Contributors to the Economic History of Thought
Smith Scholar
Paul Samuelson (by Garrett Andrews)
Considered one of the most influential American economists.
His work contributed to the development of statistical, scientific, and mathematical aspects of economics.
His Economics: An Introductory Analysis is the best-selling economics textbook of all time.
His studies of the allocation of resources, government spending, and welfare economics are all part of Samuelson’s legacy.
Proponent of Keynesian Economics.
Re-interpretation of the random walk theory is considered one of his most influential work.
His work on contingent claims served as a precursor to the Black-Scholes Option Pricing Model. At its conception, the random walk hypothesis posited that the fluctuations in the price of stocks were random and impossible to predict, but Samuelson argues that these fluctuations occur within an interval around the mean price of the stock, holding all other phenomena constant. For example, if a stock increased a half point in value with a standard deviation of three quarters of a point, it would be incorrect to argue that the value of the stock would be entirely random the next day.
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Milton Friedman (by Hunter Pagon)
With George Stigler and others, Friedman was one of the leaders of the Chicago school of economics, a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago. The Chicago School challenged Keynesianism in favor of monetarism and rational expectations. Several of Friedman’s students and colleagues went on to become leading economists, including Gary Becker, Robert Fogel, Thomas Sowell and Robert Lucas Jr.
His political philosophy defended the free market economic system. In his 1962 book Capitalism and Freedom, Friedman advocated policies such as a volunteer military, freely floating exchange rates, a negative income tax, and school vouchers.
A Monetary History of the United States, 1867–1960 written with Anna J. Schwartz: Friedman and Schwartz use historical time series and economic analysis to argue the then-novel proposition that changes in the money supply profoundly influenced the U.S. economy, especially the behavior of economic fluctuations.
Consumption Function: Friedman argues that Keynes’s consumption function relating income to propensity to consume was in error by not distinguishing between transitory and permanent income.
Awarded Nobel Prize in 1976 in Economic Sciences.
Served as economic advisor to Margaret Thatcher and Ronald Reagan.
Emphasized using economics as public policy rather than mathematics.
Along with Paul Samuelson, Friedman is considered one of the most influential economists of the second half of the 20th century.
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James Tobin (by Jacob Tarter)
Received the 1991 Nobel Prize in Economics for analyzing financial markets and their relationship to expenditure decisions, employment, production, and prices.
Keynesian economist who argued that monetary policy could not be predicted to determine output and unemployment.
During 1961–62, he served as a member of John F. Kennedy's Council of Economic Advisors, and from 1962-68 as a consultant. Along with Walter Heller, Arthur Okun, Robert Solow, and Kenneth Arrow, he helped design the Keynesian economic policy implemented by the Kennedy administration.
An advisor to presidential candidate George McGovern in 1972.
While interest rates were important, Tobin did not think they were the only factor in consumption and capital investment.
“Tobin’s q” was a tool to predict whether capital investment would increase or decrease.
Developed portfolio-selection theory that stated investors have a balance between high-risk, high-return investments and low-risk, low-return investments.
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James Buchanan (by Addison Moe)
Recognized for Public Choice Theory: “Politics without Romantics”
Provided a political science perspective to economics.
Believe that serving in the Navy encouraged his socialist and populist views.
In politics, there is a self-gain incentive; compares politics to Game Theory.
Not a follower of Keynes.
Quote: “Economists should cease proffering policy advice as if they were employed by a benevolent despot, and they should look to the structure within which political decisions are made.”
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Gary Becker (by Molly Kilbane)
Received the Presidential Medal of Freedom, the Nobel Memorial Prize in Economic Science, and the National Medal of Science for Behavioral and Social Science.
Becker studied discrimination; his theory was that discrimination is costly to the company because the opportunity for a productive worker is lost.
Becker’s human capital theories addressed how companies should invest in humans.
His works included studies on social issues.
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David Ricardo (by Cam Kaderle)
Adam Smith’s Wealth of Nations inspired Ricardo to explore the field of economics.
· Holds similar views to Adam Smith but focused more on theory and applications rather than philosophy.
In Britain, he opposed the Corn Laws on the grounds that the imposition of high tariffs caused wages to increase and profits to decrease.
Instead of protectionism, Ricardo thought comparative advantage was a better method a country should focus on the relatively more efficiently produced product and outsource other products, so it can trade with other countries and create worldwide wealth and maximum efficiency.
Developed the Iron Law of Wages, where the working class's wages always shifted to the minimum value to subsist. If they had a surplus, then they’d increase their family size until they could only subsist.
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Ludwig von Mises (by Daniel Joyce)
Along with Carl Menger, F.A. Hayek, and Joseph Schumpeter, von Mises was one of the leaders of the Austrian School of Economics.
Mises is known for his role, along with Hayek, in disputing the possibility of rational economic planning.
Could speak German, Polish, and French fluently by 12.
Known as a classical liberalist economist.
Scholarly work mainly focused on monetary policy and the business cycle.
Mises thought the success the West had after World War II was mainly due to the liberty and freedom individuals had in their societies.
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William F. Sharpe (by Michael Donovan)
Developed the Capital Asset Pricing Model (CAPM); a theory that proposes that the equilibrium return on an asset is determined only by market risk since other risks can be diversified away with a well-diversified portfolio.
Developed the Sharpe Ratio that measures an investment’s risk premium (expected return minus the risk-free rate) per market risk to rank stock and portfolio investments.
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Eugene Fama (by Luke Schmelzer)
Developed the Efficient Market Hypothesis that states share prices reflect all available information. This hypothesis contained three different forms of market efficiency:
Strong form - stock price includes all information, both public and private.
Semi-strong form - all public information is included in stock price but private information is not completely accessible.
Weak form - no information is available (only historical stock price information is available.
Developed the Fama-French multi-factor model that determined the equilibrium return on a stock. By showing empirically that there were multiple factors determining an investment’s equilibrium return. He extended Sharpe’s CAPM.
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2021 Nobel Prize in Economics
Professors Imbens, Angrist and Card were awarded the 2021 Nobel Prize in Economics for natural experiment research on labor markets.