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Seller: memorabilia111 ✉️ (812) 97.3%, Location: Ann Arbor, Michigan, US, Ships to: US & many other countries, Item: 176351933658 NOBEL PRIZE IN ECONOMICS AUTOGRAPH MANUSCRIPT 3PP 1972 KENNETH J ARROW ORIGINAL. KENNETH J ARROW NOBEL PRIZE WINNING ECONOMIST FROM 1972 3 PAGE HANDWRITTEN MANUSCRIPT HAND SIGNED ON THE 1ST PAGE. DISCUSSED BRIEFLY TOPICS SUCH AS ON ECONOMIC THEORY IN A COMPLEX WORLD , AGENT-BASED SYSTEMS, EVOLUTION + SURVIVAL, SURVIVAL + INSTITUTIONS,  Paul A. Samuelson, the first American to win the Nobel Memorial Prize in Economic Science, called Professor Arrow “the most important theorist of the 20th century in economics.” When Professor Arrow received the award in 1972, Professor Samuelson wrote, “The economics of insurance, medical care, prescription drug testing — to say nothing of bingo and the stock market — will never be the same after Arrow.”
I was born in the city of New York on August 23, 1921. My undergraduate education, at the City College in New York, was made possible only by the existence of that excellent free institution and the financial sacrifices of my parents. I was graduated in 1940 with a degree of Bachelor of Science in Social Science but a major in Mathematics, a paradoxical combination that was prognostic of my future interests. I entered Columbia University for graduate study and received an M.A. in Mathematics in June, 1941, but under the influence of the statistician-economist, Harold Hotelling, I changed to the Economics Department for subsequent graduate work. My graduate study was interrupted, like that of many others, by World War II. From 1942-1946, I served as a weather officer in the United States Army Air Corps rising to the rank of Captain. My assignment was exclusively in the research field, and my first published paper, On the Optimal Use of Winds for Flight Planning, was the outgrowth of that work. The years 1946-1949 were spent partly as a graduate student at Columbia University, partly as a research associate of the Cowles Commission for Research in Economics at the University of Chicago, where I also had the rank of Assistant Professor of Economics in 1948-1949. The brilliant intellectual atmosphere of the Cowles Commission, with eager young econometricians and mathematically-inclined economists under the guidance of Tjalling Koopmans and Jacob Marschak, was a basic formative influence for me, as was also the summers of 1948 and subsequent years at the RAND Corporation in the heady days of emerging game theory and mathematical programming. My work on social choice and on Pareto efficiency dated from this period. In 1949 I was appointed Acting Assistant Professor of Economics and Statistics at Stanford University and remained there until 1968, becoming eventually Professor of Economics, Statistics, and Operations Research. At various times during this period, I was a Social Science Research fellow, 1952, a Fellow of the Center for Advanced Study in the Behavioral Sciences, 1956-57, Economist on the staff of the United States Council of Economic Advisors, 1962, Executive Head of the Department of Economics at Stanford, 1953-56 and 1962-63, Fellow of Churchill College (Cambridge), 1963-64, and again in 1970, and Guest Professor, Institute for Advanced Studies, Vienna, in June, 1964, and again, 1971. In 1968, I accepted an appointment as Professor of Economics at Harvard University. I received the John Bates Clark Medal of the American Economic Association, 1957, and I have been elected member of the National Academy of Sciences and the American Philosophical Society; also I am a Fellow of the American Academy of Arts and Sciences, the Econometric Society, the Institute of Mathematical Statistics, and the American Statistical Association. I received the honorary degrees of LL.D. from the University of Chicago, 1967, and the City University of New York, 1972, and that of Doctor of Social and Economic Sciences for the University of Vienna, 1971. With regard to professional societies, I was president of the Econometric Society in 1956 and The Institute of Management Sciences in 1963, and a President-elect of the American Economic Association for 1972. I was married in 1947 to the former Selma Schweitzer and now have two sons, David Michael, age ten, and Andrew Seth, age 8.   Addendum, April 2005 To continue first with my formal career, I remained at Harvard University until 1979; I had been designated the James Bryant Conant University Professor in 1974. In 1979, I returned to Stanford University with the position of Joan Kenney Professor of Economics and Professor of Operations Research. I retired in 1991 and have been Professor Emeritus since. There were several short-term appointments, including Fellow at Churchill College, University of Cambridge, in 1973 and 1986, part-time Professor at the European University Institute in 1986, Fulbright Professor at the University of Siena in 1995, and Visiting Fellow at All Souls College, University of Oxford, in 1996. I have also enjoyed a close relation with the Santa Fe Institute, being on their External Faculty since 1988 and also serving on the Science Board. I was elected to the Institute of Medicine (U.S.A.) and have chaired two of their study committees, most recently one on the economics of antimalarial drugs. I was also elected to the Pontifical Academy of Social Sciences. In 1986, the Institute for Management Sciences and Operations Research awarded me the von Neumann Prize. I served as President of several learned societies, including the International Economic Association. My research, even before 1972, moved in directions beyond those cited for the Nobel Memorial Prize. Most of it, in one way or another, deals with information as an economic variable, both as to its production and as to its use. Two 1962 papers studied the efficiency with which the market encourages innovation and the implications of learning by doing for economic growth. In 1963 and later papers, I pointed out that the special market characteristics of medical care and medical insurance could be explained by reference to differences in information among the parties involved. Later themes included a specification of the demand for information and the implications of information as an economic input for returns to scale. Another area of study was the economics of racial discrimination. Kenneth J. Arrow, in full Kenneth Joseph Arrow, (born August 23, 1921, New York, New York, U.S.—died February 21, 2017, Palo Alto, California), American economist known for his contributions to welfare economics and to general economic equilibrium theory. He was cowinner (with Sir John R. Hicks) of the Nobel Prize for Economics in 1972. Perhaps his most startling thesis (built on elementary mathematics) was the “impossibility theorem” (or “Arrow’s theorem”), which holds that, under certain conditions of rationality and equality, it is impossible to guarantee that a ranking of societal preferences will correspond to rankings of individual preferences when more than two individuals and alternative choices are involved. In one of his earliest articles, published in 1951, Arrow showed that a competitive economy in equilibrium is efficient. Furthermore, he demonstrated that an efficient allocation could be reached if a government uses lump-sum taxes to transfer wealth and then lets the market work toward equilibrium. One implication of his findings is that, if a government chooses to redistribute income, it should do so directly rather than through price regulations that could hamper the free market. Arrow’s early work on equilibrium still stands as one of the reasons many economists oppose price controls. After receiving his Ph.D. from Columbia University in 1951, Arrow taught at the University of Chicago (1948–49), at Stanford University (1949–68), and at Harvard University (1968–79). In 1979 he returned to Stanford University as Joan Kenney Professor of Economics and Professor of Operations Research. Arrow became professor emeritus at Stanford in 1991. Arrow received numerous honours and awards, including the John von Neumann Theory Prize (1986), for notable contributions to operations research and management science, and the National Medal of Science (2004), the highest scientific honour in the United States. He has also been a fellow of several academic societies, including the Econometric Society, the American Economic Association (AEA), the Institute of Mathematical Statistics, and the American Association for the Advancement of Science. Kenneth J. Arrow, one of the most brilliant economic minds of the 20th century and, at 51, the youngest economist ever to win a Nobel, died on Tuesday at his home in Palo Alto, Calif. He was 95. His son David confirmed the death. Paul A. Samuelson, the first American to win the Nobel Memorial Prize in Economic Science, called Professor Arrow “the most important theorist of the 20th century in economics.” When Professor Arrow received the award in 1972, Professor Samuelson wrote, “The economics of insurance, medical care, prescription drug testing — to say nothing of bingo and the stock market — will never be the same after Arrow.” Professor Arrow — a member of an extended family of distinguished economists, including Professor Samuelson and Lawrence H. Summers, the former Treasury secretary and adviser to President Barack Obama — generated work that was technically forbidding even to mathematically oriented colleagues. But over the decades, economists have learned to apply his ideas to the modern design of insurance products, financial securities, employment contracts and much more. Markets and Majorities The backdrop for Professor Arrow’s influential early work was the centuries-long recognition that majority voting can produce arbitrary outcomes. Continue reading the main story Consider a legislature choosing its leader from among three candidates: Alice, Betty and Harry. If the legislature were to vote first on Alice versus Betty, with the winner running against Harry, it could come to a different decision than had it first started by voting on Alice versus Harry. Because the order with which the legislature takes votes is arbitrary, the ultimate winner of this system of majority voting becomes arbitrary. That puts politics in an awkward corner. In search of nonarbitrary outcomes, social scientists proffered different ways to conduct votes. For example, the legislature could run all three candidates in the initial round and structure some type of runoff. Or the legislature could give each member multiple votes to be assigned to the three candidates in proportion to the intensity of the member’s preferences. But no voting system, however cleverly designed, resolved the problems associated with majority voting. In a theorem of stunning generality, Professor Arrow proved that no system of majority voting worked satisfactorily according to a carefully articulated definition of “satisfactory” (which social scientists generally accept). What Professor Arrow proved in his book “Social Choice and Individual Values” (1951) was far more sweeping. Not only would majority-voting rules prove unsatisfactory; so, too, would nonvoting systems of making social choices if, as was fundamental to his way of thinking, those choices were based on the preferences of the individuals making up the society. (Professor Arrow’s rules did not allow for dictators.) The Arrow “impossibility theorem” ricocheted around the social sciences, noteworthy for its use of abstract mathematical concepts to generate a conclusion of sweeping applicability. Professor Arrow’s research opened the academic field of social choice — a literature that ranges from countries picking presidents to corporate boards picking business strategies. Having learned from him that no system works entirely well, academics turned to challenging follow-up questions, like whether some voting systems were better than others. Professor Arrow’s next major contributions, for which he shared the 1972 Nobel Memorial Prize in Economic Science with the British economist John R. Hicks, were published later in the 1950s. They took a bird’s-eye, “general equilibrium” view of market economies, setting out equations to capture the interplay between consumers and producers. The basic equations had been set out a half-century earlier by the French economist Leon Walras. But Professor Arrow and his co-authors extended the Walrasian system to capture important complexities, like the fact that markets exist well into the future, posing risk for consumers and producers. Professor Arrow proved that their system of equations mathematically cohere: Prices exist that bring all markets into simultaneous equilibrium (whereby every item produced at the equilibrium price would be voluntarily purchased). And market competition puts society’s resources to good use: Competitive markets are efficient, in the language of economists. Professor Arrow’s theorems set out the precise conditions under which Adam Smith’s famous conjecture in “The Wealth of Nations” holds true: that the “invisible hand” of market competition among self-serving individuals serves society well. Relevance Over Decades As was true of his earlier work on social choice, the magnitude of Professor Arrow’s theoretical insight was staggering. But, he made clear, his powerful conclusions about the workings of competitive markets held true only under ideal — that is to say, unrealistic — assumptions. His assumptions, for example, ruled out the existence of third-party effects: The sale of a product by Harry to Joe was assumed not to affect the well-being of Sally — an assumption routinely violated in the real world by, for example, the sale of products that harm the environment. The mathematics behind the general equilibrium proofs of Professor Arrow and his co-authors were daunting. Few economists mastered the details. But Franklin M. Fisher, who taught graduate courses on general equilibrium at the Massachusetts Institute of Technology, acknowledged in a 2013 interview with The New York Times that all academic economists were in Professor Arrow’s intellectual debt. Professor Arrow proved that the economists’ workaday tools of supply-and-demand equations are built on a logically coherent foundation. His later research translated common-sense ideas into elegant mathematics. Once the ideas were translated, other economists could extend them in unanticipated directions. Photo President George W. Bush presenting Professor Arrow with the National Medal of Science at the White House in 2006. Credit Pablo Martinez Monsivais/Associated Press Take “learning by doing,” a notion that Professor Arrow examined in the early 1960s. The basic idea is straightforward: The more that a company produces, the smarter it gets. Decades later, economists incorporated this idea into sophisticated theories of “endogenous growth,” which have a country’s rate of economic growth depending on internal policies that promote innovation and education — the very forces that Professor Arrow’s writings anticipated. Professor Arrow also created mathematical concepts by which economists could measure and analyze risk. William F. Sharpe, who won a Nobel in 1990 for analyzing the relationship between financial risk and return, credited Professor Arrow with helping to formulate the basis for modern theories of financial investment and corporate finance. Professor Arrow, he said, belonged in the “pantheon” of investment management. His ideas have worked their way into the design of complicated financial securities, known as derivatives, like options (which give the owner the right, but not the obligation, to buy or sell a specified asset at a specified price on or before a specified date). Businesses buy and sell financial derivatives to protect themselves from financial turmoil, and investors buy and sell them to speculate on future movements of security prices. Newsletter Sign UpContinue reading the main story Sign up for the all-new DealBook newsletter Our columnist Andrew Ross Sorkin and his Times colleagues help you make sense of major business and policy headlines — and the power-brokers who shape them. Enter your email address  Sign Up You agree to receive occasional updates and special offers for The New York Times's products and services. SEE SAMPLE PRIVACY POLICY OPT OUT OR CONTACT US ANYTIME Professor Arrow anticipated the modern analysis of markets in which buyers and sellers do not share accurate information (now known as markets with asymmetric information). In a strikingly prescient article published in the early 1960s, he teased apart the complexities that asymmetric information creates in the market for health insurance. He pointed to incentives for patients and their physicians to agree to medical procedures of questionable value when a third party, the insurer, pays the bills. Professor Arrow’s work spawned the modern treatment of “moral hazard,” whereby the fact of the purchase of insurance systematically affects the behavior of the parties to the contract. The problems that Professor Arrow flagged a half-century ago figured prominently in the design of the Affordable Care Act, President Barack Obama’s 2010 health care legislation, including its controversial “individual mandate,” which required everyone to buy coverage whether they expected to need medical care or not. Joseph Stiglitz, who won the Nobel in 2001 for formalizing the study of markets with incomplete information, traces his work to Professor Arrow’s initial forays. The upshot? The theorist who in the 1950s proved that perfectly competitive markets could exist as a matter of mathematical logic spent much of the rest of his career showing how far short of perfection actual markets fall. A Lifetime of Learning Kenneth Joseph Arrow was born on Aug. 23, 1921, in New York City. After graduating from Townsend Harris High School in Manhattan, he raced through City College, finishing with a bachelor’s degree in social science and in mathematics — what he called later “a paradoxical combination that was prognostic of my future interests.” He did his graduate work at Columbia University, interrupting it to serve as a weather officer, rising to captain, in the Army Air Corps during World War II. His first published paper, “On the Optimal Use of Winds for Flight Planning,” drew on this experience. Early in his career he worked at the RAND Corporation, the research and development organization in Santa Monica, Calif., in what he described as “the heady days of emerging game theory and mathematical programming.” Professor Arrow spent the bulk of his career at Stanford University, except for a teaching stint at Harvard from 1968 to 1979. He also served briefly on the staff of President John F. Kennedy’s Council of Economic Advisers. He retired from Stanford in 1991 but continued to accept short-term appointments in Europe and to serve on the external faculty and the science board of the Santa Fe Institute, a research center in New Mexico focused on the interplay of the social and physical sciences. He led the American Economic Association, served on the Intergovernmental Panel on Climate Change and, in 2004, was awarded the National Medal of Science, the nation’s highest scientific honor, presented in 2006 by President George W. Bush. “His politics are liberal, definitely,” said Robert M. Solow, a longtime friend and fellow Nobel laureate in economics. “With other people, this might rub the right half of the economics profession the wrong way, but it doesn’t with Kenneth.” Professor Arrow’s family members with ties to academic economics include his sister, Anita Summers, a professor emerita at the Wharton School of the University of Pennsylvania. Her husband, Robert Summers, who died in 2012, was also a noted professor of economics there. Robert Summers was the brother of Paul Samuelson and the father of Lawrence Summers, who at 28 became a tenured economics professor at Harvard and later served as the Treasury secretary under President Bill Clinton, as well as president of Harvard and senior adviser to Mr. Obama. Professor Arrow’s wife, the former Selma Schweitzer, whom he married in 1947, died in 2015. Besides his sister and son David, he is survived by another son, Andrew, and a grandson. Professor Arrow was widely hailed as a polymath, possessing prodigious knowledge of subjects far removed from economics. Eric Maskin, a Harvard economist and fellow Nobel winner, told of a good-natured conspiracy waged by junior faculty to get the better of Professor Arrow, even if artificially. They all agreed to study the breeding habits of gray whales — a suitably abstruse topic — and gathered at an appointed date at a place where Professor Arrow would be sure to visit. When, as expected, he showed up, they were talking out loud about the theory by a marine biologist — last name, Turner — which purported to explain how gray whales found the same breeding spot year after year. As Professor Maskin recounted the story, “Ken was silent,” and his junior colleagues amused themselves that they had for once bested their formidable professor. Well, not so fast. Before leaving, Professor Arrow muttered, “But I thought that Turner’s theory was entirely discredited by Spencer, who showed that the hypothesized homing mechanism couldn’t possibly work.” The Nobel Prize A golden medallion with an embossed image of Alfred Nobel facing left in profile. To the left of the man is the text "ALFR•" then "NOBEL", and on the right, the text (smaller) "NAT•" then "MDCCCXXXIII" above, followed by (smaller) "OB•" then "MDCCCXCVI" below. Awarded for Outstanding contributions for humanity in chemistry, literature, peace, physics, and physiology or medicine. Often confused with Nobel Memorial Prize in Economic Sciences. Country Sweden (all prizes except the Peace Prize) Norway (Peace Prize only) Presented by Swedish Academy Royal Swedish Academy of Sciences Nobel Assembly at the Karolinska Institute Norwegian Nobel Committee Reward(s) Prize money of 9 million SEK – Just over US$1 million (2017),[1]  a medal (sold for up to US$4.76 million[2])  and a diploma. First awarded 1901; 117 years ago Number of laureates 584 prizes to 923 laureates as of 2017 Website nobelprize.org The Nobel Prize (/ˈnoʊbɛl/, Swedish pronunciation: [nʊˈbɛlː]; Swedish definite form, singular: Nobelpriset; Norwegian: Nobelprisen) is a set of six annual international awards bestowed in several categories by Swedish and Norwegian institutions in recognition of academic, cultural, or scientific advances. The will of the Swedish scientist Alfred Nobel established the prizes in 1895. The prizes in Chemistry, Literature, Peace, Physics, and Physiology or Medicine were first awarded in 1901.[3][4][5] In 1968, Sweden's central bank Sveriges Riksbank established the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, which, although not being a Nobel Prize,[6] has become commonly known as the Nobel Prize in Economics.[7][8][9] The Nobel Prize is widely regarded as the most prestigious award available in the fields of literature, medicine, physics, chemistry, economics and activism for peace.[10][11][12] The Royal Swedish Academy of Sciences awards the Nobel Prize in Physics, the Nobel Prize in Chemistry, and the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel; the Nobel Assembly at the Karolinska Institute awards the Nobel Prize in Physiology or Medicine; the Swedish Academy grants the Nobel Prize in Literature; and the Nobel Peace Prize is awarded by the Norwegian Nobel Committee. Between 1901 and 2017, the Nobel Prizes including the Economic Prizes were awarded 585 times to 923 people and organizations.[4] With some receiving the Nobel Prize more than once, this makes a total of 24 organizations, and 892 individuals.[4][13] The prize ceremonies take place annually in Stockholm, Sweden (with the exception of the peace prize, which is held in Oslo, Norway). Each recipient, or laureate, receives a gold medal, a diploma, and a sum of money that has been decided by the Nobel Foundation. (As of 2017, each prize is worth 9,000,000 SEK, or about US$1,110,000, €944,000, £836,000 or ₹72,693,900.[1]) Medals made before 1980 were struck in 23 carat gold, and later in 18 carat green gold plated with a 24 carat gold coating. The prize is not awarded posthumously; however, if a person is awarded a prize and dies before receiving it, the prize may still be presented.[14] Though the average number of laureates per prize increased substantially during the 20th century, a prize may not be shared among more than three people, although the Nobel Peace Prize can be awarded to organizations of more than three people.[15] Contents 1 History 1.1 Nobel Foundation 1.1.1 Formation of Foundation 1.2 First prizes 1.3 Second World War 1.4 Prize in Economic Sciences 2 Award process 2.1 Nominations 2.2 Selection 2.3 Posthumous nominations 2.4 Recognition time lag 3 Award ceremonies 3.1 Nobel Banquet 3.2 Nobel lecture 4 Prizes 4.1 Medals 4.2 Diplomas 4.3 Award money 5 Controversies and criticisms 5.1 Controversial recipients 5.2 Overlooked achievements 5.3 Emphasis on discoveries over inventions 5.4 Gender disparity 6 Specially distinguished laureates 6.1 Multiple laureates 6.2 Family laureates 7 Cultural impact 8 Refusals and constraints 9 Legacy 10 See also 11 References 11.1 Notes 11.2 Sources 11.3 Bibliography 12 Further reading 13 External links History A black and white photo of a bearded man in his fifties sitting in a chair. Alfred Nobel had the unpleasant surprise of reading his own obituary, which was titled The merchant of death is dead, in a French newspaper. Alfred Nobel (About this sound listen (help·info)) was born on 21 October 1833 in Stockholm, Sweden, into a family of engineers.[16] He was a chemist, engineer, and inventor. In 1894, Nobel purchased the Bofors iron and steel mill, which he made into a major armaments manufacturer. Nobel also invented ballistite. This invention was a precursor to many smokeless military explosives, especially the British smokeless powder cordite. As a consequence of his patent claims, Nobel was eventually involved in a patent infringement lawsuit over cordite. Nobel amassed a fortune during his lifetime, with most of his wealth from his 355 inventions, of which dynamite is the most famous.[17] In 1888, Nobel was astonished to read his own obituary, titled The merchant of death is dead, in a French newspaper. As it was Alfred's brother Ludvig who had died, the obituary was eight years premature. The article disconcerted Nobel and made him apprehensive about how he would be remembered. This inspired him to change his will.[18] On 10 December 1896, Alfred Nobel died in his villa in San Remo, Italy, from a cerebral haemorrhage. He was 63 years old.[19] Nobel wrote several wills during his lifetime. He composed the last over a year before he died, signing it at the Swedish–Norwegian Club in Paris on 27 November 1895.[20][21] To widespread astonishment, Nobel's last will specified that his fortune be used to create a series of prizes for those who confer the "greatest benefit on mankind" in physics, chemistry, physiology or medicine, literature, and peace.[22] Nobel bequeathed 94% of his total assets, 31 million SEK (c. US$186 million, €150 million in 2008), to establish the five Nobel Prizes.[23][24] Because of skepticism surrounding the will, it was not until 26 April 1897 that it was approved by the Storting in Norway.[25] The executors of Nobel's will, Ragnar Sohlman and Rudolf Lilljequist, formed the Nobel Foundation to take care of Nobel's fortune and organised the award of prizes.[26] Nobel's instructions named a Norwegian Nobel Committee to award the Peace Prize, the members of whom were appointed shortly after the will was approved in April 1897. Soon thereafter, the other prize-awarding organizations were designated or established. These were Karolinska Institutet on 7 June, the Swedish Academy on 9 June, and the Royal Swedish Academy of Sciences on 11 June.[27] The Nobel Foundation reached an agreement on guidelines for how the prizes should be awarded; and, in 1900, the Nobel Foundation's newly created statutes were promulgated by King Oscar II.[22] In 1905, the personal union between Sweden and Norway was dissolved. Nobel Foundation Formation of Foundation Main article: Nobel Foundation A paper with stylish handwriting on it with the title "Testament" Alfred Nobel's will stated that 94% of his total assets should be used to establish the Nobel Prizes. In the 19th century the Nobel family, who were known for their innovations to the oil industry in Azerbaijan, was the leading representative of foreign capital in Baku. Robert Nobel was the first foreign investor in the oil sector in Baku. In 1875 R. Nobel brought a small refinery to Baku, thus laying the foundation of "The Nobel Brothers Company" that was nationalized by the Baku Council of People's Commissars the Company in 1918.[28] In 1920 the Company was nationalized by the government of Azerbaijan Soviet Socialist Republic. Even the Nobel Brothers Petroleum Company's symbol was created by taking inspiration from the Fire Temple (Ateshgah) in Surakhani and their oil tankers were given some religious and philosophical names such as Zoroaster, Muhammad, Buddha, Brahma, Socrates, Spinoza and Darwin. According to his will and testament read in Stockholm on 30 December 1896, a foundation established by Alfred Nobel would reward those who serve humanity. The Nobel Prize was funded by Alfred Nobel's personal fortune. According to the official sources, Alfred Nobel bequeathed from the shares 94% of his fortune to the Nobel Foundation that now forms the economic base of the Nobel Prize. [29] The Nobel Foundation was founded as a private organization on 29 June 1900. Its function is to manage the finances and administration of the Nobel Prizes.[30] In accordance with Nobel's will, the primary task of the Foundation is to manage the fortune Nobel left. Robert and Ludvig Nobel were involved in the oil business in Azerbaijan, and according to Swedish historian E. Bargengren, who accessed the Nobel family archives, it was this "decision to allow withdrawal of Alfred's money from Baku that became the decisive factor that enabled the Nobel Prizes to be established".[31] Another important task of the Nobel Foundation is to market the prizes internationally and to oversee informal administration related to the prizes. The Foundation is not involved in the process of selecting the Nobel laureates.[32][33] In many ways, the Nobel Foundation is similar to an investment company, in that it invests Nobel's money to create a solid funding base for the prizes and the administrative activities. The Nobel Foundation is exempt from all taxes in Sweden (since 1946) and from investment taxes in the United States (since 1953).[34] Since the 1980s, the Foundation's investments have become more profitable and as of 31 December 2007, the assets controlled by the Nobel Foundation amounted to 3.628 billion Swedish kronor (c. US$560 million).[35] According to the statutes, the Foundation consists of a board of five Swedish or Norwegian citizens, with its seat in Stockholm. The Chairman of the Board is appointed by the Swedish King in Council, with the other four members appointed by the trustees of the prize-awarding institutions. An Executive Director is chosen from among the board members, a Deputy Director is appointed by the King in Council, and two deputies are appointed by the trustees. However, since 1995, all the members of the board have been chosen by the trustees, and the Executive Director and the Deputy Director appointed by the board itself. As well as the board, the Nobel Foundation is made up of the prize-awarding institutions (the Royal Swedish Academy of Sciences, the Nobel Assembly at Karolinska Institute, the Swedish Academy, and the Norwegian Nobel Committee), the trustees of these institutions, and auditors.[35] First prizes A black and white photo of a bearded man in his fifties sitting in a chair. Wilhelm Röntgen received the first Physics Prize for his discovery of X-rays. Once the Nobel Foundation and its guidelines were in place, the Nobel Committees began collecting nominations for the inaugural prizes. Subsequently, they sent a list of preliminary candidates to the prize-awarding institutions. The Nobel Committee's Physics Prize shortlist cited Wilhelm Röntgen's discovery of X-rays and Philipp Lenard's work on cathode rays. The Academy of Sciences selected Röntgen for the prize.[36][37] In the last decades of the 19th century, many chemists had made significant contributions. Thus, with the Chemistry Prize, the Academy "was chiefly faced with merely deciding the order in which these scientists should be awarded the prize."[38] The Academy received 20 nominations, eleven of them for Jacobus van 't Hoff.[39] Van 't Hoff was awarded the prize for his contributions in chemical thermodynamics.[40][41] The Swedish Academy chose the poet Sully Prudhomme for the first Nobel Prize in Literature. A group including 42 Swedish writers, artists, and literary critics protested against this decision, having expected Leo Tolstoy to be awarded.[42] Some, including Burton Feldman, have criticised this prize because they consider Prudhomme a mediocre poet. Feldman's explanation is that most of the Academy members preferred Victorian literature and thus selected a Victorian poet.[43] The first Physiology or Medicine Prize went to the German physiologist and microbiologist Emil von Behring. During the 1890s, von Behring developed an antitoxin to treat diphtheria, which until then was causing thousands of deaths each year.[44][45] The first Nobel Peace Prize went to the Swiss Jean Henri Dunant for his role in founding the International Red Cross Movement and initiating the Geneva Convention, and jointly given to French pacifist Frédéric Passy, founder of the Peace League and active with Dunant in the Alliance for Order and Civilization. Second World War In 1938 and 1939, Adolf Hitler's Third Reich forbade three laureates from Germany (Richard Kuhn, Adolf Friedrich Johann Butenandt, and Gerhard Domagk) from accepting their prizes.[46] Each man was later able to receive the diploma and medal.[47] Even though Sweden was officially neutral during the Second World War, the prizes were awarded irregularly. In 1939, the Peace Prize was not awarded. No prize was awarded in any category from 1940 to 1942, due to the occupation of Norway by Germany. In the subsequent year, all prizes were awarded except those for literature and peace.[48] During the occupation of Norway, three members of the Norwegian Nobel Committee fled into exile. The remaining members escaped persecution from the Germans when the Nobel Foundation stated that the Committee building in Oslo was Swedish property. Thus it was a safe haven from the German military, which was not at war with Sweden.[49] These members kept the work of the Committee going, but did not award any prizes. In 1944, the Nobel Foundation, together with the three members in exile, made sure that nominations were submitted for the Peace Prize and that the prize could be awarded once again.[46] Prize in Economic Sciences Main article: Nobel Memorial Prize in Economic Sciences Map of Nobel laureates by country In 1968, Sveriges Riksbank (Sweden's central bank) celebrated its 300th anniversary by donating a large sum of money to the Nobel Foundation to be used to set up a prize in honor of Nobel. The following year, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was awarded for the first time. The Royal Swedish Academy of Sciences became responsible for selecting laureates. The first laureates for the Economics Prize were Jan Tinbergen and Ragnar Frisch "for having developed and applied dynamic models for the analysis of economic processes."[50][51] The Board of the Nobel Foundation decided that after this addition, it would allow no further new prizes.[52] Award process The award process is similar for all of the Nobel Prizes; the main difference is in who can make nominations for each of them.[53] File:Announcement Nobelprize Chemistry 2009-3.ogv The announcement of the laureates in Nobel Prize in Chemistry 2009 by Gunnar Öquist, permanent secretary of the Royal Swedish Academy of Sciences File:Announcement Nobelprize Literature 2009-1.ogv 2009 Nobel Prize in Literature announcement by Peter Englund in Swedish, English, and German Nominations Nomination forms are sent by the Nobel Committee to about 3,000 individuals, usually in September the year before the prizes are awarded. These individuals are generally prominent academics working in a relevant area. Regarding the Peace Prize, inquiries are also sent to governments, former Peace Prize laureates, and current or former members of the Norwegian Nobel Committee. The deadline for the return of the nomination forms is 31 January of the year of the award.[53][54] The Nobel Committee nominates about 300 potential laureates from these forms and additional names.[55] The nominees are not publicly named, nor are they told that they are being considered for the prize. All nomination records for a prize are sealed for 50 years from the awarding of the prize.[56][57] Selection The Nobel Committee then prepares a report reflecting the advice of experts in the relevant fields. This, along with the list of preliminary candidates, is submitted to the prize-awarding institutions.[58] The institutions meet to choose the laureate or laureates in each field by a majority vote. Their decision, which cannot be appealed, is announced immediately after the vote.[59] A maximum of three laureates and two different works may be selected per award. Except for the Peace Prize, which can be awarded to institutions, the awards can only be given to individuals.[60] Posthumous nominations Although posthumous nominations are not presently permitted, individuals who died in the months between their nomination and the decision of the prize committee were originally eligible to receive the prize. This has occurred twice: the 1931 Literature Prize awarded to Erik Axel Karlfeldt, and the 1961 Peace Prize awarded to UN Secretary General Dag Hammarskjöld. Since 1974, laureates must be thought alive at the time of the October announcement. There has been one laureate, William Vickrey, who in 1996 died after the prize (in Economics) was announced but before it could be presented.[61] On 3 October 2011, the laureates for the Nobel Prize in Physiology or Medicine were announced; however, the committee was not aware that one of the laureates, Ralph M. Steinman, had died three days earlier. The committee was debating about Steinman's prize, since the rule is that the prize is not awarded posthumously.[14] The committee later decided that as the decision to award Steinman the prize "was made in good faith", it would remain unchanged.[62] Recognition time lag Nobel's will provided for prizes to be awarded in recognition of discoveries made "during the preceding year". Early on, the awards usually recognised recent discoveries.[63] However, some of those early discoveries were later discredited. For example, Johannes Fibiger was awarded the 1926 Prize in Physiology or Medicine for his purported discovery of a parasite that caused cancer.[64] To avoid repeating this embarrassment, the awards increasingly recognised scientific discoveries that had withstood the test of time.[65][66][67] According to Ralf Pettersson, former chairman of the Nobel Prize Committee for Physiology or Medicine, "the criterion 'the previous year' is interpreted by the Nobel Assembly as the year when the full impact of the discovery has become evident."[66] A room with pictures on the walls. In the middle of the room there is a wooden table with chairs around it. The committee room of the Norwegian Nobel Committee The interval between the award and the accomplishment it recognises varies from discipline to discipline. The Literature Prize is typically awarded to recognise a cumulative lifetime body of work rather than a single achievement.[68][69] The Peace Prize can also be awarded for a lifetime body of work. For example, 2008 laureate Martti Ahtisaari was awarded for his work to resolve international conflicts.[70][71] However, they can also be awarded for specific recent events.[72] For instance, Kofi Annan was awarded the 2001 Peace Prize just four years after becoming the Secretary-General of the United Nations.[73] Similarly Yasser Arafat, Yitzhak Rabin, and Shimon Peres received the 1994 award, about a year after they successfully concluded the Oslo Accords.[74] Awards for physics, chemistry, and medicine are typically awarded once the achievement has been widely accepted. Sometimes, this takes decades – for example, Subrahmanyan Chandrasekhar shared the 1983 Physics Prize for his 1930s work on stellar structure and evolution.[75][76] Not all scientists live long enough for their work to be recognised. Some discoveries can never be considered for a prize if their impact is realised after the discoverers have died.[77][78][79] Award ceremonies Two men standing on a stage. The man to the left is clapping his hands and looking towards the other man. The second man is smiling and showing two items to an audience not seen on the image. The items are a diploma which includes a painting and a box containing a gold medal. Behind them is a blue pillar clad in flowers. A man in his fifties standing behind a desk with computers on it. On the desk is a sign reading "Kungl. Vetensk. Akad. Sigil". Left: Barack Obama after receiving the Nobel Peace Prize in Oslo City Hall from the hands of Norwegian Nobel Committee Chairman Thorbjørn Jagland; Right: Giovanni Jona-Lasinio presenting Yoichiro Nambu's Nobel Lecture at Aula Magna, Stockholm in 2008 Except for the Peace Prize, the Nobel Prizes are presented in Stockholm, Sweden, at the annual Prize Award Ceremony on 10 December, the anniversary of Nobel's death. The recipients' lectures are normally held in the days prior to the award ceremony. The Peace Prize and its recipients' lectures are presented at the annual Prize Award Ceremony in Oslo, Norway, usually on 10 December. The award ceremonies and the associated banquets are typically major international events.[80][81] The Prizes awarded in Sweden's ceremonies' are held at the Stockholm Concert Hall, with the Nobel banquet following immediately at Stockholm City Hall. The Nobel Peace Prize ceremony has been held at the Norwegian Nobel Institute (1905–1946), at the auditorium of the University of Oslo (1947–1989), and at Oslo City Hall (1990–present).[82] The highlight of the Nobel Prize Award Ceremony in Stockholm occurs when each Nobel laureate steps forward to receive the prize from the hands of the King of Sweden. In Oslo, the Chairman of the Norwegian Nobel Committee presents the Nobel Peace Prize in the presence of the King of Norway.[81][83] At first, King Oscar II did not approve of awarding grand prizes to foreigners. It is said that he changed his mind once his attention had been drawn to the publicity value of the prizes for Sweden.[84] Nobel Banquet Main article: Nobel Banquet A set table with a white table cloth. There are many plates and glasses plus a menu visible on the table. Table at the 2005 Nobel Banquet in Stockholm After the award ceremony in Sweden, a banquet is held in the Blue Hall at the Stockholm City Hall, which is attended by the Swedish Royal Family and around 1,300 guests. The Nobel Peace Prize banquet is held in Norway at the Oslo Grand Hotel after the award ceremony. Apart from the laureate, guests include the President of the Storting, the Swedish prime minister, and, since 2006, the King and Queen of Norway. In total, about 250 guests attend. Nobel lecture According to the statutes of the Nobel Foundation, each laureate is required to give a public lecture on a subject related to the topic of their prize.[85] The Nobel lecture as a rhetorical genre took decades to reach its current format.[86] These lectures normally occur during Nobel Week (the week leading up to the award ceremony and banquet, which begins with the laureates arriving in Stockholm and normally ends with the Nobel banquet), but this is not mandatory. The laureate is only obliged to give the lecture within six months of receiving the prize. Some have happened even later. For example, US President Theodore Roosevelt received the Peace Prize in 1906 but gave his lecture in 1910, after his term in office.[87] The lectures are organized by the same association which selected the laureates.[88] Prizes Medals It was announced on 30 May 2012 that the Nobel Foundation had awarded the contract for the production of the five (Swedish) Nobel Prize medals to Svenska Medalj AB. Formerly, the Nobel Prize medals were minted by Myntverket (the Swedish Mint) from 1902 to 2010. Myntverket, Sweden's oldest company, ceased operations in 2011 after 1,017 years. In 2011, the Mint of Norway, located in Kongsberg, made the medals. The Nobel Prize medals are registered trademarks of the Nobel Foundation.[89] Each medal features an image of Alfred Nobel in left profile on the obverse. The medals for physics, chemistry, physiology or medicine, and literature have identical obverses, showing the image of Alfred Nobel and the years of his birth and death. Nobel's portrait also appears on the obverse of the Peace Prize medal and the medal for the Economics Prize, but with a slightly different design. For instance, the laureate's name is engraved on the rim of the Economics medal.[90] The image on the reverse of a medal varies according to the institution awarding the prize. The reverse sides of the medals for chemistry and physics share the same design.[91] A heavily decorated paper with the name "Fritz Haber" on it. Laureates receive a heavily decorated diploma together with a gold medal and the prize money. Here Fritz Haber's diploma is shown, which he received for the development of a method to synthesise ammonia. All medals made before 1980 were struck in 23 carat gold. Since then, they have been struck in 18 carat green gold plated with 24 carat gold. The weight of each medal varies with the value of gold, but averages about 175 grams (0.386 lb) for each medal. The diameter is 66 millimetres (2.6 in) and the thickness varies between 5.2 millimetres (0.20 in) and 2.4 millimetres (0.094 in).[92] Because of the high value of their gold content and tendency to be on public display, Nobel medals are subject to medal theft.[93][94][95] During World War II, the medals of German scientists Max von Laue and James Franck were sent to Copenhagen for safekeeping. When Germany invaded Denmark, Hungarian chemist (and Nobel laureate himself) George de Hevesy dissolved them in aqua regia (nitro-hydrochloric acid), to prevent confiscation by Nazi Germany and to prevent legal problems for the holders. After the war, the gold was recovered from solution, and the medals re-cast.[96] Diplomas Nobel laureates receive a diploma directly from the hands of the King of Sweden, or in the case of the peace prize, the Chairman of the Norwegian Nobel Committee. Each diploma is uniquely designed by the prize-awarding institutions for the laureates that receive them.[90] The diploma contains a picture and text in Swedish which states the name of the laureate and normally a citation of why they received the prize. None of the Nobel Peace Prize laureates has ever had a citation on their diplomas.[97][98] Award money The laureates are given a sum of money when they receive their prizes, in the form of a document confirming the amount awarded.[90] The amount of prize money depends upon how much money the Nobel Foundation can award each year. The purse has increased since the 1980s, when the prize money was 880,000 SEK (c. 2.6 million SEK, US$350,000 today) per prize. In 2009, the monetary award was 10 million SEK (US$1.4 million).[99][100] In June 2012, it was lowered to 8 million SEK.[101] If there are two laureates in a particular category, the award grant is divided equally between the recipients. If there are three, the awarding committee has the option of dividing the grant equally, or awarding one-half to one recipient and one-quarter to each of the others.[102][103][104] It is common for recipients to donate prize money to benefit scientific, cultural, or humanitarian causes.[105][106] Controversies and criticisms Main article: Nobel Prize controversies Controversial recipients When it was announced that Henry Kissinger was to be awarded the Peace Prize, two of the Norwegian Nobel Committee members resigned in protest. Among other criticisms, the Nobel Committees have been accused of having a political agenda, and of omitting more deserving candidates. They have also been accused of Eurocentrism, especially for the Literature Prize.[107][108][109] Peace Prize Among the most criticised Nobel Peace Prizes was the one awarded to Henry Kissinger and Lê Đức Thọ. This led to the resignation of two Norwegian Nobel Committee members. [110] Kissinger and Thọ were awarded the prize for negotiating a ceasefire between North Vietnam and the United States in January 1973. However, when the award was announced, both sides were still engaging in hostilities.[111] Critics sympathetic to the North announced that Kissinger was not a peace-maker but the opposite, responsible for widening the war. Those hostile to the North and what they considered its deceptive practices during negotiations were deprived of a chance to criticise Lê Đức Thọ, as he declined the award. [56][112] Yasser Arafat, Shimon Peres, and Yitzhak Rabin received the Peace Prize in 1994 for their efforts in making peace between Israel and Palestine.[56][113] Immediately after the award was announced, one of the five Norwegian Nobel Committee members denounced Arafat as a terrorist and resigned.[114] Additional misgivings about Arafat were widely expressed in various newspapers.[115] Another controversial Peace Prize was that awarded to Barack Obama in 2009.[116] Nominations had closed only eleven days after Obama took office as President of the United States, but the actual evaluation occurred over the next eight months.[117] Obama himself stated that he did not feel deserving of the award,[118] or worthy of the company it would place him in.[119] Past Peace Prize laureates were divided, some saying that Obama deserved the award, and others saying he had not secured the achievements to yet merit such an accolade. Obama's award, along with the previous Peace Prizes for Jimmy Carter and Al Gore, also prompted accusations of a left-wing bias.[120] Literature Prize The award of the 2004 Literature Prize to Elfriede Jelinek drew a protest from a member of the Swedish Academy, Knut Ahnlund. Ahnlund resigned, alleging that the selection of Jelinek had caused "irreparable damage to all progressive forces, it has also confused the general view of literature as an art." He alleged that Jelinek's works were "a mass of text shovelled together without artistic structure."[121][122] The 2009 Literature Prize to Herta Müller also generated criticism. According to The Washington Post, many US literary critics and professors were ignorant of her work.[123] This made those critics feel the prizes were too Eurocentric.[124] Science prizes In 1949, the neurologist António Egas Moniz received the Physiology or Medicine Prize for his development of the prefrontal leucotomy. The previous year, Dr. Walter Freeman had developed a version of the procedure which was faster and easier to carry out. Due in part to the publicity surrounding the original procedure, Freeman's procedure was prescribed without due consideration or regard for modern medical ethics. Endorsed by such influential publications as The New England Journal of Medicine, leucotomy or "lobotomy" became so popular that about 5,000 lobotomies were performed in the United States in the three years immediately following Moniz's receipt of the Prize.[125][126] Overlooked achievements The Norwegian Nobel Committee declined to award a prize in 1948, the year of Gandhi's death, on the grounds that "there was no suitable living candidate." James Joyce, one of the controversial omissions of the Literature Prize The Norwegian Nobel Committee confirmed that Mahatma Gandhi was nominated for the Peace Prize in 1937–39, 1947, and a few days before he was assassinated in January 1948.[127] Later, members of the Norwegian Nobel Committee expressed regret that he was not given the prize.[128] Geir Lundestad, Secretary of Norwegian Nobel Committee in 2006, said, "The greatest omission in our 106 year history is undoubtedly that Mahatma Gandhi never received the Nobel Peace prize. Gandhi could do without the Nobel Peace prize. Whether Nobel committee can do without Gandhi is the question".[129] In 1948, the year of Gandhi's death, the Nobel Committee declined to award a prize on the grounds that "there was no suitable living candidate" that year.[128][130] Later, when the 14th Dalai Lama was awarded the Peace Prize in 1989, the chairman of the committee said that this was "in part a tribute to the memory of Mahatma Gandhi."[131] Other high-profile individuals with widely recognised contributions to peace have been missed out. Foreign Policy lists Eleanor Roosevelt, Václav Havel, Ken Saro-Wiwa, Sari Nusseibeh, and Corazon Aquino as people who "never won the prize, but should have."[132] In 1965, UN Secretary General U Thant was informed by the Norwegian Permanent Representative to the UN that he would be awarded that year's prize and asked whether or not he would accept. He consulted staff and later replied that he would. At the same time, Chairman Gunnar Jahn of the Nobel Peace prize committee, lobbied heavily against giving U Thant the prize and the prize was at the last minute awarded to UNICEF. The rest of the committee all wanted the prize to go to U Thant, for his work in defusing the Cuban Missile Crisis, ending the war in the Congo, and his ongoing work to mediate an end to the Vietnam War. The disagreement lasted three years and in 1966 and 1967 no prize was given, with Gunnar Jahn effectively vetoing an award to U Thant.[133][134] The Literature Prize also has controversial omissions. Adam Kirsch has suggested that many notable writers have missed out on the award for political or extra-literary reasons. The heavy focus on European and Swedish authors has been a subject of criticism.[135][136] The Eurocentric nature of the award was acknowledged by Peter Englund, the 2009 Permanent Secretary of the Swedish Academy, as a problem with the award and was attributed to the tendency for the academy to relate more to European authors.[137] This tendency towards European authors still leaves some European writers on a list of notable writers that have been overlooked for the Literature Prize, including Europe's Leo Tolstoy, Anton Chekhov, J. R. R. Tolkien, Émile Zola, Marcel Proust, Vladimir Nabokov, James Joyce, August Strindberg, Simon Vestdijk, Karel Čapek, the New World's Jorge Luis Borges, Ezra Pound, John Updike, Arthur Miller, Mark Twain, and Africa's Chinua Achebe.[138] Candidates can receive multiple nominations the same year. Gaston Ramon received a total of 155[139] nominations in physiology or medicine from 1930 to 1953, the last year with public nomination data for that award as of 2016. He died in 1963 without being awarded. Pierre Paul Émile Roux received 115[140] nominations in physiology or medicine, and Arnold Sommerfeld received 84[141] in physics. These are the three most nominated scientists without awards in the data published as of 2016.[142] Otto Stern received 79[143] nominations in physics 1925–43 before being awarded in 1943.[144] The strict rule against awarding a prize to more than three people is also controversial.[145] When a prize is awarded to recognise an achievement by a team of more than three collaborators, one or more will miss out. For example, in 2002, the prize was awarded to Koichi Tanaka and John Fenn for the development of mass spectrometry in protein chemistry, an award that did not recognise the achievements of Franz Hillenkamp and Michael Karas of the Institute for Physical and Theoretical Chemistry at the University of Frankfurt.[146][147] According to one of the nominees for the prize in physics, the three person limit deprived him and two other members of his team of the honor in 2013: the team of Carl Hagen, Gerald Guralnik, and Tom Kibble published a paper in 1964 that gave answers to how the cosmos began, but did not share the 2013 Physics Prize awarded to Peter Higgs and François Englert, who had also published papers in 1964 concerning the subject. All five physicists arrived at the same conclusion, albeit from different angles. Hagen contends that an equitable solution is to either abandon the three limit restriction, or expand the time period of recognition for a given achievement to two years.[148] Similarly, the prohibition of posthumous awards fails to recognise achievements by an individual or collaborator who dies before the prize is awarded. The Economics Prize was not awarded to Fischer Black, who died in 1995, when his co-author Myron Scholes received the honor in 1997 for their landmark work on option pricing along with Robert C. Merton, another pioneer in the development of valuation of stock options. In the announcement of the award that year, the Nobel committee prominently mentioned Black's key role. Political subterfuge may also deny proper recognition. Lise Meitner and Fritz Strassmann, who co-discovered nuclear fission along with Otto Hahn, may have been denied a share of Hahn's 1944 Nobel Chemistry Award due to having fled Germany when the Nazis came to power.[149] The Meitner and Strassmann roles in the research was not fully recognised until years later, when they joined Hahn in receiving the 1966 Enrico Fermi Award. Emphasis on discoveries over inventions Alfred Nobel left his fortune to finance annual prizes to be awarded "to those who, during the preceding year, shall have conferred the greatest benefit on mankind."[150] He stated that the Nobel Prizes in Physics should be given "to the person who shall have made the most important 'discovery' or 'invention' within the field of physics." Nobel did not emphasise discoveries, but they have historically been held in higher respect by the Nobel Prize Committee than inventions: 77% of the Physics Prizes have been given to discoveries, compared with only 23% to inventions. Christoph Bartneck and Matthias Rauterberg, in papers published in Nature and Technoetic Arts, have argued this emphasis on discoveries has moved the Nobel Prize away from its original intention of rewarding the greatest contribution to society.[151][152] Gender disparity In terms of the most prestigious awards in STEM fields, only a small proportion have been awarded to women. Out of 199 laureates in Physics, 169 in Chemistry and 207 in Medicine, there were only two female laureates in physics, four in chemistry and 11 in medicine between 1901 and 2014.[153][154] Specially distinguished laureates Multiple laureates A black and white portrait of a woman in profile. Marie Curie, one of four people who have received the Nobel Prize twice (Physics and Chemistry) Four people have received two Nobel Prizes. Marie Curie received the Physics Prize in 1903 for her work on radioactivity and the Chemistry Prize in 1911 for the isolation of pure radium,[155] making her the only person to be awarded a Nobel Prize in two different sciences. Linus Pauling was awarded the 1954 Chemistry Prize for his research into the chemical bond and its application to the structure of complex substances. Pauling was also awarded the Peace Prize in 1962 for his activism against nuclear weapons, making him the only laureate of two unshared prizes. John Bardeen received the Physics Prize twice: in 1956 for the invention of the transistor and in 1972 for the theory of superconductivity.[156] Frederick Sanger received the prize twice in Chemistry: in 1958 for determining the structure of the insulin molecule and in 1980 for inventing a method of determining base sequences in DNA.[157][158] Two organizations have received the Peace Prize multiple times. The International Committee of the Red Cross received it three times: in 1917 and 1944 for its work during the world wars; and in 1963 during the year of its centenary.[159][160][161] The United Nations High Commissioner for Refugees has been awarded the Peace Prize twice for assisting refugees: in 1954 and 1981.[162] Family laureates The Curie family has received the most prizes, with four prizes awarded to five individual laureates. Marie Curie received the prizes in Physics (in 1903) and Chemistry (in 1911). Her husband, Pierre Curie, shared the 1903 Physics prize with her.[163] Their daughter, Irène Joliot-Curie, received the Chemistry Prize in 1935 together with her husband Frédéric Joliot-Curie. In addition, the husband of Marie Curie's second daughter, Henry Labouisse, was the director of UNICEF when he accepted the Nobel Peace Prize in 1965 on that organisation's behalf.[164] Although no family matches the Curie family's record, there have been several with two laureates. The husband-and-wife team of Gerty Cori and Carl Ferdinand Cori shared the 1947 Prize in Physiology or Medicine[165] as did the husband-and-wife team of May-Britt Moser and Edvard Moser in 2014 (along with John O'Keefe).[166] J. J. Thomson was awarded the Physics Prize in 1906 for showing that electrons are particles. His son, George Paget Thomson, received the same prize in 1937 for showing that they also have the properties of waves.[167] William Henry Bragg and his son, William Lawrence Bragg, shared the Physics Prize in 1915 for inventing the X-ray spectrometer.[168] Niels Bohr was awarded the Physics prize in 1922, as did his son, Aage Bohr, in 1975.[164][169] Manne Siegbahn, who received the Physics Prize in 1924, was the father of Kai Siegbahn, who received the Physics Prize in 1981.[164][170] Hans von Euler-Chelpin, who received the Chemistry Prize in 1929, was the father of Ulf von Euler, who was awarded the Physiology or Medicine Prize in 1970.[164] C. V. Raman was awarded the Physics Prize in 1930 and was the uncle of Subrahmanyan Chandrasekhar, who was awarded the same prize in 1983.[171][172] Arthur Kornberg received the Physiology or Medicine Prize in 1959; Kornberg's son, Roger later received the Chemistry Prize in 2006.[173] Jan Tinbergen, who was awarded the first Economics Prize in 1969, was the brother of Nikolaas Tinbergen, who received the 1973 Physiology or Medicine Prize.[164] Alva Myrdal, Peace Prize laureate in 1982, was the wife of Gunnar Myrdal who was awarded the Economics Prize in 1974.[164] Economics laureates Paul Samuelson and Kenneth Arrow were brothers-in-law. Frits Zernike, who was awarded the 1953 Physics Prize, is the great-uncle of 1999 Physics laureate Gerard 't Hooft.[174] Cultural impact Being a symbol of scientific or literary achievement that is recognisable worldwide, the Nobel Prize is often depicted in fiction. This includes films like The Prize and Nobel Son about fictional Nobel laureates as well as fictionalised accounts of stories surrounding real prizes such as Nobel Chor, a film based on the unsolved theft of Rabindranath Tagore's prize.[175][176] Refusals and constraints A black and white portrait of a man in a suit and tie. Half of his face is in a shadow. Richard Kuhn, who was forced to decline his Nobel Prize in Chemistry Two laureates have voluntarily declined the Nobel Prize. In 1964, Jean-Paul Sartre was awarded the Literature Prize but refused, stating, "A writer must refuse to allow himself to be transformed into an institution, even if it takes place in the most honourable form."[177] Lê Đức Thọ, chosen for the 1973 Peace Prize for his role in the Paris Peace Accords, declined, stating that there was no actual peace in Vietnam.[178] During the Third Reich, Adolf Hitler hindered Richard Kuhn, Adolf Butenandt, and Gerhard Domagk from accepting their prizes. All of them were awarded their diplomas and gold medals after World War II. In 1958, Boris Pasternak declined his prize for literature due to fear of what the Soviet Union government might do if he travelled to Stockholm to accept his prize. In return, the Swedish Academy refused his refusal, saying "this refusal, of course, in no way alters the validity of the award."[178] The Academy announced with regret that the presentation of the Literature Prize could not take place that year, holding it back until 1989 when Pasternak's son accepted the prize on his behalf.[179][180] Aung San Suu Kyi was awarded the Nobel Peace Prize in 1991, but her children accepted the prize because she had been placed under house arrest in Burma; Suu Kyi delivered her speech two decades later, in 2012.[181] Liu Xiaobo was awarded the Nobel Peace Prize in 2010 while he and his wife were under house arrest in China as political prisoners, and he was unable to accept the prize in his lifetime. Legacy The memorial symbol "Planet of Alfred Nobel" was opened in Dnipropetrovsk University of Economics and Law in 2008. On the globe, there are 802 Nobel laureates' reliefs made of a composite alloy obtained when disposing of military strategic missiles.[182][183] Economics (/ˌɛkəˈnɒmɪks, ˌiːkə-/)[1][2][3] is the social science that studies the production, distribution, and consumption of goods and services.[4][5] Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics is a field which analyzes what's viewed as basic elements in the economy, including individual agents and markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the economy as a system where production, consumption, saving, and investment interact, and factors affecting it: employment of the resources of labour, capital, and land, currency inflation, economic growth, and public policies that have impact on these elements. Other broad distinctions within economics include those between positive economics, describing "what is", and normative economics, advocating "what ought to be";[6] between economic theory and applied economics; between rational and behavioural economics; and between mainstream economics and heterodox economics.[7] Economic analysis can be applied throughout society, including business,[8] finance, health care,[9] engineering[10] and government.[11] It is also applied to such diverse subjects as crime,[12] education,[13] the family,[14] feminism,[15] law,[16] philosophy,[17] politics, religion,[18] social institutions, war,[19] science,[20] and the environment.[21] Contents 1 Definitions of economics over time 2 History of economic thought 2.1 From antiquity through the physiocrats 2.2 Classical political economy 2.3 Marxian economics 2.4 Neoclassical economics 2.5 Keynesian economics 2.6 Chicago school of economics 2.7 Austrian School of economics 2.8 Other schools and approaches 3 Methodology 3.1 Theoretical research 3.2 Empirical research 4 Branches of economics 4.1 Microeconomics 4.1.1 Production, cost, and efficiency 4.1.2 Specialization 4.1.3 Supply and demand 4.1.4 Firms 4.1.5 Uncertainty and game theory 4.1.6 Market failure 4.1.7 Welfare 4.2 Macroeconomics 4.2.1 Growth 4.2.2 Business cycle 4.2.3 Unemployment 4.2.4 Inflation and monetary policy 4.2.5 Fiscal policy 4.3 Public economics 4.4 International economics 4.5 Labor economics 4.6 Development economics 5 Criticism 6 Related subjects 7 Profession 8 See also 8.1 General 9 Notes 10 References 11 Further reading 12 External links 12.1 General information 12.2 Institutions and organizations 12.3 Study resources Definitions of economics over time The earlier term for the discipline was 'political economy', Since the late 19th century, it has commonly been called 'economics'.[22] Cited to the Ancient Greek οἰκονομικός (oikonomikos), "practiced in the management of a household or family" and therefore "frugal, thrifty", which in turn comes from οἰκονομία (oikonomia) "household management" which in turn comes from οἶκος (oikos "house") and νόμος (nomos, "custom" or "law").[23][24][25][26] There are a variety of modern definitions of economics; some reflect evolving views of the subject or different views among economists.[27][28] Scottish philosopher Adam Smith (1776) defined what was then called political economy as "an inquiry into the nature and causes of the wealth of nations", in particular as: a branch of the science of a statesman or legislator [with the twofold objectives of providing] a plentiful revenue or subsistence for the people ... [and] to supply the state or commonwealth with a revenue for the publick services.[29] Jean-Baptiste Say (1803), distinguishing the subject from its public-policy uses, defines it as the science of production, distribution, and consumption of wealth.[30] On the satirical side, Thomas Carlyle (1849) coined "the dismal science" as an epithet for classical economics, in this context, commonly linked to the pessimistic analysis of Malthus (1798).[31] John Stuart Mill (1844) defines the subject in a social context as: The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.[32] Alfred Marshall provides a still widely cited definition in his textbook Principles of Economics (1890) that extends analysis beyond wealth and from the societal to the microeconomic level: Economics is a study of man in the ordinary business of life. It enquires how he gets his income and how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man.[33] Lionel Robbins (1932) developed implications of what has been termed "[p]erhaps the most commonly accepted current definition of the subject":[28] Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.[34] Robbins describes the definition as not classificatory in "pick[ing] out certain kinds of behaviour" but rather analytical in "focus[ing] attention on a particular aspect of behaviour, the form imposed by the influence of scarcity."[35] He affirmed that previous economists have usually centred their studies on the analysis of wealth: how wealth is created (production), distributed, and consumed; and how wealth can grow.[36] But he said that economics can be used to study other things, such as war, that are outside its usual focus. This is because war has as the goal winning it (as a sought after end), generates both cost and benefits; and, resources (human life and other costs) are used to attain the goal. If the war is not winnable or if the expected costs outweigh the benefits, the deciding actors (assuming they are rational) may never go to war (a decision) but rather explore other alternatives. We cannot define economics as the science that studies wealth, war, crime, education, and any other field economic analysis can be applied to; but, as the science that studies a particular common aspect of each of those subjects (they all use scarce resources to attain a sought after end). Some subsequent comments criticized the definition as overly broad in failing to limit its subject matter to analysis of markets. From the 1960s, however, such comments abated as the economic theory of maximizing behaviour and rational-choice modelling expanded the domain of the subject to areas previously treated in other fields.[37] There are other criticisms as well, such as in scarcity not accounting for the macroeconomics of high unemployment.[38] Gary Becker, a contributor to the expansion of economics into new areas, describes the approach he favours as "combin[ing the] assumptions of maximizing behaviour, stable preferences, and market equilibrium, used relentlessly and unflinchingly."[39] One commentary characterizes the remark as making economics an approach rather than a subject matter but with great specificity as to the "choice process and the type of social interaction that [such] analysis involves." The same source reviews a range of definitions included in principles of economics textbooks and concludes that the lack of agreement need not affect the subject-matter that the texts treat. Among economists more generally, it argues that a particular definition presented may reflect the direction toward which the author believes economics is evolving, or should evolve.[28] According to economist Ha-Joon Chang economics should be defined not in terms of its methodology or theoretical approach but in terms of its subject matter. Ha-Joon Chang finds a definition like "the science which studies human behavior as a relationship between ends and scarce means which have alternative uses" very peculiar because all other sciences define themselves in terms of the area of inquiry or object of inquiry rather than the methodology. In the biology department, they don’t say that all biology should be studied with DNA analysis. People study living organisms in many different ways, so some people will do DNA analysis, others might do anatomy, and still others might build game theoretic models of animal behavior. But they are all called biology because they all study living organisms. According to Ha Joon Chang, this view that you can and should study the economy in only one way (for example by studying only rational choices), and going even one step further and basically redefining economics as a theory of everything, is very peculiar.[40] History of economic thought Main articles: History of economic thought and History of macroeconomic thought Wiki letter w.svg This section is missing information about information and behavioural economics, contemporary microeconomics. Please expand the section to include this information. Further details may exist on the talk page. (September 2020) From antiquity through the physiocrats Questions regarding distribution of resources are found throughout the writings of the Boeotian poet Hesiod and several economic historians have described Hesiod himself as the "first economist".[41] However, the word Oikos, the greek word from which the word economy derives, was used for issues regarding how to manage a household (Understood as the landowner, his family and his slaves.[42]) rather than to refer to some normative societal system of distribution of resources, which is a much more recent phenomenon.[43][44][45] Xenophon, the author of the Oeconomicus, is credited by philologues for being the source of the word economy.[46] Other notable writers from Antiquity through to the Renaissance which wrote on include Aristotle, Chanakya (also known as Kautilya), Qin Shi Huang, Ibn Khaldun, and Thomas Aquinas. Joseph Schumpeter described 16th and 17th century scholastic writers, including Tomás de Mercado, Luis de Molina, and Juan de Lugo, as "coming nearer than any other group to being the 'founders' of scientific economics" as to monetary, interest, and value theory within a natural-law perspective.[47] A seaport with a ship arriving A 1638 painting of a French seaport during the heyday of mercantilism Two groups, who later were called "mercantilists" and "physiocrats", more directly influenced the subsequent development of the subject. Both groups were associated with the rise of economic nationalism and modern capitalism in Europe. Mercantilism was an economic doctrine that flourished from the 16th to 18th century in a prolific pamphlet literature, whether of merchants or statesmen. It held that a nation's wealth depended on its accumulation of gold and silver. Nations without access to mines could obtain gold and silver from trade only by selling goods abroad and restricting imports other than of gold and silver. The doctrine called for importing cheap raw materials to be used in manufacturing goods, which could be exported, and for state regulation to impose protective tariffs on foreign manufactured goods and prohibit manufacturing in the colonies.[48] Physiocrats, a group of 18th-century French thinkers and writers, developed the idea of the economy as a circular flow of income and output. Physiocrats believed that only agricultural production generated a clear surplus over cost, so that agriculture was the basis of all wealth.[49] Thus, they opposed the mercantilist policy of promoting manufacturing and trade at the expense of agriculture, including import tariffs. Physiocrats advocated replacing administratively costly tax collections with a single tax on income of land owners. In reaction against copious mercantilist trade regulations, the physiocrats advocated a policy of laissez-faire, which called for minimal government intervention in the economy.[50] Adam Smith (1723–1790) was an early economic theorist.[51] Smith was harshly critical of the mercantilists but described the physiocratic system "with all its imperfections" as "perhaps the purest approximation to the truth that has yet been published" on the subject.[52] Classical political economy Main article: Classical economics Picture of Adam Smith facing to the right The publication of Adam Smith's The Wealth of Nations in 1776 is considered to be the first formalisation of economic thought. The publication of Adam Smith's The Wealth of Nations in 1776, has been described as "the effective birth of economics as a separate discipline."[53] The book identified land, labour, and capital as the three factors of production and the major contributors to a nation's wealth, as distinct from the physiocratic idea that only agriculture was productive. Smith discusses potential benefits of specialization by division of labour, including increased labour productivity and gains from trade, whether between town and country or across countries.[54] His "theorem" that "the division of labor is limited by the extent of the market" has been described as the "core of a theory of the functions of firm and industry" and a "fundamental principle of economic organization."[55] To Smith has also been ascribed "the most important substantive proposition in all of economics" and foundation of resource-allocation theory – that, under competition, resource owners (of labour, land, and capital) seek their most profitable uses, resulting in an equal rate of return for all uses in equilibrium (adjusted for apparent differences arising from such factors as training and unemployment).[56] In an argument that includes "one of the most famous passages in all economics,"[57] Smith represents every individual as trying to employ any capital they might command for their own advantage, not that of the society,[a] and for the sake of profit, which is necessary at some level for employing capital in domestic industry, and positively related to the value of produce.[59] In this: He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.[60] The Rev. Thomas Robert Malthus (1798) used the concept of diminishing returns to explain low living standards. Human population, he argued, tended to increase geometrically, outstripping the production of food, which increased arithmetically. The force of a rapidly growing population against a limited amount of land meant diminishing returns to labour. The result, he claimed, was chronically low wages, which prevented the standard of living for most of the population from rising above the subsistence level.[61][non-primary source needed] Economist Julian Lincoln Simon has criticized Malthus's conclusions.[62] While Adam Smith emphasized the production of income, David Ricardo (1817) focused on the distribution of income among landowners, workers, and capitalists. Ricardo saw an inherent conflict between landowners on the one hand and labour and capital on the other. He posited that the growth of population and capital, pressing against a fixed supply of land, pushes up rents and holds down wages and profits. Ricardo was the first to state and prove the principle of comparative advantage, according to which each country should specialize in producing and exporting goods in that it has a lower relative cost of production, rather relying only on its own production.[63] It has been termed a "fundamental analytical explanation" for gains from trade.[64] Coming at the end of the classical tradition, John Stuart Mill (1848) parted company with the earlier classical economists on the inevitability of the distribution of income produced by the market system. Mill pointed to a distinct difference between the market's two roles: allocation of resources and distribution of income. The market might be efficient in allocating resources but not in distributing income, he wrote, making it necessary for society to intervene.[65] Value theory was important in classical theory. Smith wrote that the "real price of every thing ... is the toil and trouble of acquiring it". Smith maintained that, with rent and profit, other costs besides wages also enter the price of a commodity.[66] Other classical economists presented variations on Smith, termed the 'labour theory of value'. Classical economics focused on the tendency of any market economy to settle in a final stationary state made up of a constant stock of physical wealth (capital) and a constant population size. Photograph of Karl Marx facing the viewer The Marxist critique of political economy comes from the work of German philosopher Karl Marx. Marxian economics Main article: Marxian economics Marxist (later, Marxian) economics descends from classical economics and it derives from the work of Karl Marx. The first volume of Marx's major work, Das Kapital, was published in German in 1867. In it, Marx focused on the labour theory of value and the theory of surplus value which, he believed, explained the exploitation of labour by capital.[67] The labour theory of value held that the value of an exchanged commodity was determined by the labour that went into its production and the theory of surplus value demonstrated how the workers only got paid a proportion of the value their work had created.[68][dubious – discuss] Neoclassical economics Main article: Neoclassical economics At the dawn as a social science, economics was defined and discussed at length as the study of production, distribution, and consumption of wealth by Jean-Baptiste Say in his Treatise on Political Economy or, The Production, Distribution, and Consumption of Wealth (1803). These three items are considered by the science only in relation to the increase or diminution of wealth, and not in reference to their processes of execution.[b] Say's definition has prevailed up to our time, saved by substituting the word "wealth" for "goods and services" meaning that wealth may include non-material objects as well. One hundred and thirty years later, Lionel Robbins noticed that this definition no longer sufficed,[c] because many economists were making theoretical and philosophical inroads in other areas of human activity. In his Essay on the Nature and Significance of Economic Science, he proposed a definition of economics as a study of a particular aspect of human behaviour, the one that falls under the influence of scarcity,[d] which forces people to choose, allocate scarce resources to competing ends, and economize (seeking the greatest welfare while avoiding the wasting of scarce resources). For Robbins, the insufficiency was solved, and his definition allows us to proclaim, with an easy conscience, education economics, safety and security economics, health economics, war economics, and of course, production, distribution and consumption economics as valid subjects of the economic science." Citing Robbins: "Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses".[35] After discussing it for decades, Robbins' definition became widely accepted by mainstream economists, and it has opened way into current textbooks.[69] Although far from unanimous, most mainstream economists would accept some version of Robbins' definition, even though many have raised serious objections to the scope and method of economics, emanating from that definition.[70] Due to the lack of strong consensus, and that production, distribution and consumption of goods and services is the prime area of study of economics, the old definition still stands in many quarters. A body of theory later termed "neoclassical economics" or "marginalism" formed from about 1870 to 1910. The term "economics" was popularized by such neoclassical economists as Alfred Marshall and Mary Paley Marshall as a concise synonym for "economic science" and a substitute for the earlier "political economy".[25][26] This corresponded to the influence on the subject of mathematical methods used in the natural sciences.[71] Neoclassical economics systematized supply and demand as joint determinants of price and quantity in market equilibrium, affecting both the allocation of output and the distribution of income. It dispensed with the labour theory of value inherited from classical economics in favour of a marginal utility theory of value on the demand side and a more general theory of costs on the supply side.[72] In the 20th century, neoclassical theorists moved away from an earlier notion suggesting that total utility for a society could be measured in favour of ordinal utility, which hypothesizes merely behaviour-based relations across persons.[73][74] In microeconomics, neoclassical economics represents incentives and costs as playing a pervasive role in shaping decision making. An immediate example of this is the consumer theory of individual demand, which isolates how prices (as costs) and income affect quantity demanded.[73] In macroeconomics it is reflected in an early and lasting neoclassical synthesis with Keynesian macroeconomics.[75][73] Neoclassical economics is occasionally referred as orthodox economics whether by its critics or sympathizers. Modern mainstream economics builds on neoclassical economics but with many refinements that either supplement or generalize earlier analysis, such as econometrics, game theory, analysis of market failure and imperfect competition, and the neoclassical model of economic growth for analysing long-run variables affecting national income. Neoclassical economics studies the behaviour of individuals, households, and organizations (called economic actors, players, or agents), when they manage or use scarce resources, which have alternative uses, to achieve desired ends. Agents are assumed to act rationally, have multiple desirable ends in sight, limited resources to obtain these ends, a set of stable preferences, a definite overall guiding objective, and the capability of making a choice. There exists an economic problem, subject to study by economic science, when a decision (choice) is made by one or more resource-controlling players to attain the best possible outcome under bounded rational conditions. In other words, resource-controlling agents maximize value subject to the constraints imposed by the information the agents have, their cognitive limitations, and the finite amount of time they have to make and execute a decision. Economic science centres on the activities of the economic agents that comprise society.[76] They are the focus of economic analysis.[e] An approach to understanding these processes, through the study of agent behaviour under scarcity, may go as follows: The continuous interplay (exchange or trade) done by economic actors in all markets sets the prices for all goods and services which, in turn, make the rational managing of scarce resources possible. At the same time, the decisions (choices) made by the same actors, while they are pursuing their own interest, determine the level of output (production), consumption, savings, and investment, in an economy, as well as the remuneration (distribution) paid to the owners of labour (in the form of wages), capital (in the form of profits) and land (in the form of rent).[f] Each period, as if they were in a giant feedback system, economic players influence the pricing processes and the economy, and are in turn influenced by them until a steady state (equilibrium) of all variables involved is reached or until an external shock throws the system toward a new equilibrium point. Because of the autonomous actions of rational interacting agents, the economy is a complex adaptive system.[g] Keynesian economics Main articles: Keynesian economics and Post-Keynesian economics John Maynard Keynes greeting Harry Dexter White, then a senior official in the U.S. Treasury Department John Maynard Keynes (right) was a key theorist in economics. Keynesian economics derives from John Maynard Keynes, in particular his book The General Theory of Employment, Interest and Money (1936), which ushered in contemporary macroeconomics as a distinct field.[77] The book focused on determinants of national income in the short run when prices are relatively inflexible. Keynes attempted to explain in broad theoretical detail why high labour-market unemployment might not be self-correcting due to low "effective demand" and why even price flexibility and monetary policy might be unavailing. The term "revolutionary" has been applied to the book in its impact on economic analysis.[78] Keynesian economics has two successors. Post-Keynesian economics also concentrates on macroeconomic rigidities and adjustment processes. Research on micro foundations for their models is represented as based on real-life practices rather than simple optimizing models. It is generally associated with the University of Cambridge and the work of Joan Robinson.[79] New-Keynesian economics is also associated with developments in the Keynesian fashion. Within this group researchers tend to share with other economists the emphasis on models employing micro foundations and optimizing behaviour but with a narrower focus on standard Keynesian themes such as price and wage rigidity. These are usually made to be endogenous features of the models, rather than simply assumed as in older Keynesian-style ones. Chicago school of economics Main article: Chicago school of economics The Chicago School of economics is best known for its free market advocacy and monetarist ideas. According to Milton Friedman and monetarists, market economies are inherently stable if the money supply does not greatly expand or contract. Ben Bernanke, former Chairman of the Federal Reserve, is among the economists today generally accepting Friedman's analysis of the causes of the Great Depression.[80] Milton Friedman effectively took many of the basic principles set forth by Adam Smith and the classical economists and modernized them. One example of this is his article in the 13 September 1970 issue of The New York Times Magazine, in which he claims that the social responsibility of business should be "to use its resources and engage in activities designed to increase its profits ... (through) open and free competition without deception or fraud."[81] Austrian School of economics Main article: Austrian School The Austrian School emphasizes human action, property rights and the freedom to contract and transact to have a thriving and successful economy.[82] It also emphasizes that the state should play an infinitesimally small role (if any role) in the regulation of economic activity between two transacting parties.[83] A key component of Austrian economics is the principle of sound money. As Ludwig Von Mises, one of the most prominent 20th century Austrian economists, stated, "Ideologically it (sound money) belongs in the same class with political constitutions and bills of rights."[84] Austrian economists assert that sound money prevents government actors from debasing the currency, disrupting the savings rate of the population and artificially distorting the economic choices of individual actors. Other schools and approaches Main article: Schools of economic thought Other well-known schools or trends of thought referring to a particular style of economics practised at and disseminated from well-defined groups of academicians that have become known worldwide, include the Freiburg School, the School of Lausanne, post-Keynesian economics and the Stockholm school. Contemporary mainstream economics is sometimes separated[by whom?] into the Saltwater approach of those universities along the Eastern and Western coasts of the US, and the Freshwater, or Chicago-school approach.[citation needed] Within macroeconomics there is, in general order of their historical appearance in the literature; classical economics, neoclassical economics, Keynesian economics, the neoclassical synthesis, monetarism, new classical economics, New Keynesian economics[85] and the new neoclassical synthesis.[86] In general, alternative developments include ecological economics, constitutional economics, institutional economics, evolutionary economics, dependency theory, structuralist economics, world systems theory, econophysics, econodynamics, feminist economics and biophysical economics.[87] Methodology Theoretical research Main articles: Microeconomics, Macroeconomics, and Mathematical economics "Economic theory" redirects here. For the publication, see Economic Theory (journal). Mainstream economic theory relies upon a priori quantitative economic models, which employ a variety of concepts. Theory typically proceeds with an assumption of ceteris paribus, which means holding constant explanatory variables other than the one under consideration. When creating theories, the objective is to find ones which are at least as simple in information requirements, more precise in predictions, and more fruitful in generating additional research than prior theories.[88] While neoclassical economic theory constitutes both the dominant or orthodox theoretical as well as methodological framework, economic theory can also take the form of other schools of thought such as in heterodox economic theories. In microeconomics, principal concepts include supply and demand, marginalism, rational choice theory, opportunity cost, budget constraints, utility, and the theory of the firm.[89] Early macroeconomic models focused on modelling the relationships between aggregate variables, but as the relationships appeared to change over time macroeconomists, including new Keynesians, reformulated their models in microfoundations.[90] The aforementioned microeconomic concepts play a major part in macroeconomic models – for instance, in monetary theory, the quantity theory of money predicts that increases in the growth rate of the money supply increase inflation, and inflation is assumed to be influenced by rational expectations. In development economics, slower growth in developed nations has been sometimes predicted because of the declining marginal returns of investment and capital, and this has been observed in the Four Asian Tigers. Sometimes an economic hypothesis is only qualitative, not quantitative.[91] Expositions of economic reasoning often use two-dimensional graphs to illustrate theoretical relationships. At a higher level of generality, mathematical economics is the application of mathematical methods to represent theories and analyze problems in economics. Paul Samuelson's treatise Foundations of Economic Analysis (1947) exemplifies the method, particularly as to maximizing behavioral relations of agents reaching equilibrium. The book focused on examining the class of statements called operationally meaningful theorems in economics, which are theorems that can conceivably be refuted by empirical data.[92] Empirical research Main articles: Econometrics and Experimental economics Economic theories are frequently tested empirically, largely through the use of econometrics using economic data.[93] The controlled experiments common to the physical sciences are difficult and uncommon in economics,[94] and instead broad data is observationally studied; this type of testing is typically regarded as less rigorous than controlled experimentation, and the conclusions typically more tentative. However, the field of experimental economics is growing, and increasing use is being made of natural experiments. Statistical methods such as regression analysis are common. Practitioners use such methods to estimate the size, economic significance, and statistical significance ("signal strength") of the hypothesized relation(s) and to adjust for noise from other variables. By such means, a hypothesis may gain acceptance, although in a probabilistic, rather than certain, sense. Acceptance is dependent upon the falsifiable hypothesis surviving tests. Use of commonly accepted methods need not produce a final conclusion or even a consensus on a particular question, given different tests, data sets, and prior beliefs. Criticisms based on professional standards and non-replicability of results serve as further checks against bias, errors, and over-generalization,[95][96] although much economic research has been accused of being non-replicable, and prestigious journals have been accused of not facilitating replication through the provision of the code and data.[97] Like theories, uses of test statistics are themselves open to critical analysis,[98] although critical commentary on papers in economics in prestigious journals such as the American Economic Review has declined precipitously in the past 40 years. This has been attributed to journals' incentives to maximize citations in order to rank higher on the Social Science Citation Index (SSCI).[99] In applied economics, input–output models employing linear programming methods are quite common. Large amounts of data are run through computer programs to analyse the impact of certain policies; IMPLAN is one well-known example. Experimental economics has promoted the use of scientifically controlled experiments. This has reduced the long-noted distinction of economics from natural sciences because it allows direct tests of what were previously taken as axioms.[100] In some cases these have found that the axioms are not entirely correct; for example, the ultimatum game has revealed that people reject unequal offers. In behavioural economics, psychologist Daniel Kahneman won the Nobel Prize in economics in 2002 for his and Amos Tversky's empirical discovery of several cognitive biases and heuristics. Similar empirical testing occurs in neuroeconomics. Another example is the assumption of narrowly selfish preferences versus a model that tests for selfish, altruistic, and cooperative preferences.[101] These techniques have led some to argue that economics is a "genuine science".[102] Branches of economics Microeconomics Main articles: Microeconomics and Market (economics) A vegetable vendor in a marketplace. Economists study trade, production and consumption decisions, such as those that occur in a traditional marketplace. Two traders sit at computer monitors with financial information. Electronic trading brings together buyers and sellers through an electronic trading platform and network to create virtual market places. Pictured: São Paulo Stock Exchange, Brazil. Microeconomics examines how entities, forming a market structure, interact within a market to create a market system. These entities include private and public players with various classifications, typically operating under scarcity of tradable units and light government regulation.[clarification needed] The item traded may be a tangible product such as apples or a service such as repair services, legal counsel, or entertainment. In theory, in a free market the aggregates (sum of) of quantity demanded by buyers and quantity supplied by sellers may reach economic equilibrium over time in reaction to price changes; in practice, various issues may prevent equilibrium, and any equilibrium reached may not necessarily be morally equitable. For example, if the supply of healthcare services is limited by external factors, the equilibrium price may be unaffordable for many who desire it but cannot pay for it. Various market structures exist. In perfectly competitive markets, no participants are large enough to have the market power to set the price of a homogeneous product. In other words, every participant is a "price taker" as no participant influences the price of a product. In the real world, markets often experience imperfect competition. Forms include monopoly (in which there is only one seller of a good), duopoly (in which there are only two sellers of a good), oligopoly (in which there are few sellers of a good), monopolistic competition (in which there are many sellers producing highly differentiated goods), monopsony (in which there is only one buyer of a good), and oligopsony (in which there are few buyers of a good). Unlike perfect competition, imperfect competition invariably means market power is unequally distributed. Firms under imperfect competition have the potential to be "price makers", which means that, by holding a disproportionately high share of market power, they can influence the prices of their products. Microeconomics studies individual markets by simplifying the economic system by assuming that activity in the market being analysed does not affect other markets. This method of analysis is known as partial-equilibrium analysis (supply and demand). This method aggregates (the sum of all activity) in only one market. General-equilibrium theory studies various markets and their behaviour. It aggregates (the sum of all activity) across all markets. This method studies both changes in markets and their interactions leading towards equilibrium.[103] Production, cost, and efficiency Main articles: Production (economics), Opportunity cost, Economic efficiency, and Production–possibility frontier In microeconomics, production is the conversion of inputs into outputs. It is an economic process that uses inputs to create a commodity or a service for exchange or direct use. Production is a flow and thus a rate of output per period of time. Distinctions include such production alternatives as for consumption (food, haircuts, etc.) vs. investment goods (new tractors, buildings, roads, etc.), public goods (national defence, smallpox vaccinations, etc.) or private goods (new computers, bananas, etc.), and "guns" vs "butter". Opportunity cost is the economic cost of production: the value of the next best opportunity foregone. Choices must be made between desirable yet mutually exclusive actions. It has been described as expressing "the basic relationship between scarcity and choice".[104] For example, if a baker uses a sack of flour to make pretzels one morning, then the baker cannot use either the flour or the morning to make bagels instead. Part of the cost of making pretzels is that neither the flour nor the morning are available any longer, for use in some other way. The opportunity cost of an activity is an element in ensuring that scarce resources are used efficiently, such that the cost is weighed against the value of that activity in deciding on more or less of it. Opportunity costs are not restricted to monetary or financial costs but could be measured by the real cost of output forgone, leisure, or anything else that provides the alternative benefit (utility).[105] Inputs used in the production process include such primary factors of production as labour services, capital (durable produced goods used in production, such as an existing factory), and land (including natural resources). Other inputs may include intermediate goods used in production of final goods, such as the steel in a new car. Economic efficiency measures how well a system generates desired output with a given set of inputs and available technology. Efficiency is improved if more output is generated without changing inputs, or in other words, the amount of "waste" is reduced. A widely accepted general standard is Pareto efficiency, which is reached when no further change can make someone better off without making someone else worse off. An example production–possibility frontier with illustrative points marked. The production–possibility frontier (PPF) is an expository figure for representing scarcity, cost, and efficiency. In the simplest case an economy can produce just two goods (say "guns" and "butter"). The PPF is a table or graph (as at the right) showing the different quantity combinations of the two goods producible with a given technology and total factor inputs, which limit feasible total output. Each point on the curve shows potential total output for the economy, which is the maximum feasible output of one good, given a feasible output quantity of the other good. Scarcity is represented in the figure by people being willing but unable in the aggregate to consume beyond the PPF (such as at X) and by the negative slope of the curve.[106] If production of one good increases along the curve, production of the other good decreases, an inverse relationship. This is because increasing output of one good requires transferring inputs to it from production of the other good, decreasing the latter. The slope of the curve at a point on it gives the trade-off between the two goods. It measures what an additional unit of one good costs in units forgone of the other good, an example of a real opportunity cost. Thus, if one more Gun costs 100 units of butter, the opportunity cost of one Gun is 100 Butter. Along the PPF, scarcity implies that choosing more of one good in the aggregate entails doing with less of the other good. Still, in a market economy, movement along the curve may indicate that the choice of the increased output is anticipated to be worth the cost to the agents. By construction, each point on the curve shows productive efficiency in maximizing output for given total inputs. A point inside the curve (as at A), is feasible but represents production inefficiency (wasteful use of inputs), in that output of one or both goods could increase by moving in a northeast direction to a point on the curve. Examples cited of such inefficiency include high unemployment during a business-cycle recession or economic organization of a country that discourages full use of resources. Being on the curve might still not fully satisfy allocative efficiency (also called Pareto efficiency) if it does not produce a mix of goods that consumers prefer over other points. Much applied economics in public policy is concerned with determining how the efficiency of an economy can be improved. Recognizing the reality of scarcity and then figuring out how to organize society for the most efficient use of resources has been described as the "essence of economics", where the subject "makes its unique contribution."[107] Specialization Main articles: Division of labour, Comparative advantage, and Gains from trade A map showing the main trade routes for goods within late medieval Europe Specialization is considered key to economic efficiency based on theoretical and empirical considerations. Different individuals or nations may have different real opportunity costs of production, say from differences in stocks of human capital per worker or capital/labour ratios. According to theory, this may give a comparative advantage in production of goods that make more intensive use of the relatively more abundant, thus relatively cheaper, input. Even if one region has an absolute advantage as to the ratio of its outputs to inputs in every type of output, it may still specialize in the output in which it has a comparative advantage and thereby gain from trading with a region that lacks any absolute advantage but has a comparative advantage in producing something else. It has been observed that a high volume of trade occurs among regions even with access to a similar technology and mix of factor inputs, including high-income countries. This has led to investigation of economies of scale and agglomeration to explain specialization in similar but differentiated product lines, to the overall benefit of respective trading parties or regions.[108] The general theory of specialization applies to trade among individuals, farms, manufacturers, service providers, and economies. Among each of these production systems, there may be a corresponding division of labour with different work groups specializing, or correspondingly different types of capital equipment and differentiated land uses.[109] An example that combines features above is a country that specializes in the production of high-tech knowledge products, as developed countries do, and trades with developing nations for goods produced in factories where labour is relatively cheap and plentiful, resulting in different in opportunity costs of production. More total output and utility thereby results from specializing in production and trading than if each country produced its own high-tech and low-tech products. Theory and observation set out the conditions such that market prices of outputs and productive inputs select an allocation of factor inputs by comparative advantage, so that (relatively) low-cost inputs go to producing low-cost outputs. In the process, aggregate output may increase as a by-product or by design.[110] Such specialization of production creates opportunities for gains from trade whereby resource owners benefit from trade in the sale of one type of output for other, more highly valued goods. A measure of gains from trade is the increased income levels that trade may facilitate.[111] Supply and demand Main article: Supply and demand A graph depicting Quantity on the X-axis and Price on the Y-axis The supply and demand model describes how prices vary as a result of a balance between product availability and demand. The graph depicts an increase (that is, right-shift) in demand from D1 to D2 along with the consequent increase in price and quantity required to reach a new equilibrium point on the supply curve (S). Prices and quantities have been described as the most directly observable attributes of goods produced and exchanged in a market economy.[112] The theory of supply and demand is an organizing principle for explaining how prices coordinate the amounts produced and consumed. In microeconomics, it applies to price and output determination for a market with perfect competition, which includes the condition of no buyers or sellers large enough to have price-setting power. For a given market of a commodity, demand is the relation of the quantity that all buyers would be prepared to purchase at each unit price of the good. Demand is often represented by a table or a graph showing price and quantity demanded (as in the figure). Demand theory describes individual consumers as rationally choosing the most preferred quantity of each good, given income, prices, tastes, etc. A term for this is "constrained utility maximization" (with income and wealth as the constraints on demand). Here, utility refers to the hypothesized relation of each individual consumer for ranking different commodity bundles as more or less preferred. The law of demand states that, in general, price and quantity demanded in a given market are inversely related. That is, the higher the price of a product, the less of it people would be prepared to buy (other things unchanged). As the price of a commodity falls, consumers move toward it from relatively more expensive goods (the substitution effect). In addition, purchasing power from the price decline increases ability to buy (the income effect). Other factors can change demand; for example an increase in income will shift the demand curve for a normal good outward relative to the origin, as in the figure. All determinants are predominantly taken as constant factors of demand and supply. Supply is the relation between the price of a good and the quantity available for sale at that price. It may be represented as a table or graph relating price and quantity supplied. Producers, for example business firms, are hypothesized to be profit maximizers, meaning that they attempt to produce and supply the amount of goods that will bring them the highest profit. Supply is typically represented as a function relating price and quantity, if other factors are unchanged. That is, the higher the price at which the good can be sold, the more of it producers will supply, as in the figure. The higher price makes it profitable to increase production. Just as on the demand side, the position of the supply can shift, say from a change in the price of a productive input or a technical improvement. The "Law of Supply" states that, in general, a rise in price leads to an expansion in supply and a fall in price leads to a contraction in supply. Here as well, the determinants of supply, such as price of substitutes, cost of production, technology applied and various factors inputs of production are all taken to be constant for a specific time period of evaluation of supply. Market equilibrium occurs where quantity supplied equals quantity demanded, the intersection of the supply and demand curves in the figure above. At a price below equilibrium, there is a shortage of quantity supplied compared to quantity demanded. This is posited to bid the price up. At a price above equilibrium, there is a surplus of quantity supplied compared to quantity demanded. This pushes the price down. The model of supply and demand predicts that for given supply and demand curves, price and quantity will stabilize at the price that makes quantity supplied equal to quantity demanded. Similarly, demand-and-supply theory predicts a new price-quantity combination from a shift in demand (as to the figure), or in supply. Firms Main articles: Theory of the firm, Industrial organization, Business economics, and Managerial economics People frequently do not trade directly on markets. Instead, on the supply side, they may work in and produce through firms. The most obvious kinds of firms are corporations, partnerships and trusts. According to Ronald Coase, people begin to organize their production in firms when the costs of doing business becomes lower than doing it on the market.[113] Firms combine labour and capital, and can achieve far greater economies of scale (when the average cost per unit declines as more units are produced) than individual market trading. In perfectly competitive markets studied in the theory of supply and demand, there are many producers, none of which significantly influence price. Industrial organization generalizes from that special case to study the strategic behaviour of firms that do have significant control of price. It considers the structure of such markets and their interactions. Common market structures studied besides perfect competition include monopolistic competition, various forms of oligopoly, and monopoly.[114] Managerial economics applies microeconomic analysis to specific decisions in business firms or other management units. It draws heavily from quantitative methods such as operations research and programming and from statistical methods such as regression analysis in the absence of certainty and perfect knowledge. A unifying theme is the attempt to optimize business decisions, including unit-cost minimization and profit maximization, given the firm's objectives and constraints imposed by technology and market conditions.[115] Uncertainty and game theory Main articles: Information economics, Game theory, and Financial economics Uncertainty in economics is an unknown prospect of gain or loss, whether quantifiable as risk or not. Without it, household behaviour would be unaffected by uncertain employment and income prospects, financial and capital markets would reduce to exchange of a single instrument in each market period, and there would be no communications industry.[116] Given its different forms, there are various ways of representing uncertainty and modelling economic agents' responses to it.[117] Game theory is a branch of applied mathematics that considers strategic interactions between agents, one kind of uncertainty. It provides a mathematical foundation of industrial organization, discussed above, to model different types of firm behaviour, for example in a solipsistic industry (few sellers), but equally applicable to wage negotiations, bargaining, contract design, and any situation where individual agents are few enough to have perceptible effects on each other. In behavioural economics, it has been used to model the strategies agents choose when interacting with others whose interests are at least partially adverse to their own.[118] In this, it generalizes maximization approaches developed to analyse market actors such as in the supply and demand model and allows for incomplete information of actors. The field dates from the 1944 classic Theory of Games and Economic Behavior by John von Neumann and Oskar Morgenstern. It has significant applications seemingly outside of economics in such diverse subjects as the formulation of nuclear strategies, ethics, political science, and evolutionary biology.[119] Risk aversion may stimulate activity that in well-functioning markets smooths out risk and communicates information about risk, as in markets for insurance, commodity futures contracts, and financial instruments. Financial economics or simply finance describes the allocation of financial resources. It also analyses the pricing of financial instruments, the financial structure of companies, the efficiency and fragility of financial markets,[120] financial crises, and related government policy or regulation.[121] Some market organizations may give rise to inefficiencies associated with uncertainty. Based on George Akerlof's "Market for Lemons" article, the paradigm example is of a dodgy second-hand car market. Customers without knowledge of whether a car is a "lemon" depress its price below what a quality second-hand car would be.[122] Information asymmetry arises here, if the seller has more relevant information than the buyer but no incentive to disclose it. Related problems in insurance are adverse selection, such that those at most risk are most likely to insure (say reckless drivers), and moral hazard, such that insurance results in riskier behaviour (say more reckless driving).[123] Both problems may raise insurance costs and reduce efficiency by driving otherwise willing transactors from the market ("incomplete markets"). Moreover, attempting to reduce one problem, say adverse selection by mandating insurance, may add to another, say moral hazard. Information economics, which studies such problems, has relevance in subjects such as insurance, contract law, mechanism design, monetary economics, and health care.[123] Applied subjects include market and legal remedies to spread or reduce risk, such as warranties, government-mandated partial insurance, restructuring or bankruptcy law, inspection, and regulation for quality and information disclosure.[124][125] Market failure Main articles: Market failure, Government failure, Information economics, Environmental economics, Ecological economics, and Agricultural economics A smokestack releasing smoke Pollution can be a simple example of market failure. If costs of production are not borne by producers but are by the environment, accident victims or others, then prices are distorted. A woman takes samples of water from a river. Environmental scientist sampling water The term "market failure" encompasses several problems which may undermine standard economic assumptions. Although economists categorize market failures differently, the following categories emerge in the main texts.[h] Authors critical of economics tend to view the talk of "market failiures", as a term which is used when economic theories don't correspond with reality, making these theories and paradigms in which these terms are used unfalsifiable.[126][clarification needed] Information asymmetries and incomplete markets may result in economic inefficiency but also a possibility of improving efficiency through market, legal, and regulatory remedies, as discussed above. Natural monopoly, or the overlapping concepts of "practical" and "technical" monopoly, is an extreme case of failure of competition as a restraint on producers. Extreme economies of scale are one possible cause. Public goods are goods which are under-supplied in a typical market. The defining features are that people can consume public goods without having to pay for them and that more than one person can consume the good at the same time. Externalities occur where there are significant social costs or benefits from production or consumption that are not reflected in market prices. For example, air pollution may generate a negative externality, and education may generate a positive externality (less crime, etc.). Governments often tax and otherwise restrict the sale of goods that have negative externalities and subsidize or otherwise promote the purchase of goods that have positive externalities in an effort to correct the price distortions caused by these externalities.[127] Elementary demand-and-supply theory predicts equilibrium but not the speed of adjustment for changes of equilibrium due to a shift in demand or supply.[128] In many areas, some form of price stickiness is postulated to account for quantities, rather than prices, adjusting in the short run to changes on the demand side or the supply side. This includes standard analysis of the business cycle in macroeconomics. Analysis often revolves around causes of such price stickiness and their implications for reaching a hypothesized long-run equilibrium. Examples of such price stickiness in particular markets include wage rates in labour markets and posted prices in markets deviating from perfect competition. Some specialized fields of economics deal in market failure more than others. The economics of the public sector is one example. Much environmental economics concerns externalities or "public bads". Policy options include regulations that reflect cost-benefit analysis or market solutions that change incentives, such as emission fees or redefinition of property rights.[129] Welfare Main article: Welfare economics Welfare economics uses microeconomics techniques to evaluate well-being from allocation of productive factors as to desirability and economic efficiency within an economy, often relative to competitive general equilibrium.[130] It analyzes social welfare, however measured, in terms of economic activities of the individuals that compose the theoretical society considered. Accordingly, individuals, with associated economic activities, are the basic units for aggregating to social welfare, whether of a group, a community, or a society, and there is no "social welfare" apart from the "welfare" associated with its individual units. Macroeconomics Main article: Macroeconomics The circulation of money in an economy in a macroeconomic model. In this model the use of natural resources and the generation of waste (like greenhouse gases) is not included. Macroeconomics examines the economy as a whole to explain broad aggregates and their interactions "top down", that is, using a simplified form of general-equilibrium theory.[131] Such aggregates include national income and output, the unemployment rate, and price inflation and subaggregates like total consumption and investment spending and their components. It also studies effects of monetary policy and fiscal policy. Since at least the 1960s, macroeconomics has been characterized by further integration as to micro-based modelling of sectors, including rationality of players, efficient use of market information, and imperfect competition.[132] This has addressed a long-standing concern about inconsistent developments of the same subject.[133] Macroeconomic analysis also considers factors affecting the long-term level and growth of national income. Such factors include capital accumulation, technological change and labour force growth.[134] Growth Main article: Economic growth Growth economics studies factors that explain economic growth – the increase in output per capita of a country over a long period of time. The same factors are used to explain differences in the level of output per capita between countries, in particular why some countries grow faster than others, and whether countries converge at the same rates of growth. Much-studied factors include the rate of investment, population growth, and technological change. These are represented in theoretical and empirical forms (as in the neoclassical and endogenous growth models) and in growth accounting.[135] Business cycle Main article: Business cycle See also: Circular flow of income, Aggregate supply, Aggregate demand, and Unemployment A basic illustration of economic/business cycles The economics of a depression were the spur for the creation of "macroeconomics" as a separate discipline. During the Great Depression of the 1930s, John Maynard Keynes authored a book entitled The General Theory of Employment, Interest and Money outlining the key theories of Keynesian economics. Keynes contended that aggregate demand for goods might be insufficient during economic downturns, leading to unnecessarily high unemployment and losses of potential output. He therefore advocated active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.[136] Thus, a central conclusion of Keynesian economics is that, in some situations, no strong automatic mechanism moves output and employment towards full employment levels. John Hicks' IS/LM model has been the most influential interpretation of The General Theory. Over the years, understanding of the business cycle has branched into various research programmes, mostly related to or distinct from Keynesianism. The neoclassical synthesis refers to the reconciliation of Keynesian economics with neoclassical economics, stating that Keynesianism is correct in the short run but qualified by neoclassical-like considerations in the intermediate and long run.[75] New classical macroeconomics, as distinct from the Keynesian view of the business cycle, posits market clearing with imperfect information. It includes Friedman's permanent income hypothesis on consumption and "rational expectations" theory,[137] led by Robert Lucas, and real business cycle theory.[138] In contrast, the new Keynesian approach retains the rational expectations assumption, however it assumes a variety of market failures. In particular, New Keynesians assume prices and wages are "sticky", which means they do not adjust instantaneously to changes in economic conditions.[90] Thus, the new classicals assume that prices and wages adjust automatically to attain full employment, whereas the new Keynesians see full employment as being automatically achieved only in the long run, and hence government and central-bank policies are needed because the "long run" may be very long. Unemployment Main article: Unemployment US unemployment rate, 1990–2022. The amount of unemployment in an economy is measured by the unemployment rate, the percentage of workers without jobs in the labour force. The labour force only includes workers actively looking for jobs. People who are retired, pursuing education, or discouraged from seeking work by a lack of job prospects are excluded from the labour force. Unemployment can be generally broken down into several types that are related to different causes.[139] Classical models of unemployment occurs when wages are too high for employers to be willing to hire more workers. Consistent with classical unemployment, frictional unemployment occurs when appropriate job vacancies exist for a worker, but the length of time needed to search for and find the job leads to a period of unemployment.[139] Structural unemployment covers a variety of possible causes of unemployment including a mismatch between workers' skills and the skills required for open jobs.[140] Large amounts of structural unemployment can occur when an economy is transitioning industries and workers find their previous set of skills are no longer in demand. Structural unemployment is similar to frictional unemployment since both reflect the problem of matching workers with job vacancies, but structural unemployment covers the time needed to acquire new skills not just the short term search process.[141] While some types of unemployment may occur regardless of the condition of the economy, cyclical unemployment occurs when growth stagnates. Okun's law represents the empirical relationship between unemployment and economic growth.[142] The original version of Okun's law states that a 3% increase in output would lead to a 1% decrease in unemployment.[143] Inflation and monetary policy Main articles: Inflation and Monetary policy See also: Money, Quantity theory of money, and History of money Money is a means of final payment for goods in most price system economies, and is the unit of account in which prices are typically stated. Money has general acceptability, relative consistency in value, divisibility, durability, portability, elasticity in supply, and longevity with mass public confidence. It includes currency held by the nonbank public and checkable deposits. It has been described as a social convention, like language, useful to one largely because it is useful to others. In the words of Francis Amasa Walker, a well-known 19th-century economist, "Money is what money does" ("Money is that money does" in the original).[144] As a medium of exchange, money facilitates trade. It is essentially a measure of value and more importantly, a store of value being a basis for credit creation. Its economic function can be contrasted with barter (non-monetary exchange). Given a diverse array of produced goods and specialized producers, barter may entail a hard-to-locate double coincidence of wants as to what is exchanged, say apples and a book. Money can reduce the transaction cost of exchange because of its ready acceptability. Then it is less costly for the seller to accept money in exchange, rather than what the buyer produces.[145] At the level of an economy, theory and evidence are consistent with a positive relationship running from the total money supply to the nominal value of total output and to the general price level. For this reason, management of the money supply is a key aspect of monetary policy.[146] Fiscal policy Main articles: Fiscal policy, Government spending, and Tax Governments implement fiscal policy to influence macroeconomic conditions by adjusting spending and taxation policies to alter aggregate demand. When aggregate demand falls below the potential output of the economy, there is an output gap where some productive capacity is left unemployed. Governments increase spending and cut taxes to boost aggregate demand. Resources that have been idled can be used by the government. For example, unemployed home builders can be hired to expand highways. Tax cuts allow consumers to increase their spending, which boosts aggregate demand. Both tax cuts and spending have multiplier effects where the initial increase in demand from the policy percolates through the economy and generates additional economic activity. The effects of fiscal policy can be limited by crowding out. When there is no output gap, the economy is producing at full capacity and there are no excess productive resources. If the government increases spending in this situation, the government uses resources that otherwise would have been used by the private sector, so there is no increase in overall output. Some economists think that crowding out is always an issue while others do not think it is a major issue when output is depressed. Sceptics of fiscal policy also make the argument of Ricardian equivalence. They argue that an increase in debt will have to be paid for with future tax increases, which will cause people to reduce their consumption and save money to pay for the future tax increase. Under Ricardian equivalence, any boost in demand from tax cuts will be offset by the increased saving intended to pay for future higher taxes. Public economics Main article: Public economics Public economics is the field of economics that deals with economic activities of a public sector, usually government. The subject addresses such matters as tax incidence (who really pays a particular tax), cost-benefit analysis of government programmes, effects on economic efficiency and income distribution of different kinds of spending and taxes, and fiscal politics. The latter, an aspect of public choice theory, models public-sector behaviour analogously to microeconomics, involving interactions of self-interested voters, politicians, and bureaucrats.[147] Much of economics is positive, seeking to describe and predict economic phenomena. Normative economics seeks to identify what economies ought to be like. Welfare economics is a normative branch of economics that uses microeconomic techniques to simultaneously determine the allocative efficiency within an economy and the income distribution associated with it. It attempts to measure social welfare by examining the economic activities of the individuals that comprise society.[148] International economics Main article: International economics List of countries by GDP (PPP) per capita in April 2022. International trade studies determinants of goods-and-services flows across international boundaries. It also concerns the size and distribution of gains from trade. Policy applications include estimating the effects of changing tariff rates and trade quotas. International finance is a macroeconomic field which examines the flow of capital across international borders, and the effects of these movements on exchange rates. Increased trade in goods, services and capital between countries is a major effect of contemporary globalization.[149] Labor economics Main article: Labor economics Labor economics seeks to understand the functioning and dynamics of the markets for wage labor. Labor markets function through the interaction of workers and employers. Labor economics looks at the suppliers of labor services (workers), the demands of labor services (employers), and attempts to understand the resulting pattern of wages, employment, and income. In economics, labor is a measure of the work done by human beings. It is conventionally contrasted with such other factors of production as land and capital. There are theories which have developed a concept called human capital (referring to the skills that workers possess, not necessarily their actual work), although there are also counter posing macro-economic system theories that think human capital is a contradiction in terms.[citation needed] Development economics Main article: Development economics Development economics examines economic aspects of the economic development process in relatively low-income countries focusing on structural change, poverty, and economic growth. Approaches in development economics frequently incorporate social and political factors.[150] Criticism Unbalanced scales.svg The neutrality of this article is disputed. Relevant discussion may be found on the talk page. Please do not remove this message until conditions to do so are met. (June 2022) (Learn how and when to remove this template message) Economics has historically been subject to criticism that it relies on unrealistic, unverifiable, or highly simplified assumptions, in some cases because these assumptions simplify the proofs of desired conclusions.[151] For example the economist Friedrich Hayek claimed that economics (at least historically) used a scientistic approach which he claimed was "decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed".[152] Later day examples of such assumptions include perfect information, profit maximization and rational choices, axioms of neoclassical economics.[153] Such criticisms often conflate neoclassical economics with all of contemporary economics.[154][155] The field of information economics includes both mathematical-economical research and also behavioural economics, akin to studies in behavioural psychology, and confounding factors to the neoclassical assumptions are the subject of substantial study in many areas of economics.[156][157][158] Prominent historical mainstream economists such as Keynes[159] and Joskow observed that much of the economics of their time was conceptual rather than quantitative, and difficult to model and formalize quantitatively. In a discussion on oligopoly research, Paul Joskow pointed out in 1975 that in practice, serious students of actual economies tended to use "informal models" based upon qualitative factors specific to particular industries. Joskow had a strong feeling that the important work in oligopoly was done through informal observations while formal models were "trotted out ex post". He argued that formal models were largely not important in the empirical work, either, and that the fundamental factor behind the theory of the firm, behaviour, was neglected.[160] Deirdre McCloskey has argued that many empirical economic studies are poorly reported, and she and Stephen Ziliak argue that although her critique has been well-received, practice has not improved.[161] The extent to which practice has improved since the early 2000s is contested: although economists have noted the discipline's adoption of increasingly rigorous modeling,[162][163] other have criticized the field's focus on creating computer simulations detached from reality, as well as noting the loss of prestige suffered by the field for failing to anticipate the Great Recession.[164] Issues like central bank independence, central bank policies and rhetoric in central bank governors discourse or the premises of macroeconomic policies[165] (monetary and fiscal policy) of the state are a focus of contention and criticism.[by whom?][166] In the 1990s, feminist critiques of neoclassical economic models gained prominence, leading to the formation of feminist economics.[167] Feminist economists call attention to the social construction of economics and claims to highlight the ways in which its models and methods reflect masculine preferences. Primary criticisms focus on alleged failures to account for: the selfish nature of actors (homo economicus); exogenous tastes; the impossibility of utility comparisons; the exclusion of unpaid work; and the exclusion of class and gender considerations.[168] Economics has been derogatorily dubbed "the dismal science", first coined by the Victorian historian Thomas Carlyle in the 19th century. It is often stated that Carlyle gave it this nickname as a response to the work of Thomas Robert Malthus, who predicted widespread starvation resulting from projections that population growth would exceed the rate of increase in the food supply. However, the actual phrase was coined by Carlyle in the context of a debate with John Stuart Mill on slavery, in which Carlyle argued for slavery; the "dismal" nature of economics in Carlyle's view was that it "[found] the secret of this Universe in 'supply and demand', and reduc[ed] the duty of human governors to that of letting men alone"."[31] Related subjects Main articles: Law and economics, Natural resource economics, Philosophy and economics, and Political economy Economics is one social science among several and has fields bordering on other areas, including economic geography, economic history, public choice, energy economics, cultural economics, family economics and institutional economics. Law and economics, or economic analysis of law, is an approach to legal theory that applies methods of economics to law. It includes the use of economic concepts to explain the effects of legal rules, to assess which legal rules are economically efficient, and to predict what the legal rules will be.[169] A seminal article by Ronald Coase published in 1961 suggested that well-defined property rights could overcome the problems of externalities.[170] Political economy is the interdisciplinary study that combines economics, law, and political science in explaining how political institutions, the political environment, and the economic system (capitalist, socialist, mixed) influence each other. It studies questions such as how monopoly, rent-seeking behaviour, and externalities should impact government policy.[171] Historians have employed political economy to explore the ways in the past that persons and groups with common economic interests have used politics to effect changes beneficial to their interests.[172] Energy economics is a broad scientific subject area which includes topics related to energy supply and energy demand. Georgescu-Roegen reintroduced the concept of entropy in relation to economics and energy from thermodynamics, as distinguished from what he viewed as the mechanistic foundation of neoclassical economics drawn from Newtonian physics. His work contributed significantly to thermoeconomics and to ecological economics. He also did foundational work which later developed into evolutionary economics.[173] The sociological subfield of economic sociology arose, primarily through the work of Émile Durkheim, Max Weber and Georg Simmel, as an approach to analysing the effects of economic phenomena in relation to the overarching social paradigm (i.e. modernity).[174] Classic works include Max Weber's The Protestant Ethic and the Spirit of Capitalism (1905) and Georg Simmel's The Philosophy of Money (1900). More recently, the works of James S. Coleman,[175] Mark Granovetter, Peter Hedstrom and Richard Swedberg have been influential in this field. Gary Becker in 1974 presented an economic theory of social interactions, whose applications included the family, charity, merit goods and multiperson interactions, and envy and hatred. [176] He and Kevin Murphy authored a book in 2001 that analyzed market behavior in a social environment.[177] Profession Main article: Economist The professionalization of economics, reflected in the growth of graduate programmes on the subject, has been described as "the main change in economics since around 1900".[178] Most major universities and many colleges have a major, school, or department in which academic degrees are awarded in the subject, whether in the liberal arts, business, or for professional study. See Bachelor of Economics and Master of Economics. In the private sector, professional economists are employed as consultants and in industry, including banking and finance. Economists also work for various government departments and agencies, for example, the national treasury, central bank or National Bureau of Statistics. There are dozens of prizes awarded to economists each year for outstanding intellectual contributions to the field, the most prominent of which is the Nobel Memorial Prize in Economic Sciences, though it is not a Nobel Prize. Contemporary economics uses mathematics. Economists draw on the tools of calculus, linear algebra, statistics, game theory, and computer science.[179] Professional economists are expected to be familiar with these tools, while a minority specialize in econometrics and mathematical methods. See also icon Business and economics portal Critical juncture theory Economics terminology that differs from common usage Economic ideology Economic policy Economic union Free trade Happiness economics Humanistic economics List of academic fields § Economics List of economics films List of economics awards Socioeconomics General Glossary of economics Index of economics articles JEL classification codes for classifying articles in economics journals and books on economics by subject matter from 1886 to the present. Outline of economics
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