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The Cowles Commission at the Frontiers of Theoretical Economics

Paper Session

Sunday, Jan. 5, 2020 8:00 AM - 10:00 AM (PST)

Marriott Marquis, Newport Beach
Hosted By: History of Economics Society
  • Chair: Larry Samuelson, Yale University

Instability at the Cowles Commission (1939-1948)

Michael Assous
,
Lumière University Lyon 2
Vincent Carret
,
Lumière University Lyon 2

Abstract

Stability analysis touched off extensive discussions at the Cowles Commission between 1939 and 1948. Oskar Lange, later followed by Lawrence Klein and Don Patinkin, among others, advocated for a move from a static analysis aiming at proving the existence of a stationary equilibrium with unemployment toward a dynamic approach exploring stability properties of full employment equilibria. In presence of excess supply of goods and labour with flexible money wages and prices, the message was that macroeconomic pathologies are better regarded as disequilibrium dynamics when full employment equilibrium is unstable - Lange (1944) and Klein (1944, 1950) - or when it is stable - Patinkin. The objective of this paper is to examine this type of modelling and how it provided the basis of a specific political vision shared by most economists of the Cowles Commission in the 1940’s.

The Entangled Relations between the Econometric Society and the Cowles Commission in the Early Years and the Role of Ragnar Frisch

Olav Bjerkholt
,
University of Oslo

Abstract

The Cowles Commission originated in an offer by Alfred Cowles in 1931 to finance a journal for the newly founded Econometric Society. The offer led to an entangled relationship between the Econometric Society and the Cowles Commission. Alfred Cowles who was the President (and owner?) of the Cowles Commission was the same time treasurer and secretary of the Econometric Society and the circulation manager of the Society’s journal Econometrica. Ragnar Frisch who is commonly regarded as the originator of the Econometric Society, was elected at the Society’s as council member, from 1932 as editor of Econometrica, and as member of an advisory council for the Cowles Commission. Frisch was hired by Alfred Cowles - in lieu of a research director - as a research consultant influencing and advising the Cowles Commission on its portfolio of projects. Frisch was also advising Alfred Cowles on major policy issues, particularly on the selection of research director. The entangled relationship, which was commonly described as an affiliation of the Cowles Commission with the Econometric Society was modified from 1939 when the Cowles Commission moved to Chicago and became increasingly integrated into the University of Chicago while the ties with the Econometric Society loosened or were cut. The account of the first twenty years of the Cowles Commission by Carl Christ 1953 suffers from being based on insufficient source material.

The Cowles Commission and the Emerging Chicago School

Robert W. Dimand
,
Brock University
Sylvie Rivot
,
University of Strasbourg

Abstract

Under the directorship of Jacob Marschak (1943-48) and Tjalling Koopmans (1948-55), the Cowles Commission at the University of Chicago sponsored pioneering work on general equilibrium, social choice, activity analysis, and simultaneous-equations econometric models by Kenneth Arrow, Gerard Debreu, Trygve Haavelmo, Leonid Hurwicz, Lawrence Klein, Harry Markowitz, and Herbert Simon, all, like Koopmans, future Nobel laureates. The Cowles Commission’s methodology was contested by the emerging Chicago school of economics, led by future Nobel laureates Milton Friedman and Theodore Schultz (department chair 1946-61) who upheld partial equilibrium price theory, the quantity theory and rational choice against the Cowles emphasis on general equilibrium and Keynesian macroeconomics and against Simon’s bounded rationality, and who were suspicious of Cowles projects on activity analysis and macroeconometric models as creating tools for central planning and Keynesian demand management. We examine the interactions and methodological debates between the two groups, which led to the departure of the Cowles Commission to Yale University in 1955.

Let’s Formalize Behavior! - The Early Adoption of Rational Choice Theories at the Cowles Commission, 1944-1965

Catherine Herfeld
,
Ludwig Maximilian University of Munich
Malte Doehne
,
Ludwig Maximilian University of Munich

Abstract

In this paper, we examine how the informal social structures of a research institution impact the promotion of a scientific innovation and shape the conditions for its success. Our case study is are rational choice theories originating in John von Neumann and Oskar Morgenstern’s Theory of Games and Economic Behavior, which we take to be exemplary of a scientific innovation. More specifically, we analyze the early engagement of mathematical economists with the Theory of Games against the social and institutional context of the Cowles Commission for Research in Economics, where those tools came to be adopted in the period of 1944 to 1965. From data collected on acknowledgements in academic publications and working papers produced at Cowles, we reconstruct the informal social structure that was in place at Cowles during the period under analysis. The acknowledgments network allows us to examine the sequence in which the set tools spread by identifying those scholars who were acknowledged in papers that cite the Theory of Games. We compile empirical evidence that particular individuals and the roles they held at Cowles partly explain the initial adoption and dissemination of those tools. Opinion leaders who occupied a particular role in the informal social structure were crucial in fostering the initial adoption process. We highlight the role of individuals in administrative functions – specifically the directors of research Jacob Marschak, Tjalling Koopmans, and James Tobin –in framing the research program and promoting the early engagement with the new set of tools among scholars at Cowles. By analyzing the distinct social roles of those actors, we argue that in their roles as ‘opinion leaders’ they fostered initial adoption in different ways qua their position at Cowles. Our results suggest that there is more to the process of establishing a successful scientific innovation than simply developing a new theory that stands up against empirical test. They also reveal the importance of formal and informal organizational structures in explaining the adoption of scientific innovations, which itself has important implications for science policy and institutional design in fostering the success of scientific innovations.
Discussant(s)
Larry Samuelson
,
Yale University
JEL Classifications
  • B2 - History of Economic Thought since 1925
  • C1 - Econometric and Statistical Methods and Methodology: General