remembering economist William Baumol

British economist Diane Coyle (born 1961) praises the work of William Baumol, who passed away on the 4th of May, aged 95, and laments that they no longer make economists like him.

I’ve finished reading Will Baumol’s (1952) Welfare Economics and the Theory of the State. It’s a short and seriously impressive book, essentially pointing out that if you assume individuals do not either influence each other’s preferences or affect each other’s profits then you conclude that individual maximization delivers the most efficient outcome and the role for the state to restrict or co-ordinate activity is minimal. The laissez faire argument is inherently circular. However, social influence on preferences is pervasive, production by individual firms is interlinked when there are any economies of scale, and externalities in production and consumption are common. The book anticipates – briefly – much of the work done in the following decades in social choice theory, public choice, and Ostrom-style institutional political economy.

What makes it all the more impressive is that (a) it was Baumol’s PhD thesis and (b) he had read historical works including those in French and German – the book cites Petty, Say, Bastiat etc. He apologizes for not being able to read Italian. Clearly, Baumol was exceptional even for his time and surely was a serious miss by the Nobel committee …. They don’t make economists like they used to. ….

Diane Coyle, “They don’t make economists like they used to“, The Enlightened Economist, 20 May 2017.

William Baumol (1922-2017) was a professor at New York University and Professor Emeritus at Princeton University. He is known for impressive contributions to the theory of contestable markets, the Baumol-Tobin model of transactions demand for money, and (most famously) Baumol’s cost disease, which refers to the rising costs associated with service industries, which benefit less from technological change compared to industries producing physical goods.

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