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.
