By Tirthankar Mukherjee
The beginning of a year is a better time than most to remember those who passed away in the year just left behind. The idea of doing so for this column came to me as I was flying back to Mongolia and that explains, even if it does not excuse, the randomness of my choice, given the exigencies of space. All my choices were exceptionally gifted minds but I do not imply that their contribution to economic thought was more important than others I do not touch upon.
The first person I thought of was Angus Maddison who loved to be called a chiffrephile – a lover of numbers. His forte was economic growth, past and present, and he studied and wrote on almost every aspect of what caused it and what could be done to encourage it. He built up data that enabled him to publish estimates of gross domestic product for 56 countries dating back to 1820, showing that growth accelerated across the western world from that point. His wrtings forced a rethink of theories of growth, postulating take-off at different points in time for large western economies at which mercantilism was “suddenly” succeeded by an industrial “revolution”.
Maddison’s datasets were sometimes controvesial as the sources he used ranged from centuries-old wills to early-modern royal surveys of Mughal India. but no economic historian could ignore them. He even estimated world output in the year AD1. He was convinced, and convincing, in his view that rising income per capita was a necessary if not a sufficient condition for the improvement in human welfare, ignoring proposals to deduct estimates of the social costs of growth from his estimates of output. Some elderly Mongolians might remember him for he visited here, with his usual purpose of improving his perspective on how to bring policy proposals into line with how those meant to benefit would view them.
My next choice is Benoоt Mandelbrot, but I have only an imperfect understanding of what he is most famous for. This was fractal geometry – finding underlying patterns in roughness and irregularity – but he had enormously wide interests and was a key figure in the broader field of chaos theory. He moved across many disciplines at once to find new insights, seeking always a measure of order in physical, mathematical or social phenomena that are characterised by abundant data but wild variability. Over time, financial mathematics became a pressing interest with him and in the last decade of his long life, he co-authored “The (Mis)Behaviour of Markets: A Fractal View of Risk, Ruin and Reward” – a devastating attack on the failure of mainstream economists and mathematicians to understand the likelihood of wild swings in prices and the risk of financial disaster. Subsequent events, and you know what I mean, vindicated him.
Another casualty of 2010 who for long warned against the kind of banking and stock market practices that would lead to the financial crises of 1998 and 2008 was Maurice Allais of France, who once described Wall Street as “a veritable casino” and never tired of warning of what he considered the dangers of globalisation. The Nobel Prize winner was highly critical of the World Trade Organisation, maintaining that globalisation profits only the multinationals and arguing that a degree of national protectionism was often justified.
Shortly before the latest financial crisis, already in his nineties, he wrote: “The world economy rests entirely on gigantic pyramids of debt, all supporting themselves on one another in a fragile equilibrium. Never has such potential instability appeared with such a threat of general meltdown.” An earlier Nobel economics winner, the American Paul Samuelson, used to say that a generation of economic theory would have taken a different course had Allais’ economic theories been published in English earlier.
Chris Freeman’s principal interest was in determining the role of technology in economic growth. The view that innovation and competition were forces of “creative destruction” and drivers of investment and change constantly puzzled him by how long it took the theory of economic growth to go beyond the notion that technological advance was unexplained or determined outside the system. His work set out with great insight the role of waves of innovation in driving growth. I remember a student of his once telling me that Freeman was almost always dressed in a sweater, tweed jacket, baggy trousers and boots of some variety – which together constituted the ultimate solution to the “clothes problem” for men.
A Canadian said in an interview to his hometown newspaper before he recently came to Mongolia to help with credit unions that he expected his job to be challenging as this country did not even have ATMs. I don’t know how long it took him after his arrival here to realise how ill-informed experts can be. This I remember as John Shepherd-Barron, who was widely regarded as the inventor of the automated teller machine, or cash dispenser, also died in 2010. He always said his eureka moment came in his bath one Saturday night in 1965, having reached his bank just a minute after it closed that lunchtime. If you could get a chocolate bar out of a machine at any time of day, why not banknotes, he wondered, and now millions thank him daily without, of course, knowing about him. He had never patented his invention, as lawyers had advised that a patent would mean disclosing the coding system so inviting crooks to crack the code, so there was always confusion when others stepped forward to say they, too, had played a key role, but Shepherd-Barron died secure in the knowledge that the global ATM Industry Association – ATMIA – formally credited him with the inventionand described him as a technological visionary, comparing him with Alexander Graham Bell. As an aside, allow me to say that he was born in Shillong, now the capital of the Indian state of Meghalaya.
This purported panegyric would not be complete without a reference to Tapas Majumdar, whom no reader of this magazine has heard of. He taught me, as he did others much more worthy of his care, such as Nobel laureate Amartya Sen. Majumdar completed his PhD at the London School of Economics under the legendary Lionel Robbins. His dissertation was published as a well-known book, The Measurement of Utility, and he continued to work and publish in the theoretically sophisticated area of demand and choice theory.
Throughout his life, he encouraged students to carry out empirical research as well as research on the abstract foundations of a subject, and would have understood the word ‘elite’ to mean ‘excellent minds’ rather than ‘enemies of society’ as is often the practice now. He used to recall his effort in reading the monograph, Theory of Value, by Gйrard Debreu (who won the Nobel prize in economics in 1983) soon after it was published in the late 1950s. It was a mathematically daunting piece of writing and Majumdar ended up writing to Debreu about a point that he was unable to resolve. Debreu replied by sending him a letter that contained little more than a small hand-drawn diagram that settled the issue completely. Majumdar often spoke humorously about the might of supreme brevity.
Ancient Indian thought says three debts have to be repaid every day of one’s life – those to one’s father, mother, and teacher. They are mainly responsible for making all human beings what they are –combining nature and nurture. This month’s column is my little effort at repaying some part of this debt.