When Sherwin Rosen Stunned the Fifth World Congress of the Econometric Society


I remember hearing Sherwin Rosen speak to a good-sized auditorium of technical economists at a plenary session of the Fifth World Congress of the Econometric Society in 1985.[i]  Rosen was proceeding in his typically bemused style, when he suggested to the stunned audience that they might benefit from re-reading Alfred Marshall.  I remember him saying that there are some things in Marshall that we don’t talk about any more, but that we should still talk about.  I specifically remember him mentioning that Marshall had said that the success of the institution of contract depended on the correct expectation of a certain level of ethical behavior among the participants in the economy.  I wish I could remember the specifics better, but Rosen’s auditors were visibly dismayed, and I supposed that they were thinking something like:  ‘read Marshall?, here was the sad sight of a once proud theoretician, going soft and senile.’

[i]I remember a large auditorium-like venue for the session, but could not remember any other session details, so I dug out a copy of the program for the meetings.  The only plenary session participation listed for Rosen, was his serving as a discussant for Oliver Hart and Bengt Holmstrom’s “Theory of Contracts” paper, which was delivered on August 19, 1985 (see:  “Program . . .,” 1986, p. 471).  In searching through Rosen’s publications, I cannot find any evidence that his comment was ever published.  In an email response (email dated Nov. 19, 2006) to my inquiry, Bengt Holmstrom has replied:  “I know that his comment was not published.”

"Program of the Fifth World Congress of the Econometric Society.”  Econometrica 54, no. 2 (March 1986):  459-505.


David Warsh on Paul Romer’s ‘Triumph of Formalism’


  David Warsh prepares to speak as Sandra Peart introduces him at the HES meetings at George Mason.  Source of photo:  me. 


David Warsh in his plenary address to the History of Economics Society on June 9, 2007, recounted a version of the account that he gives in his 2006 book Knowledge and the Wealth of Nations. (A key part of this story was also told in an article in the Sunday magazine section of The New York Times.)

Here I concentrate on the plenary lecture presentation.

Warsh said that he is the first to give Romer his due; that Romer has managed to alienate the economists both at Chicago and at MIT. (Well, maybe, but Tom Friedman sure gives Romer a lot of attention and praise in his best-selling The World is Flat.) Warsh also said that he (Warsh) has been accused of writing a hagiography of Romer.

Warsh identifies the key contribution of Romer as being that he identifies the key properties of knowledge, namely that it is nonrivalrous and nonexcludible. He claims that Romer was the first to see this, and so is responsible for beginning the crucial field of the economics of knowledge.

Further, Warsh claims that the economics profession only achieved this insight when Romer found a way to incorporate knowledge in his formal models.

This story, Warsh says, is a triumph of formalism; only through formalism could such an important advance have been made.

At this point in the presentation, I became rather annoyed—I had my hand up during most of the question session, but Warsh chose not to call on me.  (In fairness, I was seated on his far left, though at the front, so it is possible that he did not see me.)

What I told Warsh afterwards was that the lesson from this episode is the exact opposite of the one he claims—it is not an example of the triumph of formalism, but rather an example of the shame of formalism.

Long before Romer, others had pointed out the nonrivalry and nonexcludibility of knowledge. E.g., Arrow briefly in a famous essay (1962), and Harry Johnson at greater length in an obscure essay (1972).

The requirement that serious knowledge requires formalization before it is taken seriously, meant that economists ignored for several decades, what had been nonformally known. It is to the shame of formalism that for decades useful issues were ignored.

And even more strongly, to say that Romer is responsible for founding the economics of knowledge is to add insult to injury to the economists who had actually founded this field: economists such as Richard Nelson, Nathan Rosenberg, Zvi Griliches and Edwin Mansfield.

Not only was their work largely ignored for decades, but a leading advocate and exemplar of the formalist methodology responsible for the ignorance, is himself given credit for their achievements.


The reference to Warsh’s book, is:

Warsh, David. Knowledge and the Wealth of Nations: A Story of Economic Discovery. New York: W. W. Norton & Co., 2006.


For further information on the founders of the economics of science and technology, one could consult:

"Economics of Science." In Steven  N. Durlauf and Lawrence E. Blume, The New Palgrave Dictionary of Economics, 2nd ed., forthcoming, 2008, Basingstoke and New York:  Palgrave Macmillan, reproduced with permission of Palgrave Macmillan. This article is taken from the author’s original manuscript and has not been reviewed or edited. The definitive published version of this extract may be found in the complete New Palgrave Dictionary of Economics in print and online, forthcoming, 2008. 

"The Economics of Science."  Knowledge and Policy 9, nos. 2/3 (Summer/Fall 1996): 6-49.

"Edwin Mansfield’s Contributions to the Economics of Technology."  Research Policy  32, no. 9 (Oct. 2003):  1607-1617.

"Zvi Griliches’s Contributions to the Economics of Technology and Growth."  Economics of Innovation and New Technology 13, no. 4 (June 2004):  365-397.


The full reference on the Arrow article, is: 

Arrow, Kenneth J.  "Economic Welfare and the Allocation of Resources for Inventions."  In Richard R. Nelson, ed., (National Bureau of Economic Research), The Rate and Direction of Inventive Activity:  Economic and Social Factors.  Princeton:  Princeton University Press, 1962, pp. 609-625.


The full reference on the Harry Johnson article, is: 

Johnson, Harry G.  "Some Economic Aspects of Science."  Minerva 10, no. 1 (January 1972):  10-18.


Mugabe Driven by Quest for Power, More than from Paranoia, or Marxism: More on Why Africa is Poor


No one outside of Mr. Mugabe’s inner circle, of course, can say with certainty why he has pursued policies since 2000 that have produced economic and social bedlam. For his part, Mr. Mugabe says Zimbabwe’s chaos is the product of a Western plot to reassert colonial rule, while he is simply taking steps to fight that off.

Among many outside that circle, however, the growing conviction is that Zimbabwe’s descent is neither the result of paranoia nor the product of Mr. Mugabe’s longstanding belief in Marxist economic theory. Instead, they say, Zimbabwe is fast becoming a kleptocracy, and the government’s seemingly inexplicable policies are in fact preserving and expanding it.

. . .

Mr. Mugabe’s government declares currency trading illegal, but regularly dumps vast stacks of new bills on the black market, still wrapped in plastic, to raise foreign exchange for its own needs, business leaders and economists say.

The nation’s extraordinary hyperinflation, last pegged by analysts at 10,000 percent a year, is an economic disaster that, by all accounts, the government needs to address. Yet after it ordered merchants in July to slash their prices, cadres of policemen and soldiers moved into shops to enforce the new controls, scoop up bargains and give friends and political heavyweights preferential access to cheap goods.

. . .

Mr. Mugabe’s 25-bedroom mansion in Borrowdale, the gated high-end suburb of Harare, the capital, is the locus of a boomlet that has spawned luxury homes for government and party officials. (Mr. Mugabe said his mansion was built with goods and labor donated by foreign governments.)

Mr. Mugabe arrived to open Zimbabwe’s Parliament this month in a Rolls-Royce. Equally telling, the legislature’s parking lot was crammed with luxury cars.

Such riches have been accompanied by a steep decline in living standards for just about everyone else. The death rate for Zimbabweans under the age of 5 grew by 65 percent from 1990 to 2005, even as the rate for the world’s poorest nations dropped. Average life expectancy here is among the world’s lowest, according to the United Nations.


For the full commentary, see: 

MICHAEL WINES.  "News Analysis; Zimbabwe’s Chaos: The Powerful Thrive."  The New York Times (Fri., August 3, 2007):  A8. 

(Note:  ellipses added.)