picture album whose pages I have been turning is that of the main stream of international economics. Many of its advances lie in what the historian of science Thomas Kuhn would call 'normal' rather than 'revolutionary' science. It is hard to imagine having had too good an education and too good a research environment. And yet as we grapple with the ever-changing problems of the modern world that are arising in the deliberations of this World Congress, we know we must put aside the pictures and souvenirs of the past, and we must turn a youthful eye out to meet the emerging universe."