CLASSROOM PRACTICAL-ECONOMISTS

       PRACTICUM ON

NOBEL PRIZE LAUREATES:

·      Robert Merton Solow  (1987)

·      Trygve Magnus Haavelmo (1989)

   Submitted by:

                 Alphonsa Joseph

                 Social Science

                                                       

                                        

 INTRODUCTION 

 

The Nobel Memorial Prize in Economic Sciences, officially known as The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel is awarded annually by the Royal Swedish Academy of Sciences to researchers in the field of economics. The first award was given in 1969 to Ragnar Frisch and Jan Tinbergen. Each recipient receives a medal, a diploma and a monetary award that has varied throughout the years. The award is presented in Stockholm at an annual ceremony on December 10, the anniversary of Nobel's death. Robert Merton Solow  (1987) and Trygve Magnus Haavelmo (1989) are the two eminent economists who bagged the prestigious Nobel Prize for their contributions in the field of economics.

         SIGNIFICANCE OF THE STUDY

 

Economics is the study of wealth. In our present society, we are using the economic theories and concepts for understanding the economic system. For studying about the prominent economists and their contributions to the economic theories is significant for us. Robert Merton  Solow's contribution in the model of economic growth and Trygve Magnus Haavelmo’s contribution to the field of econometrics and his probability theories are highly influential and useful for economic analysis. They are awarded the Nobel Prize for their contributions and the study about their contributions are important for the present society.

          ROBERT MERTON SOLOW

 BIOGRAPHY

 

Robert Solow was born in Brooklyn, New York in a Jewish family on August 23, 1924, the oldest of three children. He was well educated in the neighborhood public schools and excelled academically early in life. In September 1940, Solow went to Harvard College with a scholarship at the age of 16. At Harvard, his first studies were in sociology and anthropology as well as elementary economics.

 

By the end of 1942, Solow left the university and joined the U.S. Army. He served briefly in North Africa and Sicily, and later served in Italy during World War II until he was discharged in August 1945. 

He returned to Harvard in 1945, and studied under Wassily Leontief. As his research assistant he produced the first set of capital-coefficients for the input-output model. Then he became interested in statistics and probability models. From 1949–50, he spent a fellowship year at Columbia University to study statistics more intensively. During that year he was also working on his Ph.D. thesis, an exploratory attempt to model changes in the size distribution of wage income using interacting Markov processes for employment-unemployment and wage rates. 

In 1949, just before going off to Columbia he was offered and accepted an Assistant Professorship in the Economics Department at Massachusetts Institute of Technology. At M.I.T. he taught courses in statistics and econometrics. Solow's interest gradually changed to macroeconomics. For almost 40 years, Solow and Paul Samuelson worked together on many landmark theories: von Neumann growth theory (1953), theory of capital (1956), linear programming (1958) and the Phillips curve (1960).

Solow also held several government positions, including senior economist for the Council of Economic Advisers (1961–62) and member of the President's Commission on Income Maintenance (1968–70). His studies focused mainly in the fields of employment and growth policies, and the theory of capital. He is particularly known for his work on the theory of economic growth that culminated in the exogenous growth model named after him.

In 1961 he won the American Economic Association's John Bates Clark Award, given to the best economist under age forty. In 1979 he served as president of that association. In 1987, he won the Nobel Prize for his analysis of economic growth and in 1999, he received the National Medal of Science. In 2011, he received an honorary degree in Doctor of Science from Tufts University.

Solow is Founder of the Cournot Foundation and the Cournot Centre. After the death of his colleague Franco Modigliani, Solow accepted an appointment as new Chairman of the I.S.E.O Institute, an Italian nonprofit cultural association which organizes international conferences and summer schools. He is a trustee of the Economists for Peace and Security.

  

   ECONOMIC CONTRIBUTIONS

 

Solow's model of economic growth, often known as the Solow-Swan neo-classical growth model as the model was independently discovered by Trevor W. Swan and published in "The Economic Record" in 1956, allows the determinants of economic growth to be separated out into increases in inputs (labour and capital) and technical progress. Using his model, Solow (1957) calculated that about four-fifths of the growth in US output per worker was attributable to technical progress.

Solow also was the first to develop a growth model with different vintages of capital. The idea behind Solow's vintage capital growth model is that new capital is more valuable than old (vintage) capital because new capital is produced through known technology. Within the confines of Solow's model, this known technology is assumed to be constantly improving. Consequently, the products of this technology (the new capital) are expected to be more productive as well as more valuable. The idea lay dormant for some time perhaps because Dale W. Jorgenson (1966) argued that it was observationally equivalent with disembodied technological progress, as advanced earlier in Solow (1957). 

Since Solow's initial work in the 1950s, many more sophisticated models of economic growth have been proposed, leading to varying conclusions about the causes of economic growth. In the 1980s efforts have focused on the role of technological progress in the economy, leading to the development of endogenous growth theory (or new growth theory). Today, economists use Solow's sources-of-growth accounting to estimate the separate effects on economic growth of technological change, capital, and labor. 

Solow currently is an emeritus Institute Professor in the MIT economics department, and previously taught at Columbia University.

TRYGVE MAGNUS HAAVELMO

BIOGRAPHY

Haavelmo was born in Skedsmo near Oslo, Norway, in the year 1911. After completing his primary education, he, in 1930, enrolled at the University of Oslo, eventually graduating with a degree in economics.

On the recommendation of Ragnar Frisch, Haavelmo joined Frisch’s Institute of Economics as one of his assistants. He was then appointed the head of computations in the institute, in the year 1935. The next year, along with Jerzy Neyman and Egon Pearson, he studied at the department of statistics at the London University College. From 1938 to 1939, he served as a lecturer in Statistics at the University of Aarhus. From 1942-1944, he worked as a statistician at Nortraship’s office in New York and after that he became a commercial secretary at the Norwegian Embassy in Washington D.C, where he worked for two more years. During this period, he worked and published his most notable work on econometrics on which his fame lasts to this day.

He then returned to Oslo and took up a job in the trade department and stayed in the University of Oslo till 1979. During his tenure as a professor, his research interests turned to economic theory and published a book titled ‘A Study in the Theory of Economic Evolution’, which was considered to be quite innovative and methodological. It was an excellent study of economic underdevelopment of a country in relation to other countries.

His probability approach in econometrics introduced a basis of probability in the analysis of economic relations. He is particularly known for his work in identification problems and analysis of economic equations. His ideas and theories became an important factor in the research activity at the Cowles Commission, where he worked in 1946, in Chicago. He worked as the head of a division under the Ministry of Finance in Norway, where his job involved coordinating and implementing the post-war planning regime. He also had theoretical interests in macroeconomics. In 1954, his work, ‘A Study in the Theory of Economic Evolution’ brought forward a new approach to economic development issues. In 1960, he published a book titled, ‘A study in the Theory of Investment’, which was linked to the supply side of the capital goods market. Both of these works brought him credit and recognition to some extent.

Death

Trygve Haavelmo died at the age of 87, on July 28, 1999, in the city of Oslo, Norway

ECONOMIC CONTRIBUTIONS

His main contributions were the two articles, one which showed the statistical implications of simultaneous equations and the other which bases econometrics firmly on probability theory. His temporary stay in the US resulted in the book entitled ‘The Probability Approach in Econometrics’. In this he penned many of the methods, which were used in economics but theorized that all these techniques were deceptive. Economics had not acknowledged the interaction of multiple economic relations and economic laws were not rigid. 

His major contribution was the introduction of a new approach to approximate economic relations by applying mathematical statistics. After this he continued developing his interest towards economic theory. His book ‘A Study in the Theory of Economic Evolution’ dealt with the study of the causes of underdeveloped economy of a specific country in comparison to others. His contribution in the area of economics was the ‘Balanced Budget Multiplier Theorem’, which was a new approach in the business cycle theory.

Another major contribution was the ‘Theory of Investment’. His book entitled ‘A Study in the Theory of Investment’ coined the demand for the actual capital, the indisposition in the modification of the real capital. His work and writings on the investment behavior and on environmental economics have inspired further research work, which has led to the development of new theories.  

Trygve Haavelmo was received the Nobel Prize in 1989. He is believed to be the first Nobel Prize awardee for the econometric work. Econometrics is the application of mathematics, statistical methods, and computer science, to economic data and is described as the branch of economics that aims to give empirical content to economic relations. More precisely, it is "the quantitative analysis of actual economic phenomena based on the concurrent development of theory and observation, related by appropriate methods of inference."

He spent a majority of his life in relative obscurity until he received the Nobel Prize and shot to limelight, particularly in his native Norway. Thereafter, he tried his utmost to avoid publicity and public debate. He was also an excellent teacher continuing for two generations and hence, had a great influence on succeeding Norwegian economists. His students considered him their role model and most of them dreamt of following in his footsteps.

Throughout his life he had motivated many students to pursue economics as their field of interest. His intelligence and keen interest in the study of economics gave rise to innovative approaches for the development of economic issues. He opened up econometrics with special emphasis on mathematics and statistics in the formation of economic theories. Taking his work into account he has carved a prominent position for himself in economics. Continue reading to learn more of his life and works.

Judea Pearl wrote “Haavelmo was the first to recognize the capacity of economic models to guide policies” and “presented a mathematical procedure that takes an arbitrary model and produces quantitative answers to policy questions”. According to Pearl, “Haavelmo's paper, ‘The Statistical Implications of a System of Simultaneous Equations’ marks a pivotal turning point, not in the statistical implications of econometric models, as historians typically presume, but in their causal counterparts.

 Haavelmo’s Probability Approach

The probability approach has been one of his key works, regarded as one of his major contributions. The approach deals with the fact that one should foresee existing economic data as being ‘a sample selected by nature’ and is governed by the reality, which was unnoticeable. He indicated that the validity of economic theories can be tested by framing the theoretical model to the statistical relationships. 

The approach signifies that the relationship between theory and reality is similar to the relationship between the observed data and that reality. This approach gives a conclusive statistical theory that if we effectively say that we have ‘reproduced’ another ‘natural drawing’ from the reality then the theoretical relationships are more or less true.