Summaries of Nobel Prize Winners Theory.
- Paul Samuelson: 22 year old prodigy at Harvard. A mathematical economist. Established MIT Economics Dept. after he was rejected a professorship from Harvard. He was not shy about criticizing his professors respecting neither age nor rank. According to the late James Tobin, a Nobel Laureate of Yale University, his attitude did not endear him to the austere chairman of the economics department at Harvard, Harold Burbank, with whom he had a rocky relationship. Dr. Solow said of the Harvard economics department at the time” you could be disqualified for a job if you were either smart or Jewish or Keynesian”. He presented a unified mathematical structure for predicting how businesses and households alike would respond to changes in economic forces, how changes in wage rates would affect employment, and how tax rate changes would affect tax collections. He developed the rudimentary mathematics of business cycles with a model called the multiplier-accelerator, which captured the inherent tendency of market economics to fluctuate. Beyond his astonishing array of scientific theorems and conclusions, he wedded Keynesian thought to conventional economics by developing what he called the Neoclassical Synthesis. The neoclassical economists in the late 19th Century showed how forces of supply and demand generate equilibrium in the market for orange, butter, and other consumer goods and services. The standard analysis had held that market economies, left to their own devices, gravitated naturally toward full employment.
- James Tobin: Tobin, a professor of economics at Yale, influenced the world with 500 economics articles and 16 books by applying economic theory to the way people made decisions and for advocating the Keynesian theory of government intervention in the economy. Dr. Tobin battled conservative economists like Milton Friedman, a Nobel Laureate at the University of Chicago, who disdained government intervention. Tobin received the Prize in 1981 for a breakthrough in analyzing the relationship of financial markets, including those for stocks and bonds, with “real” markets, like those for real estate, factory machinery, and consumer goods. He believed that investors were affected by their assessments of how risky their decisions might be and that they differed in the amount of risk they were willing to take. His work, known as the Portfolio Selection Theory, helped increase the understanding of an investor’s willingness to hold various assets. During times of inflation, for example, he found them less willing to hold stocks or cash, turning instead to bonds or physical assets like real estate. His theory, “Don’t put all your eggs in one basket”, became a global symbol of the theory of diversification. Another theory, important to investor as well as to policy makers, was called Tobin’s This ratio measures the relationship of the market value of properties or other corporate assets to their replacement costs. When replacement costs run high, Tobin’s Q runs low, and in those situations, companies tend to expand by acquiring other companies instead of building plants or buying equipment. The theory gained prominence at the height of market boom in the late 1990s, when researchers noted that the overall value of Tobin’s Q in the market looked unreasonably high relative to historical standards. When President John F. Kennedy asked him in 1961, while he was teaching at Harvard, to join the Council of Economic Advisors, Tobin responded, “ I am afraid you’ve got the wrong guy, Mr. President. I am an ivory tower economist”. “ That’s the best kind”, President Kennedy said, “ I’m an ivory tower president”. He was taught economics in Harvard by Joseph Schumpeter, Wassily Leontief, and Alvin Hansen. He was intrigued by issues of unemployment and economic debate between the hands-off theory of Adam Smith and the intervention theory of John Maynard Keynes.
- Milton Friedman: Dr. Friedman, a monetary economist, well known for his article” A Theoretical Framework for Monetary Analysis”, became a spokesman for the Laissez-Faire Theory advocated by Adam Smith (the founding father of free market economy expounded in his Wealth of Nations). He became an architect of Neo-Classical Economic Theory. His influential Quantity Theory of Money captivated universities, political institutions, and online discussion groups around the world. A documentary that aired on PBC entitled” Power of Choice” well described Dr.Friedman’s life and ideas. One of his greatest rivals, Harvard economist John Kenneth Galbraith, who made a brief appearance in the film denouncing Friedman as a “ One-cause, one-cure man, and free market absolutist”. Dr. Friedman was an outspoken and relished his role in real world as much as he did his stature within the academy as a strong advocate of “Free to Choose” which popularized his ideas with a child’s sense of novelty. In it he had fun illustrating his theory of monetary policy by pressing a button that stopped the printing of money at the U.S. Mint. Friedman’s rise to public prominence as the great “ anti-Keynesian”, the world’s most impassioned champion of open competition and limited government intervention in economic affairs, was solidified during the Reagan Administration. Mr. Friedman’s free choice doctrine and his anti-inflation theory of the limiting quantity of money laid the foundation for a Nobel Prize award in 1972, the Medal of Freedom award, the Most Intellectual Scientist award, which was bestowed upon him by then –President Ronald Reagan. His charismatic arguments are well reflected in his book Capitalism and Freedom. In his critique of the famous speech by President Kennedy “ Ask not what your country can do, but ask what you can do for your country” He rather urged president Kennedy to ask” What I and my compatriots can do through government to help discharge our individual responsibilities, to achieve our several goal and purpose, and above all protect our freedom.” He was a guiding light of American conservatism, promoting freedom, choice for human beings, small government, less tax burden on the populace, and especially a free market economy, event though his theory didn’t leave behind such a legacy as that of John M. Keynes or Joseph Schumpeter. Friedman’s Free Market theory was frequently attacked by professor Robert Solow and Paul Samuelson, both of whom are also Nobel Laureates.