economics and economists

7/30/2019 Economics and Economists

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Economics

&The Economists

Robert M. Hayes2005


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Overview

Why should a library manager think about economics?

Why look at economists?

What is economics?

Brief review of history The contexts for economics

Personal Economics

Microeconomics

Macroeconomics

The economists Crucial persons before the Nobel Prize

Nobel Prize Winners


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Why think about economics? Economics is both a powerful tool and a basis for political decisions.The theories and conflicts that it embodies are central to what is

happening today and to what has happened in the past and willhappen in the future.

I think that a library manager needs to have an appreciation ofthose theories and conflicts, especially in order to deal with theissues involved in strategic management. This appreciation does notrequire expertise in economics but it does require knowledge ofwhat the theories and conflicts are and, perhaps even moreimportant, of what the methodologies used to deal with them are.

It is for this reason that I have included economic models among the

ones presented in this course. Beyond that, though, I think that in addition to the values in simply

understanding what the methodologies are, the library managermay well find them of value in management.

As I discuss various economic issues, I will try to highlight some oftheir implications for libraries and library management.


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Why talk about economists?

I think that one of the ways to learn about the theories, conflicts,and methodologies is to know who the economists were and howthey have represented them. At the least, it permits one to deal withthem on a personal level rather than merely a conceptual one.

Therefore, later in this presentation, I am going to identify anumber of economists, as well as others that seem to me important,and, briefly, to discuss major contributions they have made to thetheory, in many cases, to the conflicts, and in all cases to themethodologies.

In doing so, I am going to divide them into two groups. First are

those who lived before the Nobel Prize for Economics began to beawarded. Second are those to whom the Nobel Prize in Economicshas been awarded (through 2004, the most recent award).


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What is economics?

First, lets look at economics. What is it?

To answer that question, I will first briefly review the history ofeconomics. Then, describe the contexts for economics , the major

concerns of economics, and finally the major schools of thoughtabout those concerns.


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Brief Review of the History of Economics The discipline of economics, as we understand it today, emerged in

the 17th and 18th centuries as the western world began itstransformation from an agrarian to an industrial society.

Despite the enormous differences between then and now, theeconomic problems with which society struggles remain the same: How do we decide what to produce with limited resources?

How do we ensure stable prices and full employment of resources? How do we provide a rising standard of living today and in the future?

Progress in economic thought toward answers to these questionstends to take discrete steps rather than to evolve smoothly overtime. A new school of ideas suddenly emerges as changes in theeconomy yield fresh insights and make existing doctrines obsoleteor at least obsolescent. The new school may eventually become aconsensus view, then a stimulus for the next wave of new ideas.

This process continues today and its motivating force remains thesame as that three centuries ago: to understand the economy sothat we may use it wisely to achieve society's goals.


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Selected Historical Economic Positions

Mercantilism

Physiocrats

Classicism Utilitarianism

Marginalism

Marxism

Institutionalism Keynesianism

Current Theories


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Mercantilists

Mercantilism was the economic philosophy adopted by merchantsand statesmen during the 16th and 17th centuries. Mercantilistsbelieved that a nation's wealth came primarily from the

accumulation of gold and silver. Nations without mines couldobtain gold and silver only by selling more goods than they boughtfrom abroad. Accordingly, the leaders of those nations intervenedextensively in the market, imposing tariffs on foreign goods torestrict import trade, and granting subsidies to improve exportprospects for domestic goods. Mercantilism represented theelevation of commercial interests to the level of national policy.


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Physiocrats

Physiocrats, a group of 18th century French philosophers,developed the idea of the economy as a circular flow of income andoutput. They opposed the Mercantilist policy of promoting trade at

the expense of agriculture because they believed that agriculturewas the sole source of wealth in an economy. As a reaction againstthe Mercantilists' copious trade regulations, the Physiocratsadvocated a policy of laissez-faire, which called for minimalgovernment interference in the economy.


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Classical Economics

The Classical School of economic theory began with Adam Smithswork, The Wealth of Nations. In Smith's view, the ideal economy isbased on a self-regulating market system. He described it as an"invisible hand" that, if each individual pursues self-interest,

results in producing the greatest benefit for society as a whole.Smith incorporated some of the Physiocrats' ideas, including laissez-faire, into his own economic theories, but rejected the idea that onlyagriculture was productive.

While Adam Smith emphasized the production of income, DavidRicardo focused on the distribution of income among landowners,

workers, and capitalists. Thomas Robert Malthus used the idea of diminishing returns to

explain low living standards. Population, he argued, tended toincrease geometrically, outstripping the production of food, whichincreased only arithmetically.


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Utilitarianism

Coming at the end of the Classical tradition, John Stuart Millparted company with the classical economists on the inevitability

of the distribution of income produced by the market system. Millpointed to a distinct difference between the market's two roles:allocation of resources and distribution of income. The marketmight be efficient in allocating resources but not in distributingincome, he wrote, making it necessary for society to intervene.


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Marginalism

Classical economists theorized that prices are determined by thecosts of production. Marginalist economists emphasized that pricesalso depend upon the level of demand, which in turn depends uponthe amount of consumer satisfaction provided by individual goodsand services.

Marginalists provided modern macroeconomics with the basicanalytic tools of supply and demand, consumer utility, and amathematical framework for using those tools. Marginalists also

showed that in a free market economy, factors of production - land,labor, and capital - receive returns equal to their contributions toproduction. This principle was sometimes used to justify the existingdistribution of income: that people earned exactly what they or theirproperty contributed to production.


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Marxism

The Marxist School challenged the foundations of Classical theory.Writing during the mid-19th century, Karl Marx saw capitalism asan evolutionary phase in economic development. He believed thatcapitalism would ultimately be succeeded by a world withoutprivate property.

Advocating a labor theory of value, Marx believed that allproduction belongs to labor because workers produce all valuewithin society. He believed that the market system allowscapitalists, the owners of machinery and factories, to exploit

workers by denying them a fair share of what they produce. Marx predicted that capitalism would result in growing misery for

workers as the effort of capitalists to maximize profit would leadthem to adopt labor-saving machinery, creating an "army of theunemployed" who would eventually rise up and seize the means ofproduction.


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Institutionalism

Institutionalist economists regard individual economic behavior aspart of a larger social pattern influenced by current ways of livingand modes of thought. They rejected the narrow Classical viewthat people are primarily motivated by economic self-interest.Opposing the laissez-faire attitude towards government's role inthe economy, the Institutionalists called for government controlsand social reform to bring about a more equal distribution ofincome.


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Keynesianism

Reacting to the severity of the worldwide depression of the 1930s,John Maynard Keynes in 1936 broke from the Classical traditionwith the publication of the General Theory of Employment, Interest,and Money. The Classical view assumed that in a recession, wagesand prices would decline to restore full employment. Keynes heldthat the opposite was true. Falling prices and wages, by depressingpeople's incomes, would prevent a revival of spending. He insistedthat direct government intervention was necessary to increase totalspending.

Keynes' arguments provided a rationale for the use of government

spending and taxing to stabilize the economy. Government wouldspend and decrease taxes when private spending was insufficientand threatened a recession; it would reduce spending and increasetaxes when private spending was too great and threatenedinflation. His analytic framework, focusing on the factors thatdetermine total spending, remains at the core of modern

macroeconomic analysis.


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Current Theories Keynesian theory, with its emphasis on activist government

policies to promote high employment, dominated economicpolicymaking in the early post-war period. But, economic theoriesare constantly changing, and starting in the late 1960s, troublinginflation and lagging productivity prodded economists to look fornew approaches. From this search, new theories emerged: Monetarism, which updates macroeconomic analysis before

Keynes. It reemphasizes the critical role of monetary growth indetermining inflation.

Rational Expectations Theory provides a contemporaryrationale for the pre-Keynesian tradition of limitedgovernment involvement in the economy. It argues that the

market's ability to anticipate government policy actions limitsthe effectiveness of government intervention. Supply-side Economics recalls the Classical School's concern

with economic growth as a fundamental prerequisite forimproving society's material well-being. It emphasizes the needfor incentives to save and invest if the nation's economy is to

grow.


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Future Theories

It seems to me that we are now in an economic context in whichthe change is at least as dramatic as that involved in the additionof an industrial economy to the agricultural economy during the19th century. Of course, it is the addition of an informationeconomy to the industrial and agricultural economies.

This implies to me that there will need to be new economic theoriesthat recognize new facts of life.

Now, the agricultural and industrial economies obviously willcontinue to function, as did the agricultural when the industrialrevolution occurred. But the agricultural economy changed in veryimportant ways as it was affected by the industrial revolution.

And, in the same way, there should be changes in both theagricultural and industrial economies as they are impacted by theinformation revolution.

Since libraries are a significant component of the informationsector of the economy, their role in the information revolution, andin the economic theories to deal with it, must be understood.


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The Contexts for Economics

There are three major contexts for economics: (1) Personal economics (economics of the person and family) (2) Microeconomics (economics of the firm) (3) Macroeconomics (economics of the society)

Strangely, as far as I can see, most economists pay relatively littleattention, in either theory, practice, or position to the economics ofthe person and the family.

So the major foci of the interests of economists are on micro andmacroeconomics. I suppose that is to be expected, since those arethe contexts in which reward and power reside.

The library functions as a counterpart of the individual firm, sothe issues in microeconomics apply to it. The library community,as a whole, is a significant part of the information sector of theeconomy. Therefore, the issues of macroeconomics apply to thatcommunity.


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(1) Personal Economics

As I said, most economists, in the past, have paid little attention tothe economics of the individual and the household.

Having said that, recently there has begun to be recognition of the

importance of the individual. The Nobel Prize in Economics for2002 was awarded to Daniel Kahneman and Vernon L. Smith forexperimental investigations of individual decision-making.


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(2) Microeconomics

Microeconomics, or the economics of the firm, is concerned withthe balance between costs and income, especially as determined bythe interactions in the marketplace. The costs arise from labor,materials, and investment in and return on capital. The incomederives from the customers, based on the prices charged andpayments received from the sale of products and services.

In arriving at that balance, the individual firm faces not only theforces of the marketplace but those of competition as well. It musttherefore deal with changing costs and demands and changingcompetitive environments.

Thus, in micro-economics, we are concerned with The Marketplace, as the context for selling and buying The Individual Firm, its product or service production and costs The Customers, their Demands and the Income from sales to them


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The Marketplace

What is the Marketplace? In this context, it is the place for meetingtogether of people for the purchase and sale of goods, publiclyexposed, at a fixed time and place. (OED definition 1 for Market)

It must be said, though, that a marketplace usually is much more thanthat and, indeed, is a social institution, a forum in which more than

merely economic activities occur. Having said that, we will now focus on the economic role of themarketplace.

Before doing so, though, I think it is important to recognize a possibleconfusion in terminology. Economists and businessmen, but especiallythe latter, both use the term market in two quite different ways.One is to refer to what I have called the marketplace and the other isto refer to the customers (i.e., the market) for a product of service.

I will try to avoid the possible confusion by identifying the wordmarket with marketplace and refer to the customers as customers.


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When is openness important?

Markets need to be open when: trust is required in an exchange products are not standardized and need inspection there are information asymmetries between buyer and seller guarantees are difficult to obtain

Markets can be anonymous when: trust is not necessary products are standardized and do not need inspection information is symmetric guarantees are secure

It is of more than passing interest to note that the recent advent ofthree thingsthe Internet, the explosion of derivatives, and theconsequent growth of hedge fundsis changing the very nature ofthe marketplace. In both of the latter two contexts but to a majorextent in the first as well, it is increasingly NOT publicly exposedbut rather is becoming hidden.


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Management of a Marketplace

There is, to some degree, the perception that a marketplace functionswithout management. Adam Smith referred to it as the invisiblehand as though the processes occur almost without intervention.

The facts, though, are that marketplaces must be managed. One need is to manage the process of agreement on the terms of

exchange, that is, to manage the individual transaction. Price must be agree on. Product or service specification must be agreed on. Terms of delivery must be agreed on.

But the other is to provide oversight on processes and transactions

To ensure legality of trade To enforce standards and regulations To assure fair trading To determine effects on third parties (called externalities)


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Economic Properties of Markets

In economic terms, a market is intended to assure that resourcesare allocated to the most profitable use and that the rightamount of any product or service is produced.

There is said to be market failure when that objective is not met. When a marketplace for a product or service does not exist, it

cannot function. When events are very dynamic, markets may not respond

properly. When there is asymmetric information, markets are likely not

to function properly.

When the externalities to transactions are significant andsubstantial, markets will not be effective. When there are significant returns to scale, markets may not

be effective. When a resource is controlled by a monopoly, markets do not

allocate resources efficiently


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Asymmetric Information

Asymmetric information arises when the seller and the buyer havedifferent information related to the transaction. Typically, the seller knows more about the good (and its

defects) than the buyer Buyers cannot easily distinguish reliable goods from faulty

goods The result of asymmetric information is that the decisions by the

buyer and seller will not lead to the best result, for one or the otherand therefore for the effectiveness of the market.

In the case of the library, there are usually significant asymmetriesbetween the knowledge of the library and its staff and that of theuser. But, interestingly enough, this has been one of the strengthsof the relationship between the library and its users, not adeficiency. And this is an issue worth pursuing!


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Externalities

Externalities arise when there are effects of a transaction uponothers not involved in it. Those effects might be negative (e.g.pollution) or they might be positive (e.g., R&D spillovers).

With negative externalities, the effect of the market is that toomuch may be produced. With positive externalities, the effect of the market is that too little

may be produced.

For the library, there would appear to be many externalities, withbenefits from its existence and use arising in many ways. This is anissue well worth exploring!


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Increasing Returns

Increasing returns to scale (what are called economies of scale)

are in principle a good thing, since they improve the efficiency inuse of fixed resources.

But increasing returns to scale are inconsistent with perfectcompetition and therefore lead to market failure.

Either small firms fail to exploit increasing returns

Or increasing returns tends to lead to monopoly

For the library, the issue of whether there are economies of scalehas been investigated, but the results to date have been at bestequivocal.


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Production and its Costs

I turn now to the individual firm, its products and/or services and, inparticular, to the costs associated with them. (For the economist, thenature of the particular product or service is almost immaterial.)

Sources of Cost

Opportunity Cost vs. Purchase Cost

Fixed Cost vs. Sunk Cost

Total Cost (i.e., fixed cost plus variable cost)

Unit Cost Marginal Cost vs. Average Cost


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Sources of Cost

There are three sources of cost: Labor Capital, as the investment in the tools of production Materials that must be acquired for the substance of production

Usually, economists have focused on the relationship between thefirst two of those sources of cost and have created productionmodels that are intended to represent that relationship. The mostbasic and, in many respects, simplest of them is the Cobb-DouglasModel.

I have, in the past, applied the Cobb-Douglas Model to librariesand, in doing so, identified technical processing as part of thecapital investment (along with the collection and the facilities),with library services as the labor in production of products andservices.


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The Role of Labor Labor has several roles to play in the operations of the firm:

The work of production. The marketing or selling of the production. The distribution or delivery of the product or service. The management of the other workers.

For whatever reasons, the wages for these several roles tend to bequite different, usually with the managers receiving substantiallymore than the others. And perhaps that is warranted since theadvancement to management should reflect greater knowledge,skills, and abilities to make decisions.

Increasingly, the roles of labor are becoming mechanized, even

those in management, with robots and computers carrying evergreater proportions of the work involved. This raises the issue ofwhat people will do as they are replaced by machines. This firstarose in industry, during the 19th century, but it still looms today.

For the library, many aspects of operations have been and arebeing supported by the use of computers, so the issue is relevant,


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The Role of Capital

Capital is the investment in the tools that support production,indeed including those that directly replace labor. By use of thosetools, the individual worker can produce far more than would bepossible without them. Indeed, in many cases, it would be

impossible to produce without them. For an individual firm, a management decision must be made

between what is called in-house investment in capital versusout-source investment. Namely, is the acquisition of the tools ofproduction accomplished within the firm or by purchase of themfrom outside the firm?

In the case of the library, is technical processing (selection,acquisition, processing, and cataloging) done by library staff or bycontract to external providers of those services? This is not ahypothetical or rhetorical question!


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Two Meanings of Capital

There is the potential for confusion in the uses of the wordcapital. One use is to refer to the investment in the tools ofproduction; the other is to refer to the money which representsthat investment.

In this presentation, I am limiting it to the former meaning.Therefore, while one may have money to invest, it does not become

capital until that money is invested in tools of production. In particular, the money could be spent on many things: on labor,

on personal expenditures, on wasted dissipation. Thus, money initself is not capital but simply the ability to spend.

Of course, having said that, the money could be invested in avariety of ways that will provide income. In doing so, presumablythe place of investment will use the money for its own purposes,which might include investment in capital, but it might be forother uses.

For the library, this distinction is relevant when there are funds,such as those derived from a development program, that may be

invested, perhaps as an endowment.


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The Role of Materials

For the production of physical goods, there almost always is theneed to acquire raw materials which constitute the substance of

the products. Again, as with capital investment, this can be donein-house or out-source, but for most physical products, it will beby out-source. It would only be the largest of firms that would ownits own iron mines and steel mills in order to produce automobiles.

But even for the production of non-physical, intangible goods andservices, there may be the need for raw materials.

In the case of the library, the collection, represents capital, ofcourse, so it is not raw materials in this sense. However, photocopypaper and toner might be an example of raw materials.


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Opportunity Cost vs. Purchase Cost

The purchase cost for a resource is the amount of money or otherresources required to use the resource.

Opportunity cost of a resource is the revenue foregone by usingmoney or other resources to acquire the given resource for aparticular purpose rather than using them for an alternative.

For under-employed resources, opportunity cost can be quite low.But for scarce or heavily used resources, opportunity cost can bevery high.

In the case of the library, choices between collection developmentand provision of services, between acquiring books or journals,between acquiring print materials or electronic access are each anexample of opportunity cost vs. purchase cost.


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Fixed Cost vs. Variable Cost Fixed cost is the cost that has to be incurred before any production

can take place. It is likely to be represented by capital investmentin the tools of production. It may be represented by infrastructureof the firm, including its management. It is here that risk capitalis so significant. And return on that risk capital investment surelyis necessary if that investment is to be made.

In the case of the library, at any given time the cost of thecollection and of the facilities is essentially a fixed cost, notsomething that is a function of the amount of use made.

Variable costs are the costs incurred as a function of the amount ofproduction. It is likely to be represented by the labor costs inproduction of the product or service.

In the case of the library, the variable costs are indeed a functionof the amount of service provided. They arise from circulation, oruse, of the collection and from reference services provided to theusers, and from other types of services (such as photocopy andbibliographic instruction).


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Fixed Cost and Scale of Operations

It should be noted that there is an underlying relationship betweenthe magnitude of fixed costs and the scale of operations. It reflectsthe maximum capacity of given fixed costs to handle the workload.

Therefore, one should consider the fixed costs as fixed for an

identified maximum scale of operations. If that maximum isexceeded, the fixed costs will increase.

In the case of the library, this is well exhibited by the fixed costs inbuildings and facilities. They have a limited capacity in terms of

the size of collection that can be stored and the number of usersthat can be accommodated. If the scale of operations grows, eitherin the capital investment in the collection or in the number of usersto be served, there will need to be additional fixed costs in thebuildings and facilities needed to accommodate them.


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Fixed Cost vs. Sunk Cost

Sunk cost is a fixed cost that cannot subsequently be recovered (e.g.on closure of the firm or in sales of assets for any other reason).Fixed costs other than sunk costs may be recoverable.

Entrants to a market have to meet fixed costs. Those firms that exit a market will forfeit sunk costs, but not other

fixed costs. In the case of a library, the distinction may be irrelevant, unless the

library decides to cease all or some portion of its operation. In such acase, there would be the need to determine what capital investmentcould be recovered. Presumably the portion of the collectioninvolved might have market value (in some cases even exceeding the

purchase costs). The investments in selection, acquisition, processing,and cataloging though, are likely not to be (although the sale pricefor the collection might include some recognition of thoseinvestments). Buildings and facilities may be saleable.


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Total Costs

Total costs of production are the sum of fixed and variable costs. IfT = Total Cost, F = Fixed Costs and V = Variable Costs, then:TC = FC + VC

Fixed costs have to be incurred whatever the scale of production.

They are taken as constant within a pre-determined maximumscale of operation. It should again be noted that there will bedependence of the magnitude of fixed costs on the maximum scaleof operation they can handle.

Variable costs depend on the volume of production, the actual

scale of operation.


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Unit Costs

In economics, there are two measures of unit cost:

Marginal cost is the additional cost of producing the next unitgiven that the company has already produced a number of units

Average cost is the total cost for producing n units divided by n.That is, A = T/n

If there are large fixed costs, then marginal cost will usually fallbelow average cost.


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Economies of Scale Economies of Scale arise when the average cost declines as the

scale of production increases. This will usually be the case when there are large fixed costs, since

those fixed costs will be divided among a larger number of units. Itwill sometimes be the case when the learning curve results inincreased efficiency.

This will usually NOT be the case when the variable costs increaseas the number of units increase. This can arise, in particular, whenproduction consumes a scarce resource or results in decreasedefficiency.

In principle, one would expect a library to have substantialeconomies of scale, given the usually large capital investment incollection, building, and facilities. There have been studies made toexamine whether that indeed is the case, but the results were atbest equivocal.


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Customers, Demands, and Income

Lets now turn to the other side of the economic balance, the

customer as the recipient of the production and the source ofincome to balance the costs incurred in production.

Who are the customers? What are their needs?

What are they willing to pay?


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The Range of Customers

In most industries, there are three groups of customers: Individuals (persons and households)

Other firms

Government

For many industries, these groups may be either or both nationaland international.

For the library, the first two of these groups are clearly present,the second being represented by inter-library loan. For public

libraries, there is likely to be a significant level of use bygovernment. For archives, as a closely allied activity, governmentmay well be the primary customers.


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What are their needs or demands?

Here I will not try to generalize the issues, but instead I will focuson the needs or demands of the users of the library. It would appear, on the surface of it, that the most basic of them is

the access to the books, journals, and other materials that are themajor capital investment of the library. Beyond that is access to theservices that the library staff and facilities provide.

And for many if not most libraries, those are probably the onlyneeds that must be met.

But I think that underlying those needs is a more fundamental one.It is the need to assure that access to the information materials ispossible. To meet this need means that at least some library must

preserve the record, really independent of whether there is anevident, immediate need for it or customer for it. It is here that the library becomes not so much a means for meeting

the needs of the individual user as for meeting the needs of society.It is this that makes the library an institution of public policy.


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What are they willing to pay?

Here again, I will not try to deal with the general economic pictureof the willingness of customers to pay, but instead will focus on thelibrary.

Most libraries do not function on the payments by individual users(except for specific services, such as photocopying), but rather onfunding by the society or institution to which the users belong.

The willingness to pay is therefore a societal or institutional issue.And it probably must be dealt with as a political process ratherthan a strictly economic process.

In most institutions, the library is treated as a part of overheadexpense. In some companies, though, it is treated as a cost centeror even profit center, and in such cases effectively the users do payfor the librarys services.

Of most interest, though, there are situations in which the libraryis regarded as part of the institutions own capital investment, asone of its tools for production. This is clearly the case with anacademic library and especially so for a research library.


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(3) Macroeconomics Macroeconomics tries to answer questions like the following:

Why do prices change from one time period to another? Why does national employment vary from year to year? Why does average income vary among countries?

The role of macroeconomics is to help in the following areas: Establishing social policy and making social choices Measuring national income Determining national fiscal policy Managing money and banking Dealing with inflation, unemployment, and economic growth Fitting a country into the world economy

The tools of macroeconomics are valuable to library management in Fitting libraries into the national economy Determining the level of resources appropriate for libraries Guiding social and institutional policies with respect to libraries


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Measuring National Income

Gross domestic product (GDP) is a measure of the income and theexpenditures of an economy. It is the total market value of all finalgoods and services produced within a country in a given period oftime.

Note that it measures only the final products, not intermediate

ones, and that it includes both good and services. For an economy as a whole, income must equal expenditure:

Every transaction has a buyer and a seller. Every dollar spent by a buyer is a dollar of income for a seller.

The flow and essential equality of income and expenditure can beillustrated by the following diagram.

In this diagram, I have highlighted, in blue, the flow of taxes, fromhouseholds and firms to government. And I have highlighted inred the flow of wages, rents, and profits from governments andfirm to income to households.


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Markets for Goods and Services Markets for Factors of Production

Input to

Markets

Output from

Markets

Input to

Markets

Output from

Markets

Order, pay forgoods/services

Receivegoods/services

Provide Labor,Money, Land

Receive incomeIndividuals,

Households Pay taxes Pay taxes

Provide goods

and services

Receive

revenue

Provide factors of

production

Receive revenue

Order, pay forgoods/services Receivegoods/services Order, pay forfactors of production Receive factorsof production

Pay income for

wages, rents, profit

Firms

Pay taxes Pay taxes

Provide

infrastructure

Receive taxes

and fees

Provide

infrastructure

Receive taxes

and feesOrder, pay for

goods/services

Receive

goods/services

Order, pay for

factors of production

Receive factors

of production

Governments

Pay income for

wages, rents


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The Input-Output Matrix

The flow of transactions represented by this chart and especiallythose involved in the firm to firm transactions, is quantitativelydescribed by what is called the input-output matrix of thenational economy.

Of course, the national input-output matrix does not show theindividual firm-to-firm transactions but instead accumulates themby industry groups. It therefore shows the purchases by eachindustry group from each industry group.

It also shows the total sales by each industry to governments andto the groups of individuals and households, called end users.

Finally it shows the purchases and sales for each industry thatinvolved sources and customers, of whatever kind, outside thecountry.


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Libraries in the Macroeconomy

So what does the macroeconomy mean for libraries? Or, perhapsmore to the point, what do libraries mean for the macroeconomy?

To me, the key point is the role of the information sector in the

macroeconomy and, therefore of the library as a component of theinformation sector.


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Economists

It needs to be recognized that economic positions and theories arenot like those about the physical and biological world. The thingsthey deal with reflect the decisions of people, not the laws of theworld, which presumably are independent of what people do.

The positions and theories are the result of the work of individuals,

called economists. They have brought to the process of creatingthose positions and theories their own views of what is right andwhat should be social policies., governing what people do.

It is therefore essential to understand who these persons were andwhat their positions were.

I will review a selected set of economists in two groups Those who lived before the Nobel Prize for Economics Those who have been awarded the Nobel Prize for Economics

In addition, I will review a selected set of non-economists whohave, in one way or another, influenced those economists.


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Economists before the Nobel Prize

Note that I have listed these persons in three groups: Private Value Oriented Public Value Oriented Methodology Oriented

These represent what I think are the three major approaches toeconomic practice, analysis, and theory. Of course, each of thepersons, to one degree or another, falls into each group. Theassignment made here simply reflect my own idiosyncratic view ofthe major emphasis of each of their objectives.

PRIVATE VALUE ORIENTED PUBLIC VALUE ORIENTED METHODOLOGY ORIENTED

Adam Smith 1723-1790 Jeremy Bentham 1748-1832

Thomas Malthus 1766-1834 John Stuart Mill 1806-1873 Leon Walras 1834-1910

David Ricardo 1772-1823 Karl Marx 1818-1883 Francis Edgeworth 1845-1926

Alfred Marshall 1842-1924 Henry George 1839-1897 Irving Fisher 1867-1947

Vilfredo Pareto 1848-1923 Thorstein Veblen 1857-1929 Joseph Schumpeter 1883-1950

John A. Hobson 1858-1940 John Maynard Keynes 1883-1946 John von Neumann 1903-1957


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Private-Value Oriented

The next six displays present the economists that I identify asprivate-value oriented.

Please recognize that each of the economists will be concerned withboth public and private values, as well as methodology, so thisassignment simply represents my own interpretation of theprimary focus.


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Adam Smith (17231790)

Adam Smith was a Scottish social philosopher and politicaleconomist best known forAn Inquiry into the nature and causes ofthe Wealth of Nations (1776), the first major work of laissez-faireeconomics. It covered such concepts as the role of self-interest, thedivision of labor, the function of markets, and the international

implications of a laissez-faire economy. Wealth of Nationsestablished economics as an autonomous subject and launched theeconomic doctrine of free enterprise.

Smith laid the intellectual framework that explained the freemarket and still holds true today. He is often accredited with theexpression "the invisible hand," which he used to demonstrate

how self-interest guides the most efficient use of resources in anation's economy, with public welfare coming as a by-product. Tounderscore his laissez-faire convictions, Smith argued that stateand personal efforts, to promote social good are ineffectualcompared to unbridled market forces.


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Thomas Robert Malthus (1766-1834)

In 1798 Malthus publishedAn Essay on the Principle of Populationas it affects the Future Improvement of Society, with Remarks on theSpeculations of Mr. Godwin, M. Condorcet, and other Writers. Itargued that human hopes for continued social happiness must be

vain, for population will always tend to outrun the growth ofproduction. The increase of population will take place, ifunchecked, in a geometrical progression, while the means ofsubsistence will increase in only an arithmetical progression.Population will always expand to the limit of subsistence and will

be held there only by famine, war, and ill health.


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David Ricardo (1772-1823)

Ricardo publishedPrinciples of Political Economy and Taxation(1817). He was an English economist who systematized the risingscience of economics in the 19th century. In his Iron Law of Wageshe argued that attempts to improve the real income of workerswere futile since an increase in income of workers results in morechildren and a larger workforce, and employers then will lowerwages as the working population grows exponentially.

Ricardo postulated the concept of comparative advantage whichargues that a country gains from specializing in what it does bestand trading with other nations. As a result, he was an opponent ofprotectionism for national economies, believing that protectionism

led towards economic stagnation. Comparative advantage formsthe basis of modern trade theory. Ricardo, for much the same reasons. also opposed the "corn laws

which were intended to protect British landowners from foreigncompetition by guaranteeing them a high price for their produce.


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Alfred Marshall (1842-1924)

Marshall was one of the chief founders of the school of Englishneoclassical economics. His magnum opus,Principles of Economics(1890), was his most important contribution to economicliterature. It was distinguished by the introduction of a number ofnew concepts, such as elasticity of demand, consumer's surplus,quasi-rent, and the representative firm, all of which played a

major role in the subsequent development of economics. HisIndustry and Trade (1919) was a study of industrial organization;Money, Credit and Commerce was published in 1923. Writing at atime when the economic world was deeply divided on the theory ofvalue, Marshall succeeded, largely by introducing the element oftime as a factor in analysis, in reconciling the classical cost-of-

production principle with the marginal-utility principleformulated by William Jevons and the Austrian school. Marshallis often considered to have been in the line of descent of the greatEnglish economistsAdam Smith, David Ricardo, and J.S. Mill.


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Vilfredo Pareto (1848-1923) Vilfredo Pareto (1848-1923) was an Italian sociologist and

economist. His first work, Cours d'conomie Politique (189697),included his famous law of income distribution, a complicatedmathematical formulation in which Pareto attempted to prove thatthe distribution of incomes and wealth in society is not randomand that a consistent pattern appears throughout history

He laid the foundation of modern welfare economics with the

concept of the Pareto optimum, which states that the optimumallocation of the resources of a society is not attained so long as it ispossible to make at least one individual better off in his ownestimation while keeping others as well off as before in their ownestimation.

A key point about a Pareto optimum is that it essentially preservesthe status quo for those who have. In social choice, Pareto efficient is: If alternative X is preferred to

alternative Y by every individual, then the social ordering shouldalso prefer X to Y.


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John A. Hobson (1858-1940)

John A. Hobson was an English historian and journalist with aninterest in economics. He wrote one the most famous critiques ofthe economic bases of imperialism in 1902. Although his lack ofunderstanding of markets and marginal analysis led to his being

ostracized by his contemporary academic economics circles, histhoughtful critique of the justifications of imperialism and hiswork taking the topic back to first principles stands today as anexample of respect for all peoples throughout the world. He was amember of the Fabian Society, and although he wrote for several

socialist journals, he was an independent thinker who argued thatcapitalist goals had been perverted by special interests andmisdirected governments.


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Public-Value Oriented

The next six displays present the economists that I identify aspublic-value oriented.

Please recognize that each of the economists will be concerned withboth public and private values, as well as methodology, so thisassignment simply represents my own interpretation of theprimary focus.


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Jeremy Bentham (1748-1832)

English philosopher, economist, and theoretical jurist, the earliestand chief expounder of Utilitarianism. He distinguished betweenmaximizing individual utility and aggregate utility as the basis ofsocial organization. He related happiness to the means to obtain it,so the wealthier a person is the greater happiness he can attain.

The critical question for Bentham was whether unhinderedpursuit of individual happiness could be reconciled with morality.He believed that morality required that actions be judged on thebasis of how their outcomes affect general utility in a society.

But what is general utility in a society? Bentham argued that itwas the sum total of individual utilities of all members of a society.

He emphasized the need for equal weights in this summation, so noperson's utility should count more than another's.


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John Stuart Mill (1806-1873) English philosopher, economist, and exponent of Utilitarianism.

He was prominent as a publicist in the reforming age of the 19thcentury, and remains of lasting interest as a logician and an ethicaltheorist.

First, Mill argued that society's utility would be maximized if eachperson was free to make his or her own choices. Second, Mill

believed that freedom was required for each person's developmentas a whole person. In his famous essay On Liberty, Mill enunciatedthe principle that "the sole end for which mankind are warranted,individually or collectively, in interfering with the liberty of actionof any of their number, is self-protection." He wrote that weshould be "without impediment from our fellow-creatures, so long

as what we do does not harm them, even though they should thinkour conduct foolish, perverse, or wrong." Mill was not an advocate of economic laissez-faire. He favored

inheritance taxation, trade protectionism, and regulation of hoursof work of labor.


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Karl Marx (1818-1883)

Marx, of course, isthe revolutionary economist. He published(with Friedrich Engels) The Communist Manifesto, the mostcelebrated pamphlet in the history of the socialist movement. Healso was the author of the movement's most important book,DasKapital. These writings and others by Marx and Engels form thebasis of the body of thought and belief known as Marxism.

Marx considered his theory of surplus-value as his most importantcontribution to the progress of economic analysis. Surplus-value isthe difference between what labor produces and what labor ispaid. Marx argued that the increase in capital (as the tools forproduction) and in the concentration of that capital during the 19th

century was due to the allocation of labor surplus-value to theaccumulation of capital.


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Henry George (1839-1897)

Henry George was a land reformer and economist who wroteProgress and Poverty (1879) in which he proposed that governmentshould tax only the income from the use of the bare land, but notfrom improvements, and abolish all other taxes.

George argued that most taxes stifle productive behavior, but a taxon the unimproved value of land was different. The value of land

comes from two components, its natural value and the value that iscreated by improving it (by building on it, for example). Therefore,argued George, because the value of the unimproved land wasunearned, neither the land's value nor a tax on the land's valuecould affect productive behavior.

George was right that other taxes may have stronger disincentives.

But economists now recognize that site values are created, notintrinsic, so even a tax on unimproved land reduces incentives.

George's argument also assumes that in setting taxes, governmentcan separate raw value of land from value of improvementsadifficult, if not impossible, task, especially for a politically motivatedgovernment.


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Thorstein Veblen (1857-1929)

Veblen was a U.S. economist and social scientist who sought toapply an evolutionary, dynamic approach to the study of economicinstitutions. In The Theory of the Leisure Class (1899) he coined theterm "conspicuous consumption to describe consumptionundertaken to make a statement to others about one's class oraccomplishments. This term, more than any other, is what Veblenis known for.

Veblen was an economic iconoclast. He did not reject economists'answers to the questions they posed but he thought their questionswere too narrow. Veblen wanted economists to try to understandthe social and cultural causes and effects of economic changes.

What social and cultural causes were responsible for the shift fromhunting and fishing to farming, for example, and what were thesocial and cultural effects of this shift? Veblen was singularlyunsuccessful at getting economists to focus on such questions.


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John Maynard Keynes (1883-1946) Keynes was an English economist, journalist, and financier, best

known for his revolutionary economic theories (Keynesianeconomics) on the causes of prolonged unemployment. His mostimportant work, The General Theory of Employment, Interest andMoney (193536), advocated a government-sponsored policy of fullemployment, based on beliefs that (a) economic fluctuations

significantly reduce economic well-being, (b) government actioncan improve upon the free market, and (c) unemployment is moreimportant than inflation.

The long and continuing battle between Keynesians andmonetarists has been fought primarily over (b) and (c).

In contrast, the recent debate between Keynesians and classical

economists has been fought over (a). New classical economistsbelieve that anticipated changes in the money supply do not affectreal output; that markets adjust quickly to eliminate shortagesand surpluses; and that business cycles may be efficient.


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Methodology Oriented

The next five displays present the economists that I identify asmethodology oriented.

Please recognize that each of the economists is very methodologyoriented, so this assignment simply represents my own interpretationof the primary focus.


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Leon Walras (1834-1910)

Walrus was a French-born economist whose outstanding work,lments d'conomie politique pure (187477) (Elements of PureEconomics), was one of the first comprehensive mathematicalanalyses of general economic equilibrium, i.e., the balancebetween prices and quantities of commodities.

First, he built a system of simultaneous equations to describe the

economy, a tremendous task. He then showed that, because thenumber of equations equaled the number of unknowns, the systemcould be solved to give economic equilibrium

Second, Walras was aware that, while such a system of equationscould be solved in principle, doing so in reality was difficult, so hesimulated a market process that would obtain equilibrium. Thisprocess was one of trial-and-error in which a price was called outand people in the market said how much they were willing todemand or supply at that price. If there was an excess of supplyover demand, then the price would be lowered so that less wouldbe supplied and more would be demanded. Thus would the prices

"grope" toward equilibrium.


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Francis Edgeworth (1845-1926)

Edgeworth was an economist of formidable mathematicalattainments with, however, a rather obscure style of writing. Heoriginally hoped to use mathematics to illuminate ethical questionsand his first work,New and Old Methods of Ethics (1877), drew onmathematical techniques, especially the calculus of variations.

His most famous work isMathematical Psychics (1881), whichpresented his ideas on the generalized utility function, theindifference curve, and the contract curve, all of which havebecome standard devices of economic theory.

Edgeworth contributed to the pure theory of international trade

and to taxation and monopoly theory. He also made importantcontributions to the theory of index numbers and to statisticaltheory, in particular to probability, advocating the use of data ofpast experience as the basis for estimating future probabilities.


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Irving Fisher (1867-1947 )

Irving Fisher was one of America's greatest mathematicaleconomists and one of the clearest economics writers of all time.Fishers work on money and prices, with its sophisticated use ofstatistical techniques, provided the basis for recent theoreticalwork in economics.

Fisher called interest "an index of a community's preference for a

dollar of present [income] over a dollar of future income." Interestrates, Fisher postulated, result from the interaction of two forces:"time preference" people have for capital now, and the investmentopportunity principle (that income invested now will yield greaterincome in the future).

Fisher defined capital as any asset that produces a flow of incomeover time. Capital and income are linked by the interest rate.Specifically, wrote Fisher, the value of capital is the present valueof the flow of (net) income that the asset generates. This still is howeconomists think about capital and income today.


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Joseph Schumpeter (1883-1950)

Schumpeter was a Moravian-born American economist andsociologist known for his theories of capitalist development andbusiness cycles. His influence in the field of economic theory waspowerful. In his Capitalism, Socialism, and Democracy (1942), heargued that capitalism would eventually perish of its own success,giving way to some form of public control or socialism. He arguedthat capitalism would spawn an information society (my term,not his) in which the nature of capital investment would change.

His book was much more than a prognosis of capitalism's future.It was also a sparkling defense of capitalism on the grounds thatcapitalism sparked entrepreneurship. He distinguished betweeninventions and entrepreneurial innovation, and pointed out thatthe latter comes not just by using inventions, but also by newmeans of production, new products, new forms of organization.

HisHistory of Economic Analysis (1954; reprinted 1966) is anexhaustive study of the development of analytic methods ineconomics.


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John von Neumann (1903-1957)

John von Neumann was a brilliant mathematician and physicistwho also made three fundamental contributions to economics.

First, a 1928 paper by von Neumann, established him as the fatherof game theory. Second, a 1937 paper, laid out a mathematicalmodel of an expanding economy, raising the mathematical basis

for economics. Third washeory of Games and Economic Behavior,coauthored with his colleague economist Oskar Morgenstern.

In their book, von Neumann and Morgenstern asserted that anyeconomic situation could also be defined as the context of a gamebetween two or more players.

In addition to game theory, their book gave birth to modern utilitytheory.


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Relevant Non-Economists

I think it is important to recognize and to include in this listing anumber of persons who, while not economists, are very relevant tothe development of economic positions and theories. Marquis de Condorcet (1743-1794)

Count Henri de Saint-Simon (1760-1825) Robert Owen (1771-1858)

Charles Fourier (1772-1837)

Adolph Lowe (1893-1995)


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Marquis de Condorcet (1743-1794)

Marquis de Condorcet (1743-1794) was a French mathematicianand philosopher, a liberal and humanitarian who took an activerole in the French Revolution. His most famous work was Outlinefor an Historical Table of the Progress of the Human Spirit

(translated title). In social choice, the Condorcet Principle is: If one alternative is

preferred to all other candidates then it should be selected.


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Count Henri de Saint-Simon (1760-1825)

French social theorist and one of the chief founders of Christiansocialism. In his major work,Nouveau Christianisme (1825), he

proclaimed a brotherhood of man that must accompany thescientific organization of industry and society.


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Robert Owen (1771-1858)

Welsh manufacturer turned reformer, one of the most influentialutopian socialists of the early 19th century. His New Lanark millsin Lanarkshire, with their social and industrial welfare programs,became a place of pilgrimage for statesmen and social reformers.He also sponsored or encouraged many experimental utopian

communities, including one at New Harmony, Ind., U.S.

Ch l F i (1772 1837)


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Charles Fourier (1772-1837) French social theorist who advocated a reconstruction of society

based on communal associations of producers known as phalanges(phalanxes). His system came to be known as Fourierism. Whileworking as a clerk in Lyon, Fourier wrote his first major work,Thorie des quatre mouvements et des destines gnrales (1808;The Social Destiny of Man; or, Theory of the Four Movements,1857). He argued that a natural social order exists corresponding

to Newton's ordering of the physical universe and that bothevolved in eight ascending periods. In harmony, the highest stage,man's emotions would be freely expressed. That stage could becreated, he contended, by dividing society into phalanges.Thephalange, in Fourier's conception, was to be a cooperativeagricultural community bearing responsibility for the social

welfare of the individual, characterized by continual shifting ofroles among its members. He felt that phalanges would distributewealth more equitably than under capitalism and that they couldbe introduced into any political system, including a monarchy. Theindividual member of a phalange was to be rewarded on the basisof the total productivity of the phalange.


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Adolph Lowe (1893-1995)

The lifework of Adolph Lowe (1893-1995) was greatly motivatedby his struggle with the problem of "freedom and order". Lowe'sconcern with the socialization function of education related to hisnotion of "spontaneous conformity", For Lowe, the stronger the

commitment to community, the greater is the possibility forindividual autonomy without the threat of social disruption


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The Nobel Prize for Economics The Nobel Prize for Economics (or, more correctly, The Bank of

Sweden Prize in Economic Sciences in Memory of Alfred Nobel) isthe world's most prestigious award for contributions to the field ofEconomics. It is awarded annually by the Royal Swedish Academy ofSciences. The prize consists of a gold medal, a diploma bearing acitation, and a sum of money (US$1,000,000 in recent years). Itrepresents the ultimate recognition by an economists peers.

The Economics prize was not part of Alfred Nobel's original will, butwas added in 1969, with the support of the Bank of Sweden, and hassince been judged and administered by the Nobel Foundation in away similar to that for the five original Nobel prizes.

The Economics prize is made on the basis of nominations from

selected economists, recommendation from the Prize Committee tothe Academy, and a secret ballot of the full Academy. The prizes are intended to reward specific discoveries that have

significant impact on the discipline. The Nobel laureate is announced each October, and the presentation

is made in Stockholm on 10 December.

N b l L t 1969 2004


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Nobel Laureates, 1969 - 2004 1969. Ragnar Frisch and Jan Tinbergen "For having developed

and applied dynamic models for the analysis of economicprocesses." 1970. Paul Samuelson "For the scientific work through which he

has developed static and dynamic economic theory and activelycontributed to raising the level of analysis in economic science."

1971. Simon Kuznets "For his empirically founded interpretationof economic growth which has led to new and deepened insightinto the economic and social structure and process ofdevelopment."

1972. John Hicks and Kenneth Arrow "For their pioneeringcontributions to general economic equilibrium theory and welfare

theory." 1973. Wassily Leontief "For the development of the input-output

method and for its application to important economic problems."

1974 G M d l d F i d i h H k "F th i


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1974. Gunnar Myrdal and Friederich von Hayek "For theirpioneering work in the theory of money and economic fluctuationsand for their penetrating analysis of the interdependence ofeconomic, social, and institutional phenomena."

1975. Leonid Kantovarich and Tjalling Koopmans "For theircontributions to the theory of the optimum allocation ofresources."

1976. Milton Friedman "For his achievements in the field ofconsumption analysis, monetary history and theory and for his

demonstration of the complexity of stabilization policy." 1977. Bertil Ohlin and James Meade "For their pathbreaking

contribution to the theory of international trade and internationalcapital movements."

1978. Herbert Simon "For his pioneering research into thedecision making process within economic organizations."

1979. Theodore Schultz and Arthur Lewis "For their pioneeringresearch into economic development, with particular considerationof the problems of developing countries."


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1980. Lawrence Klein "For the creation of econometric modelsand their application to the analysis of economic fluctuations and

economic policies." 1981. James Tobin "For his analysis of financial markets and their

relations to expenditure decisions, employment, production andprices."

1982. George Stigler "For his seminal studies of industrialstructure, functioning of markets and causes and effects of publicregulation."

1983. Gerard Debreu "For having incorporated new analyticmethods into economic theory and for his rigorous reformulationof the theory of general equilibrium."

1984. Richard Stone "For having made fundamental contributions

to the development of systems of national accounts and hencegreatly improved the basis for empirical economic analysis." 1985. Franco Modigliani "For his pioneering analysis of savings

and financial markets."


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1986. James Buchanan "For his development of the contractualand constitutional bases of the theory of economic and politicaldecision making."

1987. Robert Solow "For his contributions to the theory ofeconomic growth."

1988. Maurice Allais "For his pioneering contributions to thetheory of markets and efficient utilisation of resources."

1989. Trygve Haavelmo "For his clarification of the probability

theory foundation of econometrics and his analysis of simultaneouseconomic structures." 1990. Harry Markowitz "For having developed the theory of

portfolio choice." William Sharpe "For his contributions to thetheory of price formation for financial assets, the so-called CapitalAsset Pricing Model (CAPM)." Merton Miller "For hisfundamental contributions to the theory of corporate finance."

1991. Ronald Coase "For his discovery and clarification of thesignificance of transaction costs and property rights for thetraditional structure and functioning of the economy."

1992 G " i i f


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1992. Gary Becker "For having extended the domain ofmicroeconomic analysis to a wide range of human behaviour andinteraction, including non-market behaviour."

1993. Robert Fogel and Douglass North "For having renewedresearch in economic history by applying economic theory andquantitative methods to explain economic and institutionalchange."

1994. John Harsanyi, John Nash and Reinhard Selten "For theirpioneering analysis of equilibria in the theory of non-cooperative

games." 1995. Robert Lucas "For having developed and applied the

hypothesis of rational expectations, and thereby havingtransformed macroeconomic analysis and deepened ourunderstanding of economic policy."

1996. James Mirrlees and William Vickrey "For theirfundamental contributions to the economic theory of incentivesunder asymmetric information."

1997. Robert C. Merton and Myron S. Scholes "For a new methodto determine the value of derivatives"


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1998. Amartya Sen "For his contributions to welfare economics." 1999. Robert A. Mundell "For his analysis of monetary and fiscal

policy under different exchange rate regimes and his analysis ofoptimum currency areas." 2000. James Heckman "For his development of theory and

methods for analyzing selective samples." Daniel McFadden "Forhis development of theory and methods for analyzing discretechoice."

2001. George A. Akerlof, A. Michael Spence, and Joseph E.Stiglitz "For their contributions to the analyses of markets withasymmetric information."

2002. Daniel Kahneman, For having integrated insights frompsychological research into economic science, especially

concerning human judgment and decision-making underuncertainty. Vernon L. Smith, For having establishedlaboratory experiments as a tool in empirical economic analysis,especially in the study of alternative market mechanisms


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2003. Robert F. Engle, For methods of analyzing economic time

series with time-varying volatility. Clive W. J. Granger, Formethods of analyzing economic time series with common trends

2004. Finn E. Kydland and Edward C. Prescott, jointly For their

contributions to dynamic macroeconomics: the time consistency ofeconomic policy and the driving forces behind business cycles


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Four aspects of the Nobel Economists

(1) the individuals, their lives and character

(2) the conceptual and theoretical constructs with which theirviews of economics is concerned

(3) their applications of those economic concepts and theories (4) the conflicts, in ideology and application, that are embodied in

the work of these individuals


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The individuals, their lives and character

Most if not all of these persons are interesting as individuals. Theexample of John Nash (recall the book and movie, roughly basedon that book,A Beautiful Mind)is perhaps extreme, but it is notunique.

Many of them are academics and, as such, perhaps dull to theusual public, but all of them are intellectual giants with all of thepersonal idiosyncrasies that go with stature. Their stories covermany geographical regions of the world and time periods of thepast century.

Just to cite a few examples:


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Gunnar Myrdal, the Swedish economist, played significant political

roles in formulating and maintaining the socialist character of the

Swedish political system. He wrote The American Dilemma,published in 1944, which documented the status of black Americanat the time. It was instrumental in the Supreme Court's historic 1954anti-segregation decision. He also wroteAsian Drama, an inquiryinto the poverty of nations, published in 1968, which similarlydocumented the status of underdeveloped Asian countries viz a viz

developed Western ones.

Milton Friedman, the American economist, is the champion of the"free enterprise system", to the level of fanaticism. Indeed, from histutorship at the University of Chicago, has flowed an almost endless

stream of economic conservatives that has led the policies, botheconomic and legal (see especially Richard Posner) of the UnitedStates for decades.


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Vasily Leontieff, a Russian-born American economist, whoformulated the concept of the "input-output matrix" thatmeasures the inter-dependence of components of the economy andprovides probably the most powerful single tool for understandingand managing national economies.

Kenneth J. Arrow (1921-) is a U.S. economist known for his

contributions to welfare economics and to general economicequilibrium theory. Arrows impossibility theorem holds that,

under some well defined and presumably rational conditions, it isimpossible to guarantee that a ranking of societal preferences willcorrespond to rankings of individual preferences when more than

two persons and alternative choices are involved.


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In 1994, John Forbes Nash, Jr. won the Nobel Prize for pioneeringwork in game theory. Nash was 66. While he was still only 21, hewrote a 27-page doctoral dissertation on game theory -- the

mathematics of competition. The great John von Neuman, then atPrinceton, had treated win-lose competitions. Now Nash showedhow to construct mathematical scenarios in which both sides won.Nash put a whole new face on competition, and he drew theattention of theoretical economists. He had turned game theoryinto a tool. This young genius brought the field to fruition. He wenton to MIT and for eight years dazzled the mathematical world. Heworked in economics as well as mathematics. He even invented thegame of Hex, marketed by Parker Brothers. Then, disaster! For 25years, from about 1957, he suffered from paranoid schizophrenia.Mental illness wrapped about him like an evil cloud. Today,though, he is working on novel uses of the computer in a researchpost at Princeton. Nash has survived what looked like death.


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Conceptual and theoretical constructs

There are conceptual and theoretical constructs that underlie thework of all of the individuals. They embody very fundamentalideas such as "equilibrium" (i.e., the balance between productionand consumption and the balance between competing objectives),

"utility" (i.e., the measurement of relative value), "optimum" (i.e.,the determination of what is "best"), etc. These concepts embodyreal conflicts in objectives (such as those between management andlabor)

Many of the Nobel Prizes were awarded for specific concepts (suchas the "input-output matrix" by Leontieff), so it is natural tohighlight them in the context of specific individuals.


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Conflicts in ideology and application

The nature of economics is that, theoretical though it may be, itembodies fundamental conflicts in ideology and application. Themost evident, of course, is that between capitalism and socialism(or, at the extreme, communism). Indeed, most of the conflicts may

be simply components of that one, but perhaps not. The conflict over the global economy is not only part of the

capitalism/socialism conflict but of that between corporateeconomies and national economies.

Web site for Economics & Economists


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Web site for Economics & Economists

The Web site Library of Economics and Liberty: Home andMain Menu Page at http://www.econlib.org/seems to provide agood resource for information about economics.

They include biographies for many, though not all, of the personsidentified in this presentation.

Among them are several that I have not included but that are asworth examining as the ones I have highlighted: Armen Alchian John Kenneth Galbraith Friedrich Hayek

David Hume John Locke Fritz Machlup Ludwig von Mises Max Weber
http://www.econlib.org/http://www.econlib.org/


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The End

economics and economists

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