With the death of Jack Hirshleifer the "old" UCLA economics - crafted by the open-minded genius of Armen Alchian and the imaginative eclecticism of Jacob Marschak - has lost one of its most articulate and original thinkers. That old UCLA, to which in later years Lloyd Shapley, John McCall, Robert Clower, Axel Leijonhufvud, Harold Demsetz, William Allen and Michael Intriligator would add lustre and an idiosyncratic originality, defined several of the frontiers of economic theory in the 1950s and 1960s.
Hirshleifer was an intrinsic member of this core group that was researching at the frontiers of economic theory, far from the centres of power on the United States' East Coast. The role of information, the place of institutions, the importance of evolutionary dynamics, the dynamics of conflict, the social and private underpinnings of insurance, and many other topics that have only now become codified as part of the folklore of the subject of analytical economics, were broached, formalised and imaginatively theorised by this remarkable group of UCLA economists with finesse and panache. Hirshleifer stamped his intellectual mark with striking articles in both leading orthodox journals and in unorthodox and innovative new journals, some of which he helped found.
He was born Jacob Hirshleifer in Brooklyn, New York, in 1925. He was, thus, of an age exactly eligible for duty in the Second World War, which he discharged with pride and honour by serving in 1943-45 in the US Naval Reserve. He obtained both his bachelor's and doctoral degrees from the Harvard Department of Economics, but, even before he officially obtained his doctorate at Harvard, he had joined the newly established Rand Corporation in Santa Monica, California. He worked there during its glory days, from 1949 to 1955, and retained a permanent consultancy post until the end of his life.
This was the period in which many of the classics of game theory and mathematical economics were forged at the hands of Shapley, John Nash, Kenneth Arrow, Gérard Debreu, Merrill Flood, Melvin Dresher and the other pioneers. They fashioned the subjects that are now the foundations of an economic theory that has begun to go decisively beyond the behavioural postulates of orthodox theory: experimental, evolutionary and behavioural economics. Hirshleifer absorbed these theoretical technologies and was quick to see their relevance for core areas of microeconomic theories and decision analysis where information had to be husbanded in conditions not only of traditional, formalisable uncertainties, but also where intrinsic conflict was prevalent in human and social interactions.
From 1955 to 1960 (and for a period in 1951-52) he was at the Graduate School of Business at the University of Chicago, as first an Assistant Professor and then an Associate Professor (1958-60). During 1958-59 he was also a Visiting Associate Professor at what came to be his eventual academic home for the rest of his life, the University of California, Los Angeles. He moved to UCLA as an Associate Professor in 1960 and was promoted full Professor in 1962, graduating to Emeritus Professor in 1991. He retained an office in the Department of Economics at UCLA - doors fully open for all and sundry to enter and interrupt whenever fancy took them - till the end. UCLA celebrates his life with a memorial service tomorrow.
The Chicago years brought forth the early classic articles on neoclassical capital theory that firmly established Hirshleifer's reputation as a pioneer of the role of time, uncertainty and information along Fisherian lines. If today Fisherian general equilibrium analysis is the core foundation upon which inter-temporal economic theory is founded, it is to Hirshleifer's resurrection, via his classic articles in the Journal of Political Economy in 1958, the Review of Economic Studies in 1967 and the outstanding and pedagogically classic book of 1970, Investment, Interest, and Capital, that we owe it. The messages in Irving Fisher's The Rate of Interest (1907) and The Theory of Interest (1930) were turned, with exceptional clarity and sympathy, to fit seamlessly into the fabric of orthodox inter-temporal general equilibrium theory at a time when textbooks were dominated by partial equilibrium frameworks.
Don Patinkin's Money, Interest and Prices in its second edition of 1965 (it was first published in 1956), with Hirshleifer's Investment, Interest, and Capital, provided the twin pillars for the new generation of mathematically minded American graduate students.
Hirshleifer's early, deserved and lasting fame was also sealed by a "paradoxical" result in a classic paper, "The Private and Social Value of Information and the Reward to Inventive Activity", published in the American Economic Review of 1971. He showed, with impeccable rigour, using orthodox tools and frameworks, that "public information may have zero or even negative social value". The reason was that premature revelation of public information might deprive members of the private sector of the opportunity to balance their portfolios in order to spread their individual risks. Essentially, this result demonstrated that "too much" information, inopportunely revealed - without taking into account optimal timing - might reduce welfare, classically conceived.
His early interests in conflict analysis, solidified during the Rand years, were never fully abandoned. From the early 1980s onwards he renewed his research efforts in this field - summarised in his 2001 book, written at the age of 76, The Dark Side of the Force: economic foundations of conflict theory - together with sustained and impressive work in grafting concepts of evolutionary biology into orthodox neoclassical analysis.
Jack Hirshleifer held numerous academic, editorial and honorary posts and served with conscientious diligence in all of them. He was the author of co-author of seven books and over 70 articles, many of which have become classics in economic theory. His extraordinarily successful undergraduate textbook Price Theory and Applications first appeared in 1976 and the latest, sixth edition (1998) was co-authored with his economist son David. Several generations of undergraduates all over the world (the book has also been translated into Japanese and Spanish) have been given their first glimpse of economic reasoning through the characteristic UCLA approach, extolling the virtues of individual rationality.
Personally, Hirshleifer was warm and generous. His civility and civilised demeanour combined the classic generosities of American life and academic open-mindedness. I never saw him without a smile on his face.
K. Vela VelupillaiReuse content