They Should Have Gotten the Prize (Again)

by Don Boudreaux on October 6, 2006

in Current Affairs

In anticipation of Monday’s announcement of the 2006 winner(s) of the Nobel Prize in Economic Science (oh let it be Gordon Tullock!), I reprise here a post from two years ago in which I list some dead economists who were not awarded the prize but who, having been alive after the Prize was started, arguably should have gotten it.

They Should Have Gotten the Prize

Which economists alive when the Nobel Prize in Economic Science was
launched (1969) but who are now dead and who never received the Prize
were most deserving to receive it?

Here’s my list. It’s unabashedly biased and admittedly pointless.
But it’s satisfying to construct. I offer my list in alphabetical order.

Peter Bauer
– His work on development economics remains unappreciated by too many
in the economics profession and among policy-makers. Bauer documented
repeatedly, but always clearly and from different angles, the utter
failure of government-to-government aid. He also explained clearly just
why such “aid” is a curse to the ordinary people of developing
countries. He was an intellectual giant.

Frank Knight – His Risk, Uncertainty, and Profit
is difficult and poorly organized; it’s also deeply profound. In
addition to identifying the important distinction between calculable
risk and incalculable uncertainty, he also showed clearly the logical
foundations of the theory of perfect competition. And he understood far
better than most economists who have taught this model that it is a
rarified abstraction that is neither descriptive nor prescriptive.

Fritz Machlup
– His contributions to the pure theory of international trade,
international finance, industrial organization, and methodology are
important. (His article “The Fallacy of Misplaced Concreteness” ought
to be a must-read for every practicing economist.) He was also a
pioneer in the economics of knowledge. And he was a master teacher.

Ludwig von Mises – His book Socialism
was pioneering. He saw, with a depth and breadth of vision achieved by
precious few economists on any subject, just what the problem is with
central planning. The list of his students, formal and informal, is
alone impressive enough to have justified awarding this great scholar
the Prize; these students include F. A. Hayek, Fritz Machlup, and
Israel Kirzner.

Oskar Morgenstern
– His innovative introduction of game theory into economics is simply
too important to overlook. His careful explanation of the pitfalls of
using data is justifiably still celebrated.

Joan Robinson – Her Economics of Imperfect Competition, while not without many flaws, had an impact on the economics profession too great to ignore.

Julian Simon
– I predict, and I certainly hope, that the next hundred years will
increasingly reveal this man to have been far ahead of his time. His
idea of human creativity as the ultimate resource is – well, I can’t
find an appropriate word to describe how very important I believe this
insight to be. Also, his intrepid use of empirical evidence is
inspiring. One of the most imaginative scholars of the last third of
the 20th century, he was a man of unbounded energy and unquestionable


A few names might be conspicuous by their absence from my list.  I thought of putting Lionel Robbins on the list, but apart from his outstanding Nature and Significance of Economic Science,
I can’t really identify any vital, Prize-worthy achievements – unless
you count his role in bringing Hayek to the LSE. Another name left off
is Abba Lerner.  His Economics of Control is useful, but Lerner’s instincts as an economist were, in my view, rather questionable.

Be Sociable, Share!



32 comments    Share Share    Print    Email


Lars Smith October 7, 2006 at 2:07 am

Albert Hirschman is alive and deserves the prize.

Russell Nelson October 7, 2006 at 3:37 am

Definitely Julian Simon and Ludwig von Mises.

Russell Nelson October 7, 2006 at 3:40 am

Oh, and speaking of "perfect competition", I would REALLY REALLY like to see that theory put back on the shelf. Not because it's not useful for certain very technical constructs, but instead because the main thing that students get out of an economics course in which it is taught is "Markets only work when competition is perfect; in all other instances you need governments to intervene to save markets from themselves." I've seen WAY too many people tell me this, and the only possible source of it is the theory of perfect competition. Just Don't Teach It.

chris October 7, 2006 at 5:56 am

How about Michal Kalecki? He anticipated much of what Keynes said in the General Theory, with more clarity and more attention to statistics. Or Piero Sraffa?

Jason Briggeman October 7, 2006 at 6:49 am

Russell, one alternative model that we sometimes talk about here at Mason is Bertrand competition – firms are simply assumed to set price instead of quantity, and even with N=2 firms you can get similar features to atomistic (oh, sorry, "perfect") competition, such as P=MC.

Aaron Krowne October 7, 2006 at 11:40 am

I nominate Frederick Soddy. I have never seen a better understanding and definition of wealth.

Of course, he was actually not an economist at all, but a famous chemist, who won the Nobel prize for *that* in 1921. Five years later he wrote "Wealth, Virtual Wealth, and Debt"–unfortunately at the dawn of the Keynesian policy bonanza, and so entirely discarded by history–in which he basically warned of the Great Depression, explaining the looming problems in national economics having to do with the misunderstood nature of wealth, debt, and money.

Mises would be a good one too. But perhaps, in fact, he should be posthumously awarded the prize jointly with Soddy =)

Scott Wood October 7, 2006 at 8:34 pm

How about Aaron Director, who is generally cited as the founder of the law and economics movement, and lived to, what, 102?

Also, FWIW, I suspect that Mancur Olson would have won one had he not died surprisingly at a relatively young age.

Swimmy October 8, 2006 at 12:46 pm

Don't forget that Knight essentially beat Coase to the Coase Theorem.

dearieme October 8, 2006 at 1:12 pm

When I attended some elementary economics lectures 40 years ago, the lecturer went out of his way to pour vituperation on Joan Robinson. He doubted her intellectual honesty.

Joseph October 8, 2006 at 7:42 pm

Fischer Black is always put in this category.

His recent biograpy, The Revolutionary Idea of Finance, makes for a great read.

ettubloge October 9, 2006 at 9:41 am

Simon's message was pure beauty as in clear, optimistic and prescient.

gary lammert October 9, 2006 at 11:07 am

Among all these notables, Ludwig von Mises was the big picture Macroeconomic's MacroEconomist.
Who really wins or loses with excessively easy lending terms
or excessively low interest rates?

In the late 1920's buying on credit became widespread. Automobiles,
radios, washing machines – all became available to the American wage
earner – on credit. And they consumed…. and consumed in bolus mass.
On the stock exchange ten percent margin was available for
speculators. Borrowing became rampant. Stock valuation become
overvalued and assets relatively over consumed. The population of
consumers in need of a radio, washing machine, automobile, et. al.,
was rapidly depleted. Ongoing consumption at the median
credit-dependent bolus rate was impossible. Inventories accumulated
and workers were laid off, with the resulting inability to pay for
their own assets acquired on credit. The assets were then repossessed
increasing the already over supply. The deflationary macroeconomic
negative feedback system proceeded in a necessary and mechanistic

Lenders were left with repossessed assets whose worth was less than
purchase value – with a falling population of potential consumers.
With less product demand factory owners with capital debt for
machinery and buildings were unable to maintain payments. Stock on ten
percent margin became more than just worthless, it became a liability,
as obligations to pay the entire purchase amount remained even as the
stock valuation decreased by 25, then 50, then 75 percent. As the
macroeconomic system unwound into a deflationary collapse in 1932; the
debtor of last resort, a debtor whose balance sheet was quite good,
became also the employer of last resort. And so as the US GDP
collapsed by 40-45 percent, the US government began its work projects
program creating some of the public infrastructure that still serves
its citizen to this day.

Fast forward three generations. The marvels of the late 1920's were
replaced by the computer, its software, and the new information age of
the nineties. Over borrowing and over investment in this arena left
warehouses full of enough fiberopic cable for a generation and an 80
percent collapse of the NASDAQ over the exact same time frame as the
DJIA top to bottom period from 29 to 32. 'Replaying 1929' – US's, not
the United States', but Urban Survival's insightful recognition of
what was transpiring, i.e., 1858's second subfractal's Groundhog's Day
to 1929 was an instant attractor to the website for all who
qualitatively, and for fractalists, quantitatively, appreciated the
nature of cyclical events.

1932 was not 2002. The internet collapse, while wiping out more than 6
trillion dollars of paper value, had little effect on the GDP. Times
were different. A strange set of world circumstances existed in 2000.
Emerged was both a single superpower with an unparalleled military and
nuclear arsenal and a rapidly evolving, highly capable and rising
manufacturing giant with a massive population willing to work 60-80
hours a week at 1/10-1/20th the cost of the superpower's worker. Even
with oceanic transportation of goods, the American consumer reaped the
benefits of these low cost items. American industry could not compete
and jumped in, closing their own manuafacturing plants, and began
marketing and enhancing the distribution system of foreign made

At the same time the Federal Reserve and Financial Big Business
synergistically created the last 'great' American industry. This
powerful industry increased the money supply faster than at any other
time in US history. That industry could be labelled 'US Lending
Unlimited.' In the 21st century, that industry has shoehorned the
average American citizen into the role of debtor of last resort. The
citizen-wage earner has been enticed into a speculative housing asset
bubble greater in proportion and magnitude than any prior historical

The new lending parameters have made initial house ownership less
expensive on a monthly basis than rental. They have divorced the
value of homes from traditional savings and wages. The new rules have
artificially inflated the purchase price of homes. Wages have not
proportionally increased, leaving the interest and principle debt to
wage ratio and long term debt burden significantly higher. Equity from
that 'artificially' inflated price has been extracted in record
amounts by home owners who have gone on a consumption spending spree,
bolus consuming items in a two-three years that might otherwise have
been consumed over a decade. Home values soared eventually pricing out
the entry population. Building continued and oversupply resulted.

Now to this mix comes higher property taxes, higher insurance rates
especially in eastern and southern coastal states, and a large
population of readjusting ARM's with higher monthly payments. The
inflationary true debt burden and costs become too many straws for
the camel's back. The oversupply of washing machines and automobiles
in 1929 and fiberoptic cable in 2000 now resonates with the incipient
cateclysm in the over supplied housing market in 2006. The money made
by the builders which was no longer being invested in the housing
markets found its way into the equity market, the last game in town -
for one last blow-off. The composite Wilshire nominally is still 1100
billion or so below its March 2000 value and using housing prices as
dollar-denominated purchasing power is valued at perhaps 60 percent of
its March 2000 worth.

Meanwhile there is very little the US can exchange with its Eastern
'trading' partners except its paper currency and a promise to pay
interest on that paper. This strange symbiotic relationship has
provided 'the glut of world dollar savings' that has serviced the US
federal debt and maintained low interest rates. The US dollar, because
of America's superpower stature, continues and will continue to have
value in its purchasing ability of dollar-denominated oil. As
commodity assets, equity assets, and real estate assets deflate, the
value of the dollar will increase in its purchasing power. Friday's
breakout of the dollar is occurring as an expected coupled event with
the collapsing US housing market and incipient uS equity collapse.

So who wins when credit is so unregulated and made so easy that not to
borrow is to lose money? Who wins when real ongoing inflation creates
a disincentive to saving? As the economy collapses; and folks are
unable to repay their loans; and lenders acquire assets that cannot be
sold; and the world becomes a much more dangerous place – the answer
becomes apparent: no one.

Gary Lammert

Previous post:

Next post: