The Hindu Business Line : `Nobel' heroes of the dismal science

IT IS Nobel season. The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel or, in short, the Nobel Memorial Prize in Economics for 2004 will be announced on October 11. It was instituted by the central bank of Sweden in 1968 on the occasion of its tercentenary. It has been awarded since 1969.

When the proposal was first mooted there was considerable opposition on the part of the members of the Royal Swedish Academy of Sciences, Stockholm, which administers the Nobel Prizes. There was the prejudice that economics was a pseudo-science and not on a par with the other disciplines for which the prizes were awarded. However, over the years, the economics laureates have come to occupy an important position in public life. For one thing, unlike others, they play a conspicuous role in policy-making and are often in the news.

Four individuals and two organisations have won more than one Nobel in fields other than economics. This is because it is for specific discovery or contribution and not for general accomplishment. However, it has not happened in the case of economists. Paul Samuelson has made original contributions in many areas including mathematical economics, modern welfare economics, linear programming, economic dynamics, international trade theory, etc. He calls himself the "last generalist in economics". His Nobel citation (1970) clubbed and generalised all his achievements in various fields and said that the award was made "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". Probably because the backlog of potential awardees is so much in Economics Prize, being a late-comer, that so far there has been no opportunity to award a second prize to the same laureate.

There is high drama associated with the selection of Nobel laureates. So much so that Hollywood has devoted a film to the subject (The Prize;1963, starring Paul Newman). Economists rarely make a fascinating character for being portrayed in a novel or a movie. There are two exceptions — one small and one big. Prof James Tobin, the laureate of 1981, had served on a destroyer during the Second World War and went through Navy Officers' Training School with Herman Wouk. Wouk gave him a small part in his novel entitled The Caine Mutiny. But a full-length movie was made on John Nash who won the Prize in 1994 along with John Harsanyi and Reinhard Selten for the pioneering analysis of equilibria in the theory of non-cooperative games.

Nash is basically a brilliant mathematician, not an economist. He had a long history of split personality (paranoid schizophrenia). In 1993 the Economics Committee decided to give the Prize to Game Theory the next year. Assar Lindbeck, the leader of the committee who had dominated it ever since its beginning, has recounted the story behind Nash's selection in an article. When he proposed the name of Nash, there was stiff opposition from another powerful member, Ingemar Stahl, who pointed out the mental history of the candidate and feared that an award to him might become a scandal. He lost but still pursued the matter before the full Academy meeting. There was an unprecedented floor debate and Nash and the other two economists won the vote by a slender margin.

The whole episode gave to the Academy members an excuse and a momentum to thoroughly overhaul the Prize the next year transforming it into a social sciences award that included Political Science, Psychology and Sociology as well as Economics. A film entitled A Beautiful Mind (originally titled "A Brilliant Madness"), based on the biography of Nash, was made in 2001. Russell Crowe played the role of Nash. The film received Oscar nominations in eight categories and won four including those for Best Picture and Best Director. Those like this writer who saw the Oscar ceremony on TV could have a close-up view of Nash in the auditorium.

Who will win the Economics Prize this year? So far Amartya Sen has been the only Indian laureate in Economics. We have heard the name of Jagdish Bhagwati so many times that it has become passé. Since the scope of the Prize is extended to cover other social sciences also it is even possible that no economist may be selected this year. One interesting feature of recent prizes is that the winners are not well known even among economists who generally keep themselves abreast of developments in their field. The problem is that the sub-fields of specialisation have so proliferatedthat it is hardly possible for any student of economics engaged in the ordinary business of life to keep track of them.

Compare it with the time when finance was not considered as a branch of economics! An interesting story is told about Dr Harry Markowitz, who won the Economics Prize in 1990 with Merton Miller and William Sharpe for seminal work on risk and return. It is narrated in Peter Bernstein's book entitled Capital Ideas — The Improbable Origins of Modern Wall Street. Markowitz arrived at the conference room in the University of Chicago (1954) to defend his doctoral dissertation full of confidence saying to himself: "... Not even Milton Friedman can give me a hard time." And the learned Professor was on his thesis committee! As Bernstein says: "A couple of minutes into the defence, Friedman turned to Markowitz and declared, `Harry, I don't see anything wrong with the math here, but I have a problem. This is not a dissertation in economics, and we cannot give you a Ph.D. in economics for a dissertation that is not economics. It is not math, it is not economics, it is not even business administration.' Markowitz sat grimly the next hour and a half, listening to the same complaint over and over. In a state of black frustration, he finally went out to the hall to await the verdict. After about five minutes, Jacob Marschak, Chairman of the committee, appeared, looked him in the eye and said, `Congratulations, Dr Markowitz!'... "

(The author is a former Officer-in-Charge of the Department of Economic Analysis and Policy of the Reserve Bank of India.)

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