Thursday, November 17, 2011

Some Gossip about Famous Economists

When economists gather at conferences and conventions to share professional ideas, they often have social gatherings at which they love to gossip about their great and famous colleagues. Sometimes I am able to contribute to these conversations as a result of having known a number of famous economists while on the faculties of Yale University and the University of Chicago during the 1960s. On several occasions colleagues encouraged me to write down my stories and the following responds to these encouragements.

Yale University

During my graduate student days at Yale from 1958 to 1962, the economics department had a “golden age”. There were among others Nobel laureates James Tobin and Tjalling Koopmans. Arthur Okun, William Fellner, Henry Wallich, Robert Triffin (the latter two serving as my thesis advisers), Mark Blaug and Richard Ruggles rounded out the faculty that made important contributions to economic science but also held prestigious and influential positions advising presidents, governments and international organizations.

During these years my wife and I did some baby-sitting for the Tobins, encouraged by his bulletin board “earn while you learn”. As a result of this relationship, on a sunny Sunday morning in January of 1961 I received a phone call from Tobin: “Could your wife babysit for us today while you accompany us on a day of skiing?” Over night a foot of snow had fallen on Connecticut and he knew of my passion for skiing.

In short order, we piled into Tobin’s VW van with me sitting in the front seat next to him. A pause in the conversation about the weather was broken by Tobin’s son who asked “Herb, have you heard?..The President called last night?”

He referred to a conversation that was reported by Arthur Schlesinger, the historian and biographer of President John F. Kennedy in a book called A Thousand Days: Kennedy had called Tobin personally to invite him to become a member of his Council of Economic Advisers. Tobin is alleged to have said in response: “But Mr. President, I am an ivory-tower economist”, to which Kennedy replied “That is alright, I am an ivory-tower president”.

The Tobins had brought a picnic and bottle of wine for lunch on the slopes. The mood was a happy one. At one point Tobin said to his wife Betty (who had been his fellow graduate student in economics at Harvard): “Seymour Harris (a very prominent members of the Harvard faculty at the time) was right when he told us that if I wanted to have influence on public policy, it was best to establish first a solid reputation as an academic economist.” No one that I knew had any idea that that Tobin had ambitions to be involved directly in policy making.

Tobin worked in the White House 1961-62 before returning to his ivory tower, but during that year, according to Schlesinger, he became “the economic conscience of the President”. Long after his retirement from full-time teaching at Yale he was similarly considered to be “the economic conscience of the economics department” for his constant reminder about the need to use government policies for reducing the plight of the unemployed.

Somewhat ironically for someone who was most interested in scientific research, his idea that has most captured the imagination world’s policy makers is the “Tobin tax”, which if levied on all financial transactions might be expected to raise huge sums of money. When I queried him about this idea he noted that it was presented in a short memo circulated in Washington to which he attached little importance and on which he agreed with critics that it would be most difficult to enforce as there would always be countries that did not adopt it and profit hugely by attracting most of the world’s financial institutions.

Tobin was a legend in his time for his razor sharp intelligence. It became common knowledge that Herman Wouk in his famous book The Caine Mutiny had his hero admit that his ambition to be at the head of his class at the Naval Academy in Annapolis was blocked by a man named Tobit, who “had the mind of a sponge”. I had found a copy of Wouk’s book in the library and discovered readily the page containing this phrase. It was darkened from use by curious Yalies. When I asked him, he confirmed that he and Wouk had been classmates at the Academy.

Tobin at the time I attended his lectures and seminars was writing scientific papers that earned him the Nobel Prize. His lectures were based on these papers and were as terse and precise as his writings. He had all of us students in awe. However, social contacts with him were very intimidating. He never initiated conversations, made small talk or showed any interest in the personal lives of students.

Perhaps he was just shy, because I personally learned that he was very interested in the private lives of his students. After I had failed the comprehensive examination for admission to the doctoral thesis writing work, I had made plans to quit Yale and enter the business world. Tobin had learned about these plans and asked me to see him in his office. I went there with my heart pounding. He came right to the purpose of our meeting. He wanted me to know that he had confidence in my ability to earn a PhD and that he encouraged me to continue with my studies. He also offered to tutor me in taking examinations that I had found so difficult to pass, given my German background.

This conversation influenced my life decisively. I took another year of courses, passed the examination, all without having to take him up on his offer to tutor me. Many years after leaving Yale, many professional publications and a term as an elected member of the Parliament of Canada, upon a visit to New Haven he said to me “I am proud of you!”

This he said in spite of the fact that during an earlier visit, he invited William Brainard and me to lunch. On this occasion Brainard, a star in the economics department and a favourite of Tobin’s, mischievously challenged me to make the most controversial statement I could think of. I said “The idea that there exists a viable trade-off between inflation and unemployment, the Phillips Curve, was one of the most costly mistakes in the history of economic science”. Tobin and Okun had contributed to the analytical and empirical development of this idea and had pushed for its application in the design of monetary and fiscal policies. While Brainard and I discussed the issue, Tobin said nothing but I saw from his body language that he became increasingly agitated. Finally, he said to me “I resent your suggestion that I duped President Kennedy”. I have no recollection of what I had said to set off this reaction but will never forget the awkwardness of the conversation during the rest of the meal.

Tobin not only contributed significantly to my decision to earn a PhD, he also was instrumental in my joining the faculty of the University of Chicago in the Fall of 1963, the year I was awarded the degree. At the meetings of the American Economic Association in Pittsburgh, he had recommended me to his friend Harry Johnson who was looking for a research associate to work with him on a project that was financed by a generous foundation grant. The position was accompanied by the appointment as a regular Assistant Professor, but with one half of the regular teaching load.

Before turning to my Chicago experiences, I want to mention a couple more episode involving Yale faculty members. One of them was Henry Wallich, a cigar-chomping German-born economist known for his good taste in wine and food. He had published only few studies in economics but was best known for his work as a columnist at Newsweek, where for a number of years, his editorials represented the political middle between the liberal Paul Samuelson and the conservative Milton Friedman. He was also deeply involved in Washington politics, where he organized regular meetings of a group of academic consultants to the Secretary of the Treasury.

Wallich was a member of my thesis committee and made it possible for me to spend the turbulent year 1971 working in the Treasury. Many years later, we met at a conference at the International Monetary Fund and at the reception he introduced me to Paul Volcker as “a former colleague at Yale”. We all laughed when I said “Henry, are you hiding the fact that you were one of my thesis advisors?”

In the seventies I spent a year visiting at the Australian National University. Tjalling Koopmans, a Yale faculty member and Nobel laureate born and raised in the Netherlands, visited the university accompanied by his wife. I had the honour of hosting the two at a picnic in a national park near Canberra. During our conversation, his wife learned that I had been born and raised in Germany. She became very upset and directed some anger at me. Later I found out that she had lost dear family members to the Nazi occupiers in Rotterdam. Koopmans calmly said to her “Herb was only five when the war started”. This ended the incident and I will always remain grateful to Koopmans’ diplomatic intervention.

The University of Chicago

The 1960s were a golden age at the Economics Department of the University of Chicago. It was the home of seven future recipients to the Nobel Prize: Milton Friedman, Theodore Schultz, George Stigler, Merton Miller, Ronald Coase, Robert Fogel and Robert Mundell. There were other famous economists like Al Harberger, D. Gale Johnson, Greg Lewis, and of course Harry Johnson who Tobin once told me would also have been awarded the Nobel Prize if he had lived long enough. My contacts with Friedman, Johnson and Mundell resulted in a number of gossipy insights into their personalities and work that readers might enjoy.

Milton Friedman

The Economist described Friedman as "the most influential economist of the second half of the 20th century…possibly of all of it." In spite of his fame, he was always ready to convert people to his point of view, even if they had no particular interest in economics. I observed the process twice, when at dinner parties he sat next to my wife Toni in Chicago in 1963 and to my second wife Helene in Munich in 1989. In both instances Friedman engaged them in deep conversation for almost the entire dinner. Both women were much impressed by Friedman’s charm and patience and his ability to make them change their minds on some important economic and social issues of the day. When I thanked Friedman for spending so much time with Helene, he said he enjoyed the experience and noted that some people are naturally better economists than many of the highly trained economists he knows.

Friedman was also very understanding and patient with me. One summer we had rented his cottage in New Hampshire after he had moved to a new, hill-top home financed by royalties from the sale of his famous book Capitalism and Freedom and aptly named Capitaf. At the old cottage he showed me a large barn that had served for many years as his study while he was writing his Monetary History of the United States, co-authored with Anna Swartz. Along the four walls of the barn was a thin, continuous strip of paper, which he pointed out to me and identified as the record of the blood flow of the US economy. Stumped by that concept, I asked what that was. He patiently explained that the tape showed the weekly changes in the US money supply during the last 100 years. To this day I am embarrassed about my ignorance at the time but will always remember the gentle way in which Friedman accepted it.

He took great interest in some of my papers that I circulated in draft among the faculty. He was the only person to respond to a paper that had used newly available computers to show how a certain strategy of speculating in forward exchange markets would have resulted in annual profits of ten percent. His comments made me change this finding by pointing out that large currency devaluations could easily wipe out these high annual profits. This experience was indicative of the interest he took in the work of his students, who chose him as dissertation father in large numbers.

Friedman’s interest in his colleagues, even new assistant professors became evident when one morning I shaved off a moustache that I had sported for some months. My family did not notice that I had done so, nor did Johnson, my secretary and several other colleagues. However, as I was walking along a corridor Friedman stopped, looked me in the eyes and said “It is about time you took of that thing. You don’t need it to call attention to yourself!”

Thirty years later after I was elected to serve as a member of parliament in Ottawa, I proudly informed him of my election victory. He responded by saying “You have my condolences as you will quickly be frustrated in your new position.” Four years later after I had decided not to seek re-election, he said “Congratulations. You will now have more influence than you had before.” These exchanges reflect his view that academics can have more influence on policies by remaining outside government, free from political constraints and through research and students change public opinion so that politicians can do the right things. This view made him refuse offers by President Ronald Reagan and others to join policy advisory teams assembled in Washington, but did not prevent him from occasional involvement in public policy debates. He considered his most important influence on public policy to have involved his advocacy for the replacement of the military draft by armed forces staffed by professional, paid soldiers.

Friedman was a keen tennis player and skier. He loved playing doubles with George Stigler and they made quite an impression on the court. Stigler was a famous wit and at over six feet tall towered over the notoriously short Friedman. When my assistant professor colleague William Dewald and I stepped on the court to play, Stigler said “Remember now boys who has tenure around here”. Dewald promptly hit Friedman on the forehead with a ball and we all had a good laugh. Stigler continued to crack jokes all during the match, while Friedman was all business and used clever shots to win points.

Many years later during the 1980s Friedman visited Whistler near Vancouver to present a talk to benefactors of the Fraser Institute. He was a keen skier and I served as his guide. Unfortunately, there had been a big dump of wet snow over night and sunlight scattered by clouds made it impossible to see shadows and the details of the terrain. Skiing was quite easy on runs that had been smoothed by grooming machines, but it was very difficult to see where the untouched deep, soft snow started. To my horror, Friedman skied into this snow that sometimes causes people to fall and to get injured. I quickly skied to him and helped him turn around, showing where it was safe to continue. However, he promptly entered the dangerous terrain on the other side of the run, causing me to worry that I would become known as the man who killed Friedman. Fortunately, he again was safe but the next day he said “I will never again ski at Whistler”.

Friedman was a controversial figure not just among the public and politicians, but also among professional economists. There was a strong rivalry between him and Paul Samuelson, who was the dominant and best-known economist of the postwar years, with a long list of publications and an influential textbook that sold millions in many different languages. In public, both always professed respect for each other and even hinted at friendship. But in private, Samuelson could be quite petty.

One day in the 1960s I sat next to him on a plane to Chicago from Montreal, where we had attended a conference. During our conversation, he told me about the scandalous behaviour of Friedman’s son David, who had ratted on a fellow student who returned drunk to their residence at Harvard. I still puzzle over the purpose of the Great Samuelson telling this story to me, the struggling and insecure assistant professor. Was he trying to discredit Friedman in my eyes or was he just making small talk?

Samuelson also loved tennis. At the end of that Montreal conference we had a match during which, after I had made a good shot, he said “Show me a good tennis player and I show you a poor scholar.” Was he just amusing or had he hoped to increase his chances of winning? I will never know.

Here is another episode involving rivalries between Nobel laureates. At one time, whenever the occasion arose, I asked economists why they thought Friedman and Samuelson would both read the same newspaper with the result that both found stories that supported the positions they had taken on economic theory and policy. Friedman’s response to my question was to call his wife Rose and say to her “Herb has just raised an interesting question”. I never got an answer from the two as others joined the conversation and changed the topic. But James Buchanan, the recipient of a Nobel Prize for his work on public choice theory needed little time to respond, saying “Samuelson does not know any economics!”

Harry Johnson

Wikipedia said the following about Harry G. Johnson: “The enormous admiration and affection for Johnson was reflected in the numerous obituaries by members of the economics profession that appeared in 1977. ‘For the economics profession throughout the world, the third quarter of this century was an Age of Johnson’ (Tobin, 443). ‘He bestrode our discipline like a Colossus’, ‘He was an institution’ (ibid.). ‘Canada lost one of its greatest sons’. He was ‘larger than life’ (the most common remark). ‘The one and only Harry’ (The Economist, 14 May 1977, 121).”

Johnson travelled the world, collecting and storing a seemingly limitless amount of analytical insights, data and names, which he interpreted, integrated and published in his hundreds of articles and many books, one of which was co-edited by me. In the process he advanced and exposed to the world the current state of knowledge in economics. He was scrupulously careful to give full credit to the authors of new ideas and data. He was a kind person, supportive of colleagues and students, but I cannot avoid noting that he was also the victim of the demon alcohol, which often created problems in his inter-personal relationships, especially towards the end of his life. Friedman once referred to him as the “writing machine that feeds on alcohol”.

The seriousness of his alcoholism became clear to me when he asked me to his home for a discussion one day at nine in the morning. As we sat down at the desk he filled a tall water glass with scotch, saying “This is my breakfast.” At 11 that morning he lectured to a class of graduate students, who tended to be dazzled by the brilliance of his insights but were taken back by his habit of virtually reading from his unpublished notes and his lack of interest to engage in discussions with students.

The rivalry between Johnson and Friedman took many forms. In a jolly mood Johnson once remarked to me “Have you noted that at parties Friedman always says ‘Why don’t we all sit down’?”, implying that he did so because of his short stature. Professionally, the rivalry led to a clash of traditional Keynesian economics defended by Johnson for many years and Friedman’s monetarist models, which eventually won over much of the world and even Johnson, who extended the model to the international sphere.

During my visit for a seminar that led to my job offer in Chicago in the fall of 1963, I made it clear to Johnson that if I was hired, I would accept only if I did not have to accompany him and several of his drinking buddies for regular parties that took place after work. He agreed and I never felt any pressure to drink with him.

Johnson could be very generous. At the start of the fall 1963 semester when I moved to Chicago, he picked up my family and me at the airport in his own car and took us to an apartment that he had found for us. He helped me with my research and writing and passed on some slogans that are still vivid in my mind: “Don’t invent history”, “Do not trust intuition, use models”, “Write as if you wanted your mother to understand it”, the latter wisdom I often shared with my own students.

He also allowed me maximum freedom in the choice of research topics and only occasionally reminded me that his foundation grant out of which half of my salary was paid required me to do research on the development of a new theory that could explain international trade in differentiated products. But he did not help me to get started and it is ironic that only after I had left Chicago did I, in co-authorship with Peter Lloyd, contribute to the measurement and theoretical explanation of trade in such products, which became known as intra-industry trade and which earned Paul Krugman a Nobel Prize for publishing a mathematical version of the theory he called the New Trade Theory.

Johnson’s alcoholic escapades became famous. On more than one occasion during his visits to other universities, he passed out at dinner, once allegedly putting his head in the soup plate without waking up. He also sometimes became nasty. In the Fall of 1966 I moved to the University of Pennsylvania but spent the summer in Chicago, writing a paper for a conference that took place there in early September. I asked my secretary to type the paper for me and to indicate my affiliation with the University of Pennsylvania.

In August I received a letter sent by Johnson from India, ominously stamped “Urgent, Private, Confidential”. I opened it with shaking hands and found him accusing me, among other transgressions, of revealing Nazi tendencies consistent with my German background by asking a Chicago secretary to type a paper for a Pennsylvania professor. This letter made me fear meeting Johnson at the conference, but I should have known better. At a pre-conference reception Johnson saw me enter the large room, broke off a conversation he had with someone else, moved quickly through a crowd of people to join me at the other end of the room, shook my hand and exchanged pleasantries with a big smile. His letter had probably been written while intoxicated and his behaviour that evening was a close to an apology anyone could ever expect to receive from him.

His alcoholism led to a stroke. He continued to work and travel walking with a cane, but died in 1977 at age 54. He had many admirers who wished he had lived longer and enriched the economics literature. I remember him fondly and with gratitude for all the things he did for me, which in retrospect were much more important than the memories of his bad behaviour.

Robert Mundell

Mundell and I have enjoyed a friendship that started while we both were on the faculty of the University of Chicago and had children of the same age. He has many influential publications that have been on the reading lists of graduate students around the world. His most important paper was short and had been published just shortly before we met. In this paper he raised a fundamental question about the merit of freely floating exchange rates that Friedman had been advocating. This paper on optimum currency areas was mentioned in his Nobel Prize citation and has earned him the title “Father of the Euro”.

One day in the 1960s, Paul Samuelson was in Chicago to meet with George Shultz, a friend who was the Dean of the Graduate School of Business and later served as the US Secretary of Labour and Secretary of State in the Nixon administration in Washington. Both loved tennis and we played a doubles match in which I was Mundell’s partner.

Mundell and I had won the first set easily and were well ahead in the second set when suddenly the complexion of the game changed. Our opponents began to win points and Mundell’s quality of play deteriorated notably. He and I lost the second and third sets. I have never been able to get Mundell to discuss whether he had one of those episodes of poor play that hit all tennis players or whether he had been playing politics. Perhaps it was both, though when I told Friedman about the event, he assured me that Mundell would never play politics.

During the Spring break in one year a group of faculty members went to Vail for a few days of skiing. Mundell is a good skier, but I was beating him regularly to the bottom of the mountain. During the apr├Ęs-ski beer party in a bar, he got even with me. He said “Herb, why don’t we play a game of chess.” I responded that there was no chess set, which was just as well since I knew of his chess-prowess and my much diminished thinking capacity after an exhausting day on the mountain and a glass of beer. His response was “We don’t need a set, we can just play in our head. My first move is pawn to...” I quickly gave up and declared him a winner. He had proved to our colleagues that while I may be a better skier than he is, he was a much better chess player.

Mundell has been an inspiration to his economist colleagues and many of his students, who have became famous and successful themselves, like Michael Mussa, the former Chief Economist at the IMF; Jacob Frenkel, the former Governor of the Central Bank of Israel and executive in globally important financial institutions and the late Rudi Dornbusch, who taught at the Massachusetts Institute of Technology and whose early death caused his former students to place a full-page obituary in The Economist.

Mundell has been and to this day remains an inveterate organizer and inspirer of international conferences at which some of the most distinguished economists and public figures of the world exchange views and ideas about the global economy. One of the earliest of these conferences in Chicago in 1965 attracted the attendance of Valerie Giscard d’Estaing, France’s Minister of Finance and one of the latest conferences in 2008 saw the presence of Paul Volcker, former Chairman of the Federal Reserve and Under Secretary of the US Treasury for International Monetary Affairs.

I will forever be grateful to Mundell for the encouragement that came from inviting me to these events and from the stimulation to my own research they brought.

Friedrich von Hayek

Hayek was one of the most influential intellectuals of the 20th century, who in 1974was awarded the Nobel Prize in economics. One of his most important ideas concerned the role of markets as the supplier of information without which communist and socialist planning must fail. In his famous book “The Road to Serfdom” he confidently predicted the ultimate demise of societies like the Soviet Union. As a member of the Austrian School of Economics he fought Keynes and his views on the alleged pathologies of free market economies. He did all of this when the majority of economists were Keynesians and had strong sympathies for the socialist management of economies.

In most North American university he was ridiculed for his beliefs and his ideas were considered to be obsolete. He found refuge from this environment at the University of Freiburg, where some of the architects of Germany’s postwar economic miracle had taught.

My father lived in Freiburg and on one occasion when I visited him, I reached Hayek on the telephone and with some trepidation introduced myself, noting that we both were members of the Board of Editors at the Fraser Institute and that I would appreciate having the opportunity to meet him personally.

Without hesitation he invited me to have dinner with him at his favourite restaurant in town at noon the next day. Over a wonderful meal that he insisted on paying for, I asked him “What are you working on these days”. He replied “Socio-Biology”. Stumped, I asked what that was. He smiled as he said, “I had an audience with the Pope in Rome last week and he asked me the same question. I told him that social biology involves the application of Darwin’s theory of evolution to human behaviour and institutions. According to this theory, the existence of the Catholic Church for 2000 years implies that it must have been serving humanity well. The Pope loved it.”

Theodore W. Schultz and Arnold Harberger

The University of Chicago Department of Economics is worthy of Hayek’s study as an institution with a long history of success in attracting outstanding faculty and graduating highly productive students and teachers of economics. The secret of this success became obvious to me during an unforgettable faculty meeting, to which characteristically, three of us untenured Assistant Professors had been invited as a matter of routine.

The issue before the meeting was the need for a colleague to teach the graduate monetary economics courses during Friedman’s frequent leaves from teaching. The discussion was frank but it soon became obvious to me that the grey eminence in the department was Theodore W. Schultz, whose views and judgements were decisive.

Schultz was an agricultural economist who had moved to Chicago in 1943, where he became a pioneer in the field of human capital as an investment in economic growth and development, for which he was awarded the Nobel Prize in 1979.

He was a tall man with a high forehead, an aristocratic appearance, demeanour and way of speaking. He exuded Calvinistic values and together with his wife resembled the couple shown in the famous painting called “An American Gothic”.

Schultz hardly ever joined the daily faculty luncheons at the Quadrangle Club, where gossip and scientific arguments competed for equal time. He preferred instead to have lunch with only one other person. One day it was my turn to be subjected to his inquiring questions and hypothesis testing. Immediately after sitting down he advised me that one should never have lunch alone but always use the occasion for the productive exchange of ideas. I am not sure how well I held up my end of the task, because ominously, I was never asked to join him again.

At that faculty meeting he advocated that in the search for a monetary economist to replace Friedman during his leaves, a list of the world’s four best monetary economists should be compiled and that each should be approached in turn. His suggestion was adopted and the list was headed by Tobin. At the meeting was D. Gale Johnson, an agricultural economist who served as the Dean of the faculty of Arts and Sciences. He immediately announced that his office was ready to pay whatever salary and fringe benefits were needed to persuade the candidate to come to Chicago.

Later we were informed that Tobin had been flattered by having been approached but that he was irrevocably committed to Yale. What a shame. As Tobin told me years before, he respected Friedman’s efforts to link changes in the money supply to price level changes but that Friedman did not adequately explain the mechanism providing this link. Tobin’s goal was to study this mechanism, which he did successfully through the application of portfolio theory. Who knows what would have come of their collegial cooperation and competition for graduate students if they had been on the same faculty.

Later in my career I began to realize the uniqueness of this Chicago quest for the best, which has brought to its faculties more Nobel Prizes in economics and other fields than were received by the faculties of any other university in the world. One important ingredient of this success is evident from the episode just described. Another one stems from the way in which tenure issues were handled. Friedman told me that tenure did not mean much at Chicago. Professors who underperformed after having been granted tenure would receive no pay increases and be given loads of arduous teaching and administration jobs until they got the message and left.

In most other universities faculties and deans have their ambitions for the creation of outstanding institutions restrained by powerful committees and senates, which are dominated by members who are concerned with solidarity and fairness in the spirit of labour unions everywhere. Not so at the University of Chicago.

The selection of students for graduate study was similarly interesting, as I found out when Bill Dewald and I once were asked to rank the 100 or so applicants for admission. As we looked at the files, the first thing that surprised us was that no candidate had a standard achievement test lower than the 90th percentile, most were in the 99th percentile. Obviously, students with lesser scores did not even bother to apply for admission at Chicago.

When he had arranged the pile of application folders in the decreasing order of what in our judgement were students with the best prospects of successful studies, each of the senior faculty selected some for financial support. They used funds that were supplied by charitable foundations with the aim of furthering their research. Friedman opened the top folder and with a look of disgust put it at the bottom of the pile, saying that this student’s record of all As in undergraduate courses was worth nothing. He had been at his university and found the faculty totally incompetent. He rejected another student with excellent qualifications because he was too old, arguing that the return to the social investment in his education over his life-time was too low and that it was more efficient that his place was taken by a younger student, even if his previous record was somewhat inferior.

Another insight I gained from this assignment was that there are few reliable indicators of graduate students’ success in course and dissertation work. At the time, the major economics departments in the US had commissioned a study of the predictive value of grades, specific majors and standardized test scores. This study concluded that the number of courses in mathematics was the best but still weak indicator of graduate students’ success.

Gregg Lewis, the long-time power behind the graduate program did his own research on the topic and found that letters of recommendation from professors who obtained their PhDs from Chicago were the best and very reliable indicators of students’ success in this program. These referees knew how well their students would be able to deal with the pressures of work and competition that characterize the program and that they themselves knew first-hand. Observing these pressures, I sometimes wondered whether I could have handled them, even though Yale was not exactly easy.

Al Harberger

Harberger is known among his many friends and admirers as “Alito” – little Al in Spanish, which is an expression the love and admiration his students from Latin America have had and continue to have for him long after he and they left Chicago. He taught them much basic theory, but his secret of success lay in his emphasis on simple yet extremely important analytical tools that the students could apply readily in their native countries. The analysis of costs and benefits of government policies became the students’ strength and their deft application to important policy issues catapulted many of them into position of very great responsibility.

Some of these students became heads of central banks, ministers of finance and economics, some of them even became presidents of Latin American countries. The “Chicago Boys” who were so maligned by the left media for their influence on Chile’s economic policies under President Augusto Pinochet had been trained mostly by Alito, not Friedman as was alleged.

For at least a decade, a charitable US foundation and some private interests finance an annual gathering of economists in Alamos, a colonial town in the Sanoran dessert of Mexico. Almost all of these economists have a connection to the University of Chicago and market-oriented think tanks. Friedman attended the meetings until poor health made the long travel impossible.

I always observe with admiration the respect and love, which his former students show Alito. In 2012, they will honour him with sets of papers that recount the influence he has had on their own work and success.

Recently at one of these Alamos meetings I asked some Chicago boys from Chile how they came to become the architects of market reforms under Pinochet. They replied that the President had been in search of people who had a plan that would lead to the recovery of the country’s economy. As a general, he put much store in having a plan to reach strategic objectives. It was almost co-incidental that someone told him about these Chicago-trained economists in universities who had a plan.

He promptly gave them much free reign to implement it. It is amusing, if not ironic, that the Chicago plan in fact consisted of getting rid of economic planning and letting free market forces determine demand and supply. To the best of my knowledge, the work of the Chicago boys kept them away from involvement with repressive policies of the Pinochet regime that to this day remain the concern of human rights activists around the world.

While many socialists regret that Salvadore Allende was prevented from making Chile a socialist country modelled after Cuba, only few of them can dispute the fact that Chile today is the most prosperous nation on the continent and that the policies introduced by the Chicago boys provided the base of this success. Because of this fact, the vast bulk of the policies they had initiated were retained by left-leaning governments that have governed Chile in recent times.

As is well known, students learn as much from each other as from their teachers. Harberger encouraged this process strongly by creating an atmosphere in which the Latinos considered themselves to be members of a close family. With the help of his Chilean-born wife Anita, there were many happy parties at their huge home in Hyde Park. Beer not only helped soothe throats dry from animated discussions but also was used to marinate the short ribs and steaks that Alito grilled on his barbeque.

Harberger’s outstanding reputation extends beyond Latin America. When the Soviet Union moved from a planned to a market economy, he visited Russia several times for conferences with politicians and technocrats on how to best make this conversion. An insider told me that of all of the famous economists involved in such conferences, Harberger’s contributions were considered the most useful by far.

My personal relationship with Harberger and his family of students was quite limited. However, when in 1965 I saw him in his capacity as the Chairman of the department to discuss an offer for promotion, tenure and higher salary I had received from the University of Pennsylvania, he showed great sympathy for the difficulty of the decision I had to make. He told me that he could almost guarantee an extension of my Chicago contract by the faculty and dean, but that it was too early in my career to merit promotion and tenure. After insufficient thought, impulsively I rejected his offer for such an extension and committed myself to leaving the next year.

This was a life-changing decision for me but Alito’s reaction speaks volumes about his character. As he studied my folder, he said, your pay is much too low. I will make sure that you will get a decent raise. And he did.

Many years after I had lost complete contact with him, we met at a small conference. Shortly after I had arrived, he invited me for a ride in his car in the hills behind the conference site so that we could have an intimate talk about family and professional life uninterrupted by others. When I expressed regrets about the fateful decision to leave Chicago for Penn made in our meeting many years ago, he consoled me by saying that I had an outstanding career anyway.

I think that his invitation to the car ride and the intimate conversation we had provides insights into one why he enjoys the loyalty, admiration and love of so many of his former students and colleagues.

Tobin and Tobit

Bob Aliber, was a fellow student at Yale and prominent professor of international finance for much of his life at the University of Chicago Graduate School of Business. I asked him to comment on an early draft of my original gossip column. I thank him for this effort, which led to the correction of some factual errors and made me omit some gratuitous, negative comments about individuals. He also urged me to find out more about Tobin and his association with Wouk, which he believed I had described incorrectly. In response, I contacted Brainard at Yale, who had been Tobin’s long-time friend and colleague. Brainard sent me the following excerpt from an interview Tobin had with a journalist, which settles the issue.

TOBIN: That was said in The Caine Mutiny, in the first chapter, and, as you just read, referred to a midshipman, named Tobit, at the school. T-o-b-i-t. It wasn't a very deep disguise. This school was the midshipman's school for what used to be called those "90 Day Wonders." They would take us for 90 days and make us naval officers. We're talking about 1942, the early days of war after Pearl Harbor. We were assembled in this "ship" in Columbia University in a dormitory. We were taught to be naval officers, supposedly in three months. We were arranged alphabetically in the dormitory. At the top were the people with my first initial T, and also U, V, W. We knew the people adjacent to us and up and down better than the rest of the group, and one of those fellows was Herman Wouk. We were acquainted and were good friends. He was famous in the school because he had been a gag writer for Fred Allen and Allen's famous radio program of the day.

Wouk wrote The Caine Mutiny later and he wanted the protagonist in the book to go to the school that both Wouk and I attended. So that's how this matter came up. That's my only appearance in the book. Wouk and I never had any contact after those 90 days-I was not in the same theater of war that he was or on the same ship or anything. That's how all that came about. The first days after the war when I was beginning my teaching career, in the late '40s and early '50s, The Caine Mutiny became a very popular book which all the students seemed to be reading. So, when the word got around that, well, your teacher was in the book, that added to my reputation among undergraduate students, and graduate students, too. Incidentally, for having the best academic record in this school, I, like Tobit, was given a gold watch by J.P. Morgan.


I hope that my reminiscences of conversations with famous economists revealed some interesting aspects of their personal characteristics and professional interests. I doubt that the revelations would have embarrassed them, but this issue does not matter since all except for Buchanan and Mundell are dead.

I am sure that people with any interest in my accounts is small and shrinking quickly. Few of the current generation of economists have any interest in the famous economists of the post-war years. Citations to their work have declined very rapidly. I recently met a new economics PhD who had never read any papers or books by Harry Johnson, nor did he even know his name. Sic venit gloria mundi!

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