Britannica Educational Publishing - Notable Economists

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First Edition

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Library of Congress Cataloging-in-Publication Data

Notable economists/edited by Brian Duignan.1st ed.

p. cm.(Economics : taking the mystery out of money)

In association with Britannica Educational Publishing, Rosen Educational Services.

Includes bibliographical references and index.

ISBN 978-1-61530-899-6 (eBook)

1. Economics. 2. Economists. I. Duignan, Brian.

HB76.N688 2013

330.0922dc23

2012020470

On the cover: Economist Paul Krugman at a press conference for receiving the Nobel Prize in 2008. Jeff Zelevansky/Getty Images

Cover and interior background image zphoto/Shutterstock

T o locate a seminal moment in time, with some measure of coincidence, the science of economics shares the year of its published origins, in the United Kingdom, with that of the birth of the United States of America: 1776. Adam Smith had 17 years earlier written a book called The Theory of Moral Sentiments, which attracted the attention of Charles Townshend, who later served as Britains chancellor of the Exchequer. Impressed, Townshend hired Smith to tutor his stepson, which Smith did for a number of years and at a lucrative stipend. Townshends decision as chancellor of the Exchequer to impose new import duties on the American colonies contributed to hostilities that eventually led to revolution, and America became an independent nation in the same year that Smith published An Inquiry into the Nature and Causes of the Wealth of Nations.

In Britain the publication of Smiths groundbreaking book ushered in a new way of thinking about the dynamics and coordinative processes of capitalism. Smith envisioned people trying to better themselves, which led to competition, which would drive prices to what he saw as natural levels. Thus did the invisible hand regulating the economy show itself.

The value of unimpeded access to information is seen in the example of economist Lon Walras (18341910). His story also ends with some measure of disappointment. Walrass Elements of Pure Economics elaborated one of the original comprehensive mathematical analyses of economic equilibrium, or the state of balance between economic forces such as supply and demand.

He had genuinely innovative ideas, and nowadays his work would have permeated economic scholarship through the Internet. But back then, Walras had another problem. His book was written in French, while all major economic theorizing was taking place in Britain. Walras received little recognition in his time because the English-speaking public was not exposed to his work in translation. As the chapter on him points out, Walras is now, along with David Ricardo and Karl Marx, one of the most widely studied economists of his era.

Paul Krugman (left) received the Nobel Prize in Economic Sciences from Carl XVI Gustaf of Sweden in Stockholm on December 10, 2008. Olivier Morin/AFP/Getty Images

Gary S. Becker (1992 Nobel Prize) applied the methods of economics to the study of human behaviour in realms beyond the scope of conventional economics, including the family. His main thesis was that most aspects of human behaviour are governed by self-interest.

One is drawn to wonder from where in the tortured mind of John Nash (1994 Nobel Prize) any major economic contributions might have come. He suffered from and was hospitalized for schizophrenia. Nashs contribution to the field of mathematics known as game theory found practical application in the decision making of business strategists. Called the Nash equilibrium, his theory explained the dynamics of threat and action among competitors.

Myron S. Scholes (1997 Nobel Prize) helped create the Scholes-Black formula, which provided a means of determining the future value of an option (a contractual agreement enabling the holder to buy or sell a security, such as a stock, at a designated price for a specified period of time). This made options trading more accessible, which in turn greatly expanded the whole field of investment. Scholes shared his prize with Robert C. Merton, who applied the Scholes-Black formula to other areas of finance, such as mortgages and student loans and risk-management assessment, eventually helping to create new investment vehicles.

One might assume that economics is a cold and impersonal discipline, focused solely upon the study of wealth. However, economist Amartya Sen (1998 Nobel Prize), referred to by his contemporaries in the field as the conscience of his profession, changed that perception. Sens work in welfare economics focused on the problems of societys poorest members, and his study of the causes of famine led to practical measures for relieving food crises in developing countries.

Research by George A. Akerlof, Joseph E. Stiglitz, and A. Michael Spence (2001 Nobel Prize) shed light on the operation of markets characterized by asymmetric information, a state in which parties to a transaction have unequal amounts of relevant information. Akerlof concentrated on markets in which sellers of a product have more information about the products quality than buyers, as in the market for used cars. Stiglitz studied the insurance market, in which insurance companies lack reliable information on the risk factors of their customers. And Spence developed a theory that explained how better-informed individuals convey relevant information to others through signalsthus, a job applicants college degree signals intelligence and ability to prospective employers.

Daniel Kahnemans (2002 Nobel Prize) ground-breaking research refuted the conventional assumption that people attempt to maximize expected utility in their economic decision making when the outcomes of alternative courses of action are uncertain. Instead, they rely on heuristics, or rules of thumb. Kahneman shared his prize with Vernon L. Smith, who developed the use of laboratory experiments in economic analysis.