EUREKA! Magic Moments in
Thought and Action
Harris Lecture 2014
Clemson University
Clemson, SC
April 2014
John B. Harris III
1952 - 2006
John Harris & I
(1972)
Meet
Alchian & Allen
(1969)
Archimedes and the Golden Crown
Eureka!!
What can we learn
from Eureka moments
of others that may
help us have more
Eureka moments of
our own?
Is there a Eureka
moment production
function?
If so, what are the
arguments in it?
EM = f(x, y, z)
Mr. Ford and His Industrial Miracle
What about the Econ Tribe?
Paul Douglas
The Cobb-Douglas Production Function
Douglas, then teaching at the University of Chicago,
had gathered data on U.S. production and labor and
capital inputs—1889-1922. In 1928 he was giving a
lecture at Amherst. The Eureka moment came while
he was building a table of inputs and outputs on the
blackboard. Fired up by this insight, he got with
Charles Cobb, an Amherst mathematician. The two
chased more data and discovered the relationship
that bears their names .
Paul Douglas. In the Fullness of Time. New York: Harcourt, Brace &
Jovanovich, 1972: 46.
1892 - 1976
James M. Buchanan
Arrived at the University of Chicago in 1945 as a
confirmed “socialist,” eager to begin his graduate
education in economics. Two Eureka moments later he
was a confirmed free market economist.
The first indelible imprint came from his professor ,
Frank H. Knight. The second was three years later, in
1948. While browsing the shelves in Harper Library,
Buchanan discovered Knut Wicksell’s Finanztheoretische
Untersuchungen, 1896.
Knight and Wicksell became the intellectual forces in
his life.
1919 - 2013
Mancur Olson
In the mid-1950s, Olson, traveling in Europe, was
struck by an economic oddity. The United Kingdom
had won two great wars and enjoyed all the
splendors of empire, yet it suffered from economic
anemia—so much so that people came to speak of
the “British disease.” Germany had been defeated
in two wars and then was broken in half, yet West
Germany was booming—so much so that people
came to speak of the German “economic miracle.”
Why?? Olson’s Eureka moment lasted a
lifetime.
Jonathan Rauch. Government’s End, New
York: Public Affairs, 1999, 23.
1932 - 1998
Ronald H. Coase
Coase tells how in 1932, when he was 22!, he
was thinking about the Russian revolution and
an assertion that Russia would build a
centralized state economy. Coase explains
this way:
“The first five-year plan was not adopted until
1928. Lenin had said that under communism
the economic system would be run as one big
factory. ..Why couldn’t the Russian economy
be run as one big factory”?
A lifetime fascination with transaction cost
followed.
William Breit and Roger W. Spencer, eds. Lives of the
Laureates, 3rd ed. MIT Press, 1995: 233.
1910 - 2013
Vernon Smith
‘‘Experimental economics started at Purdue in the late fall of 1955. . . . I
had insomnia one night, and . . . I found myself thinking about the classroom
experiment that Ed Chamberlin used to perform with the Harvard graduate students
to prove the impossibility of perfect competition.
“So there I was, wide-awake at 3 am, thinking about Chamberlin’s silly
experiment… This led to two ideas: (1) why not use the double oral auction
procedure, used on the stock and commodity exchanges? (2) why not conduct the
experiment in a sequence of trading ‘days’ in which supply and demand were
renewed to yield functions that were ‘daily flows.‘
“The following January, I carri ed through my insomniacal plan. . . . I am
still recovering from the shock of the experimental results. The outcome
was unbelievably consistent with competitive price theory. “
d the
Ted Bergstrom. 2003. “Vernon Smith’s Insomnia and the Dawn of Economics as
Experimental Science" Scandinavian Journal of Economics 105.2 : 181-205, at 182-183.
1927 -
Claudia Goldin
“Many of those moments occurred during, otherwise,
boring periods in archives. Others happened at odd
times – during a walk or chatting with Larry [Lawrence
Katz] late in the evening. … [O]ne occurred late at
night when we chatted about our work on the role of the
birth control pill in women’s educational and career
advances. There was a eureka moment in realizing
how the pill could increase the age at first marriage for
all women, not just those taking the pill.
“Many of the ‘eureka’ moments occurred when I was
developing a model and it began to ‘talk back’ to me,
telling me something I had not previously known and
did not think I put into it. Sort of like a robot that has a
life of its own.”
Email exchange, February 9, 2014.
1946 -
Douglass North
“It was not until I got my first job, at the University
of Washington in Seattle, and began playing
chess with Don Gordon, a brilliant young theorist,
that I learned economic theory. In the three years
of playing chess every day from noon to two, I
may have beaten Don at chess, but he taught me
economics; more important, he taught me how to
reason like an economist, and that skill is still
perhaps the most important tool that I have
acquired.”
William Breit and Roger W. Spencer, eds. Lives of the
Laureates, 3rd edition, 1995, 253.
1920 -
Amy Finkelstein
“[M]ost of my research projects, evolved slowly,
through reading, thinking, and conversations with
colleagues. But I distinctly remember the start of the
Oregon Health Insurance Experiment: I was in my
office and a colleague came in and said: I was just
giving a radio interview about my research, and the
snippet before me was about how the state of Oregon
was running a lottery to allocate limited slots for
Medicaid. I quickly googled it and realized it was real:
they really had run a lottery. Random assignment of
health insurance to some and not others! For a health
economist, this was like a dream come true. The
research opportunity of a lifetime. I said to myself: stop
what you're doing, drop everything and focus on
making this study happen. So that's what I did. And I'm
very glad that I did”!
Email exchange, February 16, 2014.
1973 -
Sam Peltzman
When asked about his discovery of risk
compensation—the Peltzman Effect—for drivers in
association with seat belts and other auto safety
devices. 1975 Was there a Eureka moment?
“Hardly that dramatic. I told my research assistant
we were going to do a cost-benefit study of the
restraints. His job was to estimate the # of lives
saved by deducting actual deaths from some
empirically determined counterfactual (i.e., the
benefits part). He kept coming back to report a
difficulty in finding positive benefits. Then - and only
then - did I do some hard thinking about the
underlying theory. You could include it under ‘how
economics is actually done v. how we say it is
(should be) done.’”
Email exchange, January 22, 2014.
1938 -
Eureka!
Lessons Learned
(the production function)
Paul Douglas
Always look at your data, or a sample
of it, and descriptive statistics. You
may discover a relationship lurking
there. And don’t go it alone. Take on
reinforcements when you hit an
intellectual wall!
1892 - 1976
James Buchanan
Find the time to browse the stacks in
the library. Don’t let Google do all the
work! Along the way, learn another
language!
1919 - 2013
Mancur Olson
Visit places and cultures that are
different from your own. Try to
understand what’s going on, and
why they are different.
1932 - 1998
Ronald Coase
Visit the wonderful world of work.
Talk with people who are
producing things. Compare their
world with your models…, and
adjust where necessary!
1910 - 1913
Vernon Smith
1927 -
Don’t let your education cripple you.
Instead, let it be a springboard to the
discovery of new knowledge. Much of
what we think we know today will turn
out to be wrong!
Douglass North
1920 -
Be careful picking your friends and
people with whom you spend lots of
time. Make sure some of them are
smarter than you are! They may be
your ticket to a Eureka moment!
Claudia Goldin
Enjoy continual conversation with close
colleagues away from the workplace,
especially late at night. These can inspire
Eureka moments. And “conversations” with
economic models can lead to new
discoveries!
1946 -
Amy Finkelstein
When Eureka strikes, “drop everything”
and go with the inspiration.
1973 -
Sam Peltzman
When it appears that the horse you
are trying to ride is really dead, it’s
time to change horses.
1938 -
One Last
Eureka Moment
Eureka! I’ve found it!
Long live Clemson
Economics!