Economics
&
The Economists
Robert M. Hayes
2005
Overview
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Why should a library manager think about economics?
Why look at economists?
What is economics?
Brief review of history
The contexts for economics
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Personal Economics
Microeconomics
Macroeconomics
 The economists
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Crucial persons before the Nobel Prize
Nobel Prize Winners
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 will
happen in the future.
 I think that a library manager needs to have an appreciation of
those theories and conflicts, especially in order to deal with the
issues involved in strategic management. This appreciation does not
require expertise in economics but it does require knowledge of
what the theories and conflicts are and, perhaps even more
important, 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 manager
may well find them of value in management.
 As I discuss various economic issues, I will try to highlight some of
their implications for libraries and library management.
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 how
they have represented them. At the least, it permits one to deal with
them on a personal level rather than merely a conceptual one.
 Therefore, later in this presentation, I am going to identify a
number of economists, as well as others that seem to me important,
and, briefly, to discuss major contributions they have made to the
theory, in many cases, to the conflicts, and in all cases to the
methodologies.
 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 be
awarded. Second are those to whom the Nobel Prize in Economics
has been awarded (through 2004, the most recent award).
What is economics?
 First, let’s look at economics. What is it?
 To answer that question, I will first briefly review the history of
economics. Then, describe the contexts for economics , the major
concerns of economics, and finally the major schools of thought
about those concerns.
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 its
transformation from an agrarian to an industrial society.
 Despite the enormous differences between then and now, the
economic problems with which society struggles remain the same:
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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 questions
tends to take discrete steps rather than to evolve smoothly over
time. A new school of ideas suddenly emerges as changes in the
economy yield fresh insights and make existing doctrines obsolete
or at least obsolescent. The new school may eventually become a
consensus view, then a stimulus for the next wave of new ideas.
 This process continues today and its motivating force remains the
same as that three centuries ago: to understand the economy so
that we may use it wisely to achieve society's goals.
Selected Historical Economic Positions
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Mercantilism
Physiocrats
Classicism
Utilitarianism
Marginalism
Marxism
Institutionalism
Keynesianism
Current Theories
Mercantilists
 Mercantilism was the economic philosophy adopted by merchants
and statesmen during the 16th and 17th centuries. Mercantilists
believed that a nation's wealth came primarily from the
accumulation of gold and silver. Nations without mines could
obtain gold and silver only by selling more goods than they bought
from abroad. Accordingly, the leaders of those nations intervened
extensively in the market, imposing tariffs on foreign goods to
restrict import trade, and granting subsidies to improve export
prospects for domestic goods. Mercantilism represented the
elevation of commercial interests to the level of national policy.
Physiocrats
 Physiocrats, a group of 18th century French philosophers,
developed the idea of the economy as a circular flow of income and
output. They opposed the Mercantilist policy of promoting trade at
the expense of agriculture because they believed that agriculture
was the sole source of wealth in an economy. As a reaction against
the Mercantilists' copious trade regulations, the Physiocrats
advocated a policy of laissez-faire, which called for minimal
government interference in the economy.
Classical Economics
 The Classical School of economic theory began with Adam Smith’s
work, The Wealth of Nations. In Smith's view, the ideal economy is
based 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 laissezfaire, into his own economic theories, but rejected the idea that only
agriculture was productive.
 While Adam Smith emphasized the production of income, David
Ricardo 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 to
increase geometrically, outstripping the production of food, which
increased only arithmetically.
Utilitarianism
 Coming at the end of the Classical tradition, John Stuart Mill
parted company with the classical economists on the inevitability
of the distribution of income produced by the market system. Mill
pointed to a distinct difference between the market's two roles:
allocation of resources and distribution of income. The market
might be efficient in allocating resources but not in distributing
income, he wrote, making it necessary for society to intervene.
Marginalism
 Classical economists theorized that prices are determined by the
costs of production. Marginalist economists emphasized that prices
also depend upon the level of demand, which in turn depends upon
the amount of consumer satisfaction provided by individual goods
and services.
 Marginalists provided modern macroeconomics with the basic
analytic tools of supply and demand, consumer utility, and a
mathematical 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 to
production. This principle was sometimes used to justify the existing
distribution of income: that people earned exactly what they or their
property contributed to production.
Marxism
 The Marxist School challenged the foundations of Classical theory.
Writing during the mid-19th century, Karl Marx saw capitalism as
an evolutionary phase in economic development. He believed that
capitalism would ultimately be succeeded by a world without
private property.
 Advocating a labor theory of value, Marx believed that all
production belongs to labor because workers produce all value
within society. He believed that the market system allows
capitalists, 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 lead
them to adopt labor-saving machinery, creating an "army of the
unemployed" who would eventually rise up and seize the means of
production.
Institutionalism
 Institutionalist economists regard individual economic behavior as
part of a larger social pattern influenced by current ways of living
and modes of thought. They rejected the narrow Classical view
that people are primarily motivated by economic self-interest.
Opposing the laissez-faire attitude towards government's role in
the economy, the Institutionalists called for government controls
and social reform to bring about a more equal distribution of
income.
Keynesianism
 Reacting to the severity of the worldwide depression of the 1930s,
John Maynard Keynes in 1936 broke from the Classical tradition
with the publication of the General Theory of Employment, Interest,
and Money. The Classical view assumed that in a recession, wages
and prices would decline to restore full employment. Keynes held
that the opposite was true. Falling prices and wages, by depressing
people's incomes, would prevent a revival of spending. He insisted
that direct government intervention was necessary to increase total
spending.
 Keynes' arguments provided a rationale for the use of government
spending and taxing to stabilize the economy. Government would
spend and decrease taxes when private spending was insufficient
and threatened a recession; it would reduce spending and increase
taxes when private spending was too great and threatened
inflation. His analytic framework, focusing on the factors that
determine total spending, remains at the core of modern
macroeconomic analysis.
Current Theories
 Keynesian theory, with its emphasis on activist government
policies to promote high employment, dominated economic
policymaking in the early post-war period. But, economic theories
are constantly changing, and starting in the late 1960s, troubling
inflation and lagging productivity prodded economists to look for
new approaches. From this search, new theories emerged:
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Monetarism, which updates macroeconomic analysis before
Keynes. It reemphasizes the critical role of monetary growth in
determining inflation.
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Rational Expectations Theory provides a contemporary
rationale for the pre-Keynesian tradition of limited
government involvement in the economy. It argues that the
market's ability to anticipate government policy actions limits
the effectiveness of government intervention.
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Supply-side Economics recalls the Classical School's concern
with economic growth as a fundamental prerequisite for
improving society's material well-being. It emphasizes the need
for incentives to save and invest if the nation's economy is to
grow.
Future Theories
 It seems to me that we are now in an economic context in which
the change is at least as dramatic as that involved in the addition
of an industrial economy to the agricultural economy during the
19th century. Of course, it is the addition of an information
economy to the industrial and agricultural economies.
 This implies to me that there will need to be new economic theories
that recognize new facts of life.
 Now, the agricultural and industrial economies obviously will
continue to function, as did the agricultural when the industrial
revolution occurred. But the agricultural economy changed in very
important ways as it was affected by the industrial revolution.
And, in the same way, there should be changes in both the
agricultural and industrial economies as they are impacted by the
information revolution.
 Since libraries are a significant component of the information
sector of the economy, their role in the information revolution, and
in the economic theories to deal with it, must be understood.
The Contexts for Economics
 There are three major contexts for economics:
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(1) Personal economics (economics of the person and family)
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(2) Microeconomics (economics of the firm)
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(3) Macroeconomics (economics of the society)
 Strangely, as far as I can see, most economists pay relatively little
attention, in either theory, practice, or position to the economics of
the person and the family.
 So the major foci of the interests of economists are on micro and
macroeconomics. I suppose that is to be expected, since those are
the contexts in which reward and power reside.
 The library functions as a counterpart of the individual firm, so
the issues in microeconomics apply to it. The library community,
as a whole, is a significant part of the information sector of the
economy. Therefore, the issues of macroeconomics apply to that
community.
(1) Personal Economics
 As I said, most economists, in the past, have paid little attention to
the 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 for
2002 was awarded to Daniel Kahneman and Vernon L. Smith for
experimental investigations of individual decision-making.
(2) Microeconomics
 Microeconomics, or the economics of the firm, is concerned with
the balance between costs and income, especially as determined by
the interactions in the marketplace. The costs arise from labor,
materials, and investment in and return on capital. The income
derives from the customers, based on the prices charged and
payments received from the sale of products and services.
 In arriving at that balance, the individual firm faces not only the
forces of the marketplace but those of competition as well. It must
therefore deal with changing costs and demands and changing
competitive environments.
 Thus, in micro-economics, we are concerned with
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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
The Marketplace
 What is the Marketplace? In this context, it is the place for “meeting
together of people for the purchase and sale of goods, publicly
exposed, at a fixed time and place.” (OED definition 1 for Market)
 It must be said, though, that a marketplace usually is much more than
that 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 the
marketplace.
 Before doing so, though, I think it is important to recognize a possible
confusion in terminology. Economists and businessmen, but especially
the 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 is to
refer to the customers (i.e., the “market”) for a product of service.
 I will try to avoid the possible confusion by identifying the word
“market” with marketplace and refer to the customers as customers.
When is openness important?
 Markets need to be open when:
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trust is required in an exchange
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products are not standardized and need inspection
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there are information asymmetries between buyer and seller
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guarantees are difficult to obtain
 Markets can be anonymous when:
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trust is not necessary
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products are standardized and do not need inspection
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information is symmetric
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guarantees are secure
 It is of more than passing interest to note that the recent advent of
three things – the Internet, the explosion of derivatives, and the
consequent growth of hedge funds – is changing the very nature of
the marketplace. In both of the latter two contexts but to a major
extent in the first as well, it is increasingly NOT publicly exposed
but rather is becoming hidden.
Management of a Marketplace
 There is, to some degree, the perception that a marketplace functions
without management. Adam Smith referred to it as the “invisible
hand” 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.
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Price must be agree on.
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Product or service specification must be agreed on.
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Terms of delivery must be agreed on.
 But the other is to provide oversight on processes and transactions
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To ensure legality of trade
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To enforce standards and regulations
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To assure “fair trading”
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To determine effects on third parties (called externalities)
Economic Properties of Markets
 In economic terms, a market is intended to assure that resources
are allocated to the most profitable use and that the “right
amount” of any product or service is produced.
 There is said to be “market failure” when that objective is not met.
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When a marketplace for a product or service does not exist, it
cannot function.
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When events are very dynamic, markets may not respond
properly.
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When there is asymmetric information, markets are likely not
to function properly.
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When the externalities to transactions are significant and
substantial, markets will not be effective.
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When there are significant “returns to scale”, markets may not
be effective.
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When a resource is controlled by a monopoly, markets do not
allocate resources efficiently
Asymmetric Information
 Asymmetric information arises when the seller and the buyer have
different information related to the transaction.
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Typically, the seller knows more about the good (and its
defects) than the buyer
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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 other
and therefore for the effectiveness of the market.
 In the case of the library, there are usually significant asymmetries
between the knowledge of the library and its staff and that of the
user. But, interestingly enough, this has been one of the strengths
of the relationship between the library and its users, not a
deficiency. And this is an issue worth pursuing!
Externalities
 Externalities arise when there are effects of a transaction upon
others 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 too
much 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, with
benefits from its existence and use arising in many ways. This is an
issue well worth exploring!
Increasing Returns
 Increasing returns to scale (what are called “economies of scale”)
are in principle a good thing, since they improve the efficiency in
use of fixed resources.
 But increasing returns to scale are inconsistent with perfect
competition and therefore lead to market failure.
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Either small firms fail to exploit increasing returns
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Or increasing returns tends to lead to monopoly
 For the library, the issue of whether there are economies of scale
has been investigated, but the results to date have been at best
equivocal.
Production and its Costs
 I turn now to the individual firm, its products and/or services and, in
particular, to the costs associated with them. (For the economist, the
nature of the particular product or service is almost immaterial.)
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Sources of Cost
Opportunity Cost vs. Purchase Cost
Fixed Cost vs. Sunk Cost
Total Cost (i.e., fixed cost plus variable cost)
Unit Cost
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Marginal Cost vs. Average Cost
Sources of Cost
 There are three sources of cost:
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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 the
first two of those sources of cost and have created “production
models” that are intended to represent that relationship. The most
basic and, in many respects, simplest of them is the Cobb-Douglas
Model.
 I have, in the past, applied the Cobb-Douglas Model to libraries
and, in doing so, identified “technical processing” as part of the
“capital investment” (along with the collection and the facilities),
with library services as the labor in production of products and
services.
The Role of Labor
 Labor has several roles to play in the operations of the firm:
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The work of production.
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The marketing or selling of the production.
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The distribution or delivery of the product or service.
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The management of the other workers.
 For whatever reasons, the wages for these several roles tend to be
quite different, usually with the managers receiving substantially
more than the others. And perhaps that is warranted since the
advancement 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 ever
greater proportions of the work involved. This raises the issue of
what people will do as they are replaced by machines. This first
arose in industry, during the 19th century, but it still looms today.
 For the library, many aspects of operations have been and are
being supported by the use of computers, so the issue is relevant,
The Role of Capital
 Capital is the investment in the tools that support production,
indeed including those that directly replace labor. By use of those
tools, the individual worker can produce far more than would be
possible 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 versus
“out-source” investment. Namely, is the acquisition of the tools of
production accomplished within the firm or by purchase of them
from outside the firm?
 In the case of the library, is technical processing (selection,
acquisition, processing, and cataloging) done by library staff or by
contract to external providers of those services? This is not a
hypothetical or rhetorical question!
Two Meanings of “Capital”
 There is the potential for confusion in the uses of the word
“capital”. One use is to refer to the investment in the tools of
production; the other is to refer to the money which represents
that 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 in
itself is not capital but simply the ability to spend.
 Of course, having said that, the money could be invested in a
variety of ways that will provide income. In doing so, presumably
the place of investment will use the money for its own purposes,
which might include investment in capital, but it might be for
other 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.
The Role of Materials
 For the production of physical goods, there almost always is the
need to acquire “raw materials” which constitute the substance of
the products. Again, as with capital investment, this can be done
in-house or out-source, but for most physical products, it will be by
out-source. It would only be the largest of firms that would own its
own iron mines and steel mills in order to produce automobiles.
 But even for the production of non-physical, intangible goods and
services, there may be the need for raw materials.
 In the case of the library, the collection, represents capital, of
course, so it is not raw materials in this sense. However, photocopy
paper and toner might be an example of raw materials.
Opportunity Cost vs. Purchase Cost
 The purchase cost for a resource is the amount of money or other
resources required to use the resource.
 Opportunity cost of a resource is the revenue foregone by using
money or other resources to acquire the given resource for a
particular 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 be
very high.
 In the case of the library, choices between collection development
and provision of services, between acquiring books or journals,
between acquiring print materials or electronic access are each an
example of opportunity cost vs. purchase cost.
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 investment
in the tools of production. It may be represented by infrastructure
of the firm, including its management. It is here that “risk capital”
is so significant. And return on that risk capital investment surely
is necessary if that investment is to be made.
 In the case of the library, at any given time the cost of the
collection and of the facilities is essentially a fixed cost, not
something that is a function of the amount of use made.
 Variable costs are the costs incurred as a function of the amount of
production. It is likely to be represented by the labor costs in
production of the product or service.
 In the case of the library, the variable costs are indeed a function
of the amount of service provided. They arise from circulation, or
use, of the collection and from reference services provided to the
users, and from other types of services (such as photocopy and
bibliographic instruction).
Fixed Cost and Scale of Operations
 It should be noted that there is an underlying relationship between
the magnitude of fixed costs and the scale of operations. It reflects
the 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 is
exceeded, the fixed costs will increase.
 In the case of the library, this is well exhibited by the fixed costs in
buildings and facilities. They have a limited capacity in terms of
the size of collection that can be stored and the number of users
that can be accommodated. If the scale of operations grows, either
in the capital investment in the collection or in the number of users
to be served, there will need to be additional “fixed costs” in the
buildings and facilities needed to accommodate them.
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 a
case, there would be the need to determine what capital investment
could be recovered. Presumably the portion of the collection involved
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 price for the
collection might include some recognition of those investments).
Buildings and facilities may be saleable.
Total Costs
 Total costs of production are the sum of fixed and variable costs. If
T = 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 maximum
scale of operation. It should again be noted that there will be
dependence of the magnitude of fixed costs on the maximum scale
of operation they can handle.
 Variable costs depend on the volume of production, the actual
scale of operation.
Unit Costs
 In economics, there are two measures of unit cost:
 Marginal cost is the additional cost of producing the next unit
given 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 fall
below average cost.
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. It
will sometimes be the case when the “learning curve” results in
increased efficiency.
 This will usually NOT be the case when the variable costs increase
as the number of units increase. This can arise, in particular, when
production consumes a scarce resource or results in decreased
efficiency.
 In principle, one would expect a library to have substantial
economies of scale, given the usually large capital investment in
collection, building, and facilities. There have been studies made to
examine whether that indeed is the case, but the results were at
best equivocal.
Customers, Demands, and Income
 Let’s now turn to the other side of the economic balance, the
customer as the recipient of the production and the source of
income to balance the costs incurred in production.
 Who are the customers?
 What are their needs?
 What are they willing to pay?
The Range of Customers
 In most industries, there are three groups of customers:
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Individuals (persons and households)
Other firms
Government
 For many industries, these groups may be either or both national
and 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 by
government. For archives, as a closely allied activity, government
may well be the primary customers.
What are their needs or demands?
 Here I will not try to generalize the issues, but instead I will focus
on 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 the
major capital investment of the library. Beyond that is access to the
services that the library staff and facilities provide.
 And for many if not most libraries, those are probably the only
needs 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 is
possible. To meet this need means that at least some library must
preserve the record, really independent of whether there is an
evident, 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.
What are they willing to pay?
 Here again, I will not try to deal with the general economic picture
of the willingness of customers to pay, but instead will focus on the
library.
 Most libraries do not function on the payments by individual users
(except for specific services, such as photocopying), but rather on
funding 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 rather
than a strictly economic process.
 In most institutions, the library is treated as a part of “overhead”
expense. In some companies, though, it is treated as a cost center
or even profit center, and in such cases effectively the users do pay
for the library’s services.
 Of most interest, though, there are situations in which the library
is regarded as part of the institution’s own capital investment, as
one of its tools for production. This is clearly the case with an
academic library and especially so for a research library.
(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
Measuring National Income
 Gross domestic product (GDP) is a measure of the income and the
expenditures of an economy. It is the total market value of all final
goods and services produced within a country in a given period of
time.
 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 be
illustrated by the following diagram.
 In this diagram, I have highlighted, in blue, the flow of taxes, from
households and firms to government. And I have highlighted in
red the flow of wages, rents, and profits from governments and
firm to income to households.
Markets for Goods and Services
Markets for Factors of Production
Output from
Markets
Receive
goods/services
Input to
Markets
Provide Labor,
Money, Land
Pay taxes
Output from
Markets
Receive income
Individuals,
Households
Input to
Markets
Order, pay for
goods/services
Pay taxes
Receive
revenue
Receive
goods/services
Provide factors of
production
Order, pay for
factors of production
Pay income for
wages, rents, profit
Pay taxes
Receive revenue
Firms
Provide goods
and services
Order, pay for
goods/services
Receive taxes
and fees
Receive
goods/services
Provide
infrastructure
Order, pay for
factors of production
Pay income for
wages, rents
Receive taxes
and fees
Receive factors
of production
Pay taxes
Governments
Provide
infrastructure
Order, pay for
goods/services
Receive factors
of production
The Input-Output Matrix
 The flow of transactions represented by this chart and especially
those involved in the firm to firm transactions, is quantitatively
described by what is called the “input-output matrix” of the
national economy.
 Of course, the national input-output matrix does not show the
individual firm-to-firm transactions but instead accumulates them
by industry groups. It therefore shows the purchases by each
industry group from each industry group.
 It also shows the total sales by each industry to governments and
to the groups of individuals and households, called “end users”.
 Finally it shows the purchases and sales for each industry that
involved sources and customers, of whatever kind, outside the
country.
Libraries in the Macroeconomy
 So what does the macroeconomy mean for libraries? Or, perhaps
more 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 the
information sector.
Economists
 It needs to be recognized that economic positions and theories are
not like those about the physical and biological world. The things
they deal with reflect the decisions of people, not the laws of the
world, 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 creating
those positions and theories their own views of what is right and
what should be social policies., governing what people do.
 It is therefore essential to understand who these persons were and
what 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 who
have, in one way or another, influenced those economists.
Economists before the Nobel Prize
PRIVATE VALUE ORIENTED
Adam Smith
Thomas Malthus
David Ricardo
Alfred Marshall
Vilfredo Pareto
John A. Hobson
1723-1790
1766-1834
1772-1823
1842-1924
1848-1923
1858-1940
PUBLIC VALUE ORIENTED
Jeremy Bentham
John Stuart Mill
Karl Marx
Henry George
Thorstein Veblen
John Maynard Keynes
1748-1832
1806-1873
1818-1883
1839-1897
1857-1929
1883-1946
METHODOLOGY ORIENTED
Leon Walras
Francis Edgeworth
Irving Fisher
Joseph Schumpeter
John von Neumann
1834-1910
1845-1926
1867-1947
1883-1950
1903-1957
 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 to
economic practice, analysis, and theory. Of course, each of the
persons, to one degree or another, falls into each group. The
assignment made here simply reflect my own idiosyncratic view of
the major emphasis of each of their objectives.
Private-Value Oriented
 The next six displays present the economists that I identify as
“private-value oriented”.
 Please recognize that each of the economists will be concerned with
both public and private values, as well as methodology, so this
assignment simply represents my own interpretation of the
primary focus.
Adam Smith (1723—1790)
 Adam Smith was a Scottish social philosopher and political
economist best known for An Inquiry into the nature and causes of
the Wealth of Nations (1776), the first major work of laissez-faire
economics. It covered such concepts as the role of self-interest, the
division of labor, the function of markets, and the international
implications of a laissez-faire economy. Wealth of Nations
established economics as an autonomous subject and launched the
economic doctrine of free enterprise.
 Smith laid the intellectual framework that explained the free
market and still holds true today. He is often accredited with the
expression "the invisible hand," which he used to demonstrate
how self-interest guides the most efficient use of resources in a
nation's economy, with public welfare coming as a by-product. To
underscore his laissez-faire convictions, Smith argued that state
and personal efforts, to promote social good are ineffectual
compared to unbridled market forces.
Thomas Robert Malthus (1766-1834)
 In 1798 Malthus published An Essay on the Principle of Population
as it affects the Future Improvement of Society, with Remarks on the
Speculations of Mr. Godwin, M. Condorcet, and other Writers. It
argued that human hopes for continued social happiness must be
vain, for population will always tend to outrun the growth of
production. The increase of population will take place, if
unchecked, in a geometrical progression, while the means of
subsistence 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.
David Ricardo (1772-1823)
 Ricardo published Principles of Political Economy and Taxation
(1817). He was an English economist who systematized the rising
science of economics in the 19th century. In his Iron Law of Wages
he argued that attempts to improve the real income of workers
were futile since an increase in income of workers results in more
children and a larger workforce, and employers then will lower
wages as the working population grows exponentially.
 Ricardo postulated the concept of “comparative advantage” which
argues that a country gains from specializing in what it does best
and trading with other nations. As a result, he was an opponent of
protectionism for national economies, believing that protectionism
led towards economic stagnation. Comparative advantage forms
the basis of modern trade theory.
 Ricardo, for much the same reasons. also opposed the "corn laws”
which were intended to protect British landowners from foreign
competition by guaranteeing them a high price for their produce.
Alfred Marshall (1842-1924)
 Marshall was one of the chief founders of the school of English
neoclassical economics. His magnum opus, Principles of Economics
(1890), was his most important contribution to economic
literature. It was distinguished by the introduction of a number of
new 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. His
Industry and Trade (1919) was a study of industrial organization;
Money, Credit and Commerce was published in 1923. Writing at a
time when the economic world was deeply divided on the theory of
value, Marshall succeeded, largely by introducing the element of
time as a factor in analysis, in reconciling the classical cost-ofproduction principle with the marginal-utility principle
formulated by William Jevons and the Austrian school. Marshall is
often considered to have been in the line of descent of the great
English economists—Adam Smith, David Ricardo, and J.S. Mill.
Vilfredo Pareto (1848-1923)
 Vilfredo Pareto (1848-1923) was an Italian sociologist and
economist. His first work, Cours d'Économie Politique (1896–97),
included his famous law of income distribution, a complicated
mathematical formulation in which Pareto attempted to prove that
the distribution of incomes and wealth in society is not random
and 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 optimum
allocation of the resources of a society is not attained so long as it is
possible to make at least one individual better off in his own
estimation while keeping others as well off as before in their own
estimation.
 A key point about a Pareto optimum is that it essentially preserves
the 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 should
also prefer X to Y.
John A. Hobson (1858-1940)
 John A. Hobson was an English historian and journalist with an
interest in economics. He wrote one the most famous critiques of
the economic bases of imperialism in 1902. Although his lack of
understanding of markets and marginal analysis led to his being
ostracized by his contemporary academic economics circles, his
thoughtful critique of the justifications of imperialism and his
work taking the topic back to first principles stands today as an
example of respect for all peoples throughout the world. He was a
member of the Fabian Society, and although he wrote for several
socialist journals, he was an independent thinker who argued that
capitalist goals had been perverted by special interests and
misdirected governments.
Public-Value Oriented
 The next six displays present the economists that I identify as
“public-value oriented”.
 Please recognize that each of the economists will be concerned with
both public and private values, as well as methodology, so this
assignment simply represents my own interpretation of the
primary focus.
Jeremy Bentham (1748-1832)
 English philosopher, economist, and theoretical jurist, the earliest
and chief expounder of Utilitarianism. He distinguished between
maximizing individual utility and aggregate utility as the basis of
social 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 unhindered
pursuit of individual happiness could be reconciled with morality.
He believed that morality required that actions be judged on the
basis of how their outcomes affect general utility in a society.
 But what is general utility in a society? Bentham argued that it
was the sum total of individual utilities of all members of a society.
He emphasized the need for equal weights in this summation, so no
person's utility should count more than another's.
John Stuart Mill (1806-1873)
 English philosopher, economist, and exponent of Utilitarianism. He
was prominent as a publicist in the reforming age of the 19th
century, and remains of lasting interest as a logician and an ethical
theorist.
 First, Mill argued that society's utility would be maximized if each
person was free to make his or her own choices. Second, Mill
believed that freedom was required for each person's development
as a whole person. In his famous essay On Liberty, Mill enunciated
the principle that "the sole end for which mankind are warranted,
individually or collectively, in interfering with the liberty of action
of any of their number, is self-protection." He wrote that we should
be "without impediment from our fellow-creatures, so long as
what we do does not harm them, even though they should think
our conduct foolish, perverse, or wrong."
 Mill was not an advocate of economic laissez-faire. He favored
inheritance taxation, trade protectionism, and regulation of hours
of work of labor.
Karl Marx (1818-1883)
 Marx, of course, is the revolutionary economist. He published
(with Friedrich Engels) The Communist Manifesto, the most
celebrated pamphlet in the history of the socialist movement. He
also was the author of the movement's most important book, Das
Kapital. These writings and others by Marx and Engels form the
basis of the body of thought and belief known as Marxism.
 Marx considered his theory of surplus-value as his most important
contribution to the progress of economic analysis. Surplus-value is
the difference between what labor produces and what labor is
paid. Marx argued that the increase in capital (as the tools for
production) and in the concentration of that capital during the 19th
century was due to the allocation of labor surplus-value to the
accumulation of capital.
Henry George (1839-1897)
 Henry George was a land reformer and economist who wrote
Progress and Poverty (1879) in which he proposed that government
should tax only the income from the use of the bare land, but not
from improvements, and abolish all other taxes.
 George argued that most taxes stifle productive behavior, but a tax
on the unimproved value of land was different. The value of land
comes from two components, its natural value and the value that is
created by improving it (by building on it, for example). Therefore,
argued George, because the value of the unimproved land was
unearned, neither the land's value nor a tax on the land's value
could affect productive behavior.
 George was right that other taxes may have stronger disincentives.
But economists now recognize that site values are created, not
intrinsic, so even a tax on unimproved land reduces incentives.
 George's argument also assumes that in setting taxes, government
can separate raw value of land from value of improvements—a
difficult, if not impossible, task, especially for a politically motivated
government.
Thorstein Veblen (1857-1929)
 Veblen was a U.S. economist and social scientist who sought to
apply an evolutionary, dynamic approach to the study of economic
institutions. In The Theory of the Leisure Class (1899) he coined the
term "conspicuous consumption” to describe consumption
undertaken to make a statement to others about one's class or
accomplishments. This term, more than any other, is what Veblen
is known for.
 Veblen was an economic iconoclast. He did not reject economists'
answers to the questions they posed but he thought their questions
were too narrow. Veblen wanted economists to try to understand
the social and cultural causes and effects of economic changes.
What social and cultural causes were responsible for the shift from
hunting and fishing to farming, for example, and what were the
social and cultural effects of this shift? Veblen was singularly
unsuccessful at getting economists to focus on such questions.
John Maynard Keynes (1883-1946)
 Keynes was an English economist, journalist, and financier, best
known for his revolutionary economic theories (Keynesian
economics) on the causes of prolonged unemployment. His most
important work, The General Theory of Employment, Interest and
Money (1935–36), advocated a government-sponsored policy of full
employment, based on beliefs that (a) economic fluctuations
significantly reduce economic well-being, (b) government action
can improve upon the free market, and (c) unemployment is more
important than inflation.
 The long and continuing battle between Keynesians and
monetarists 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 economists
believe that anticipated changes in the money supply do not affect
real output; that markets adjust quickly to eliminate shortages and
surpluses; and that business cycles may be efficient.
Methodology Oriented
 The next five displays present the economists that I identify as
“methodology oriented”.
 Please recognize that each of the economists is very methodology
oriented, so this assignment simply represents my own interpretation
of the primary focus.
Leon Walras (1834-1910)
 Walrus was a French-born economist whose outstanding work,
Éléments d'économie politique pure (1874–77) (Elements of Pure
Economics), was one of the first comprehensive mathematical
analyses of general economic equilibrium, i.e., the balance
between 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 the
number of equations equaled the number of unknowns, the system
could be solved to give economic equilibrium
 Second, Walras was aware that, while such a system of equations
could be solved in principle, doing so in reality was difficult, so he
simulated a market process that would obtain equilibrium. This
process was one of trial-and-error in which a price was called out
and people in the market said how much they were willing to
demand or supply at that price. If there was an excess of supply
over demand, then the price would be lowered so that less would
be supplied and more would be demanded. Thus would the prices
"grope" toward equilibrium.
Francis Edgeworth (1845-1926)
 Edgeworth was an economist of formidable mathematical
attainments with, however, a rather obscure style of writing. He
originally hoped to use mathematics to illuminate ethical questions
and his first work, New and Old Methods of Ethics (1877), drew on
mathematical techniques, especially the calculus of variations.
 His most famous work is Mathematical Psychics (1881), which
presented his ideas on the generalized utility function, the
indifference curve, and the contract curve, all of which have
become standard devices of economic theory.
 Edgeworth contributed to the pure theory of international trade
and to taxation and monopoly theory. He also made important
contributions to the theory of index numbers and to statistical
theory, in particular to probability, advocating the use of data of
past experience as the basis for estimating future probabilities.
Irving Fisher (1867-1947 )
 Irving Fisher was one of America's greatest mathematical
economists and one of the clearest economics writers of all time.
Fisher’s work on money and prices, with its sophisticated use of
statistical techniques, provided the basis for recent theoretical
work in economics.
 Fisher called interest "an index of a community's preference for a
dollar of present [income] over a dollar of future income." Interest
rates, Fisher postulated, result from the interaction of two forces:
"time preference" people have for capital now, and the investment
opportunity principle (that income invested now will yield greater
income in the future).
 Fisher defined capital as any asset that produces a flow of income
over time. Capital and income are linked by the interest rate.
Specifically, wrote Fisher, the value of capital is the present value
of the flow of (net) income that the asset generates. This still is how
economists think about capital and income today.
Joseph Schumpeter (1883-1950)
 Schumpeter was a Moravian-born American economist and
sociologist known for his theories of capitalist development and
business cycles. His influence in the field of economic theory was
powerful. In his Capitalism, Socialism, and Democracy (1942), he
argued that capitalism would eventually perish of its own success,
giving way to some form of public control or socialism. He argued
that 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 that
capitalism sparked entrepreneurship. He distinguished between
inventions and entrepreneurial innovation, and pointed out that
the latter comes not just by using inventions, but also by new
means of production, new products, new forms of organization.
 His History of Economic Analysis (1954; reprinted 1966) is an
exhaustive study of the development of analytic methods in
economics.
John von Neumann (1903-1957)
 John von Neumann was a brilliant mathematician and physicist
who also made three fundamental contributions to economics.
 First, a 1928 paper by von Neumann, established him as the father
of game theory. Second, a 1937 paper, laid out a mathematical
model of an expanding economy, raising the mathematical basis
for economics. Third was heory of Games and Economic Behavior,
coauthored with his colleague economist Oskar Morgenstern.
 In their book, von Neumann and Morgenstern asserted that any
economic situation could also be defined as the context of a game
between two or more players.
 In addition to game theory, their book gave birth to modern utility
theory.
Relevant Non-Economists
 I think it is important to recognize and to include in this listing a
number of persons who, while not economists, are very relevant to
the 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)
Marquis de Condorcet (1743-1794)
 Marquis de Condorcet (1743-1794) was a French mathematician
and philosopher, a liberal and humanitarian who took an active
role in the French Revolution. His most famous work was Outline
for 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.
Count Henri de Saint-Simon (1760-1825)
 French social theorist and one of the chief founders of Christian
socialism. In his major work, Nouveau Christianisme (1825), he
proclaimed a brotherhood of man that must accompany the
scientific organization of industry and society.
Robert Owen (1771-1858)
 Welsh manufacturer turned reformer, one of the most influential
utopian socialists of the early 19th century. His New Lanark mills
in 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.
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. While
working as a clerk in Lyon, Fourier wrote his first major work,
Théorie des quatre mouvements et des destinées générales (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 both
evolved in eight ascending periods. In harmony, the highest stage,
man's emotions would be freely expressed. That stage could be
created, he contended, by dividing society into phalanges.The
phalange, in Fourier's conception, was to be a cooperative
agricultural community bearing responsibility for the social
welfare of the individual, characterized by continual shifting of
roles among its members. He felt that phalanges would distribute
wealth more equitably than under capitalism and that they could
be introduced into any political system, including a monarchy. The
individual member of a phalange was to be rewarded on the basis
of the total productivity of the phalange.
Adolph Lowe (1893-1995)
 The lifework of Adolph Lowe (1893-1995) was greatly motivated
by his struggle with the problem of "freedom and order". Lowe's
concern with the socialization function of education related to his
notion of "spontaneous conformity", For Lowe, the stronger the
commitment to community, the greater is the possibility for
individual autonomy without the threat of social disruption
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) is
the world's most prestigious award for contributions to the field of
Economics. It is awarded annually by the Royal Swedish Academy of
Sciences. The prize consists of a gold medal, a diploma bearing a
citation, and a sum of money (US$1,000,000 in recent years). It
represents the ultimate recognition by an economist’s peers.
 The Economics prize was not part of Alfred Nobel's original will, but
was added in 1969, with the support of the Bank of Sweden, and has
since been judged and administered by the Nobel Foundation in a
way 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 to
the 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.
Nobel Laureates, 1969 - 2004
 1969. Ragnar Frisch and Jan Tinbergen "For having developed
and applied dynamic models for the analysis of economic
processes."
 1970. Paul Samuelson "For the scientific work through which he
has developed static and dynamic economic theory and actively
contributed to raising the level of analysis in economic science."
 1971. Simon Kuznets "For his empirically founded interpretation
of economic growth which has led to new and deepened insight
into the economic and social structure and process of
development."
 1972. John Hicks and Kenneth Arrow "For their pioneering
contributions 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. Gunnar Myrdal and Friederich von Hayek "For their
pioneering work in the theory of money and economic fluctuations
and for their penetrating analysis of the interdependence of
economic, social, and institutional phenomena."
 1975. Leonid Kantovarich and Tjalling Koopmans "For their
contributions to the theory of the optimum allocation of
resources."
 1976. Milton Friedman "For his achievements in the field of
consumption 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 international
capital movements."
 1978. Herbert Simon "For his pioneering research into the
decision making process within economic organizations."
 1979. Theodore Schultz and Arthur Lewis "For their pioneering
research into economic development, with particular consideration
of the problems of developing countries."
 1980. Lawrence Klein "For the creation of econometric models
and 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 and
prices."
 1982. George Stigler "For his seminal studies of industrial
structure, functioning of markets and causes and effects of public
regulation."
 1983. Gerard Debreu "For having incorporated new analytic
methods into economic theory and for his rigorous reformulation
of the theory of general equilibrium."
 1984. Richard Stone "For having made fundamental contributions
to the development of systems of national accounts and hence
greatly improved the basis for empirical economic analysis."
 1985. Franco Modigliani "For his pioneering analysis of savings
and financial markets."






1986. James Buchanan "For his development of the contractual
and constitutional bases of the theory of economic and political
decision making."
1987. Robert Solow "For his contributions to the theory of
economic growth."
1988. Maurice Allais "For his pioneering contributions to the
theory of markets and efficient utilisation of resources."
1989. Trygve Haavelmo "For his clarification of the probability
theory foundation of econometrics and his analysis of simultaneous
economic structures."
1990. Harry Markowitz "For having developed the theory of
portfolio choice." William Sharpe "For his contributions to the
theory of price formation for financial assets, the so-called Capital
Asset Pricing Model (CAPM)." Merton Miller "For his
fundamental contributions to the theory of corporate finance."
1991. Ronald Coase "For his discovery and clarification of the
significance of transaction costs and property rights for the
traditional structure and functioning of the economy."
 1992. Gary Becker "For having extended the domain of
microeconomic analysis to a wide range of human behaviour and
interaction, including non-market behaviour."
 1993. Robert Fogel and Douglass North "For having renewed
research in economic history by applying economic theory and
quantitative methods to explain economic and institutional
change."
 1994. John Harsanyi, John Nash and Reinhard Selten "For their
pioneering 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 having
transformed macroeconomic analysis and deepened our
understanding of economic policy."
 1996. James Mirrlees and William Vickrey "For their fundamental
contributions to the economic theory of incentives under
asymmetric information."
 1997. Robert C. Merton and Myron S. Scholes "For a new method
to determine the value of derivatives"
 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 of
optimum currency areas."
 2000. James Heckman "For his development of theory and
methods for analyzing selective samples." Daniel McFadden "For
his development of theory and methods for analyzing discrete
choice."
 2001. George A. Akerlof, A. Michael Spence, and Joseph E.
Stiglitz "For their contributions to the analyses of markets with
asymmetric information."
 2002. Daniel Kahneman, “For having integrated insights from
psychological research into economic science, especially
concerning human judgment and decision-making under
uncertainty”. Vernon L. Smith, “For having established laboratory
experiments as a tool in empirical economic analysis, especially in
the study of alternative market mechanisms”
 2003. Robert F. Engle, “For methods of analyzing economic time
series with time-varying volatility”. Clive W. J. Granger, “For
methods 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 of
economic policy and the driving forces behind business cycles”
Four aspects of the Nobel Economists
 (1) the individuals, their lives and character
 (2) the conceptual and theoretical constructs with which their
views 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
The individuals, their lives and character
 Most if not all of these persons are interesting as individuals. The
example of John Nash (recall the book and movie, roughly based
on that book, A Beautiful Mind”) is perhaps extreme, but it is not
unique.
 Many of them are academics and, as such, perhaps dull to the
usual public, but all of them are intellectual giants with all of the
personal idiosyncrasies that go with stature. Their stories cover
many geographical regions of the world and time periods of the
past century.
 Just to cite a few examples:
 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 American
at the time. It was instrumental in the Supreme Court's historic 1954
anti-segregation decision. He also wrote Asian Drama, an inquiry
into the poverty of nations, published in 1968, which similarly
documented 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 his
tutorship at the University of Chicago, has flowed an almost endless
stream of economic conservatives that has led the policies, both
economic and legal (see especially Richard Posner) of the United
States for decades.
 Vasily Leontieff, a Russian-born American economist, who
formulated the concept of the "input-output matrix" that
measures the inter-dependence of components of the economy and
provides probably the most powerful single tool for understanding
and managing national economies.
 Kenneth J. Arrow (1921-) is a U.S. economist known for his
contributions to welfare economics and to general economic
equilibrium theory. Arrow’s “impossibility theorem” holds that,
under some well defined and presumably rational conditions, it is
impossible to guarantee that a ranking of societal preferences will
correspond to rankings of individual preferences when more than
two persons and alternative choices are involved.

In 1994, John Forbes Nash, Jr. won the Nobel Prize for pioneering
work in game theory. Nash was 66. While he was still only 21, he
wrote a 27-page doctoral dissertation on game theory -- the
mathematics of competition. The great John von Neuman, then at
Princeton, had treated win-lose competitions. Now Nash showed
how to construct mathematical scenarios in which both sides won.
Nash put a whole new face on competition, and he drew the
attention of theoretical economists. He had turned game theory
into a tool. This young genius brought the field to fruition. He went
on to MIT and for eight years dazzled the mathematical world. He
worked in economics as well as mathematics. He even invented the
game of Hex, marketed by Parker Brothers. Then, disaster! For 25
years, 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 research
post at Princeton. Nash has survived what looked like death.
Conceptual and theoretical constructs

There are conceptual and theoretical constructs that underlie the
work of all of the individuals. They embody very fundamental
ideas such as "equilibrium" (i.e., the balance between production
and 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 embody
real conflicts in objectives (such as those between management and
labor)
 Many of the Nobel Prizes were awarded for specific concepts (such
as the "input-output matrix" by Leontieff), so it is natural to
highlight them in the context of specific individuals.
Conflicts in ideology and application
 The nature of economics is that, theoretical though it may be, it
embodies fundamental conflicts in ideology and application. The
most 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 corporate
economies and national economies.
Web site for Economics & Economists
 The Web site “Library of Economics and Liberty: Home and Main
Menu Page” at http://www.econlib.org/ seems to provide a good
resource for information about economics.
 They include biographies for many, though not all, of the persons
identified in this presentation.
 Among them are several that I have not included but that are as
worth 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
The End