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The 1950s And 1960s Carnegie Connections

New Orleans Session At The 2001 Allied Social Science Association /American Economic Association Meetings

The following are excerpts from a transcript of a conference session organized by Mie Augier and James G. March of Stanford University, which focused on the early days of Carnegie Mellon's business school (GSIA), specifically the ideas, the intellectual innovations, and its unique research environment. The session brought together faculty as well as students from the years.

James G. March (Stanford University / Graduate School of Business)

I am not entirely sure whether this session should be viewed primarily as an occasion for contemplating the history of economics or as a reunion of old friends. It is certainly the latter. I hope we can make it also be the former.

My role for this session is simply to set the frame. That frame is, I believe, basically the world of American economics after the Second World War. I am not a proper historian, so I will try to describe that world as I experienced it. There were a set of major departments of economics --- MIT, Harvard, Columbia, Chicago, in particular --- that were the core of American academic economics. One of the sessions at this meeting yesterday was on Columbia and its part of the core. These major departments hired and trained the elite of economics and presided over a fairly orderly, ranked hierarchy of departments spread across the country. These departments at the core were, however, not the only major players in micro economics after the Second World War. In particular, they were supplemented by three vigorous, delicately intertwined, and somewhat curious institutions, connected to the economics establishment but standing somewhat outside of it.

The first curious institution was the Cowles Commission, located at the University of Chicago until 1955 and thereafter at Yale University, a collection of folks --- many of them refugees from Europe --- with an inclination to think that modern statistics and decision theory might be relevant to economics. The second curious institution was the Rand Corporation, the prototype of a modern military "think tank." Rand attracted a group of economists that overlapped the Cowles Commission list and encouraged them to work on relatively fundamental problems involving multi-person interactions and rational action. The third institution, interconnected with the other two, was perhaps the most curious of all. It was the Graduate School of Industrial Administration (GSIA) at Carnegie Institute of Technology, created early in the 1950s [now the Tepper School of Business at Carnegie Mellon]. GSIA was established at an institution with no significant prior reputation in economics, but it quickly became an important player. The session today takes a look at that curious institution as it existed in the 1950s and 1960s.

GSIA involved a very small community of scholars. The faculty doing research relevant to economics probably numbered no more than about 10 in 1955, no more than about 25 in 1969, and probably no more than about 40-50 different people over the 15 years from 1955 to 1969. GSIA granted only about 85 doctoral degrees during that 15-year period and, of those, substantially fewer than half could be considered degrees in economics (although the line is hard to draw). Neverless, GSIA became an economics nova. During the short period in the 1960s and 1960s, scholars at GSIA made major contributions to at least four seeds of modern economics. First, the ideas underlying operations analysis in economic institutions. These are the ideas associated with people such as William W. Cooper, Charles Holt, Abraham Charnes.

Second, the ideas underlying behavioral economics with their implications for transaction cost economics, experimental economics, evolutionary economics, and learning --- the ideas associated with people such as Herbert Simon, Richard Cyert, Oliver Williamson, Vernon Smith, and Richard Nelson. Third, the ideas underlying rational expectation economics --- the ideas associated with people such as Jack Muth, Robert Lucas, and Thomas Sargent. Fourth, the ideas underlying modern financial economics --- the ideas associated with people such as Franco Modigliani and Merton Miller.

Among that small number of faculty and graduate students at a new school with no established reputation, were four people (Simon, Modigliani, Miller, Lucas) who would later receive Nobel prizes in economics, a fifth (Muth) who undoubtedly should have, and a sixth (Williamson) who is a prime future prospect (editor's note: the Nobel prize was awarded in 2009 to Williamson); and in every case, the basic work for which the prize was awarded was either done at GSIA or conceived there. In that same very small group, there were no fewer than 10 people who would subsequently be elected to the National Academy of Sciences (Lucas, March, Simon, Modigliani, Newell, Sargent, White Smith, Williamson, Dreze) and no fewer than 15 who would subsequently be elected to the American Academy of Arts and Sciences (Mortensen, Lucas, Modigliani, Miller, Pounds, Williamson, Simon, March, White, Nelson, Sargent, Prescott, Newell, Smith, Feigenbaum).

William Pounds (MIT / Sloan School of Management)

Some of my contemporaries report that they can't seem to remember things as well as they use to. I don't have that problem! I now remember things whether they happened or not! I certainly remember Carnegie in the late 1950s very clearly; I suspect that most of us have never gotten over it. ... And some of us have even tried to re-create that atmosphere that we remember so well. Julian mentioned having tried this twice in his years. I tried to re-create it at MIT...

I'm not aware of any of us who have succeeded in finding either a similar place to work or to be able to create that atmosphere that was at Carnegie [Mellon]. It is beginning to look like what happened at Carnegie those years was a rare event, and it is tempting to speculate on its course. Those less well-trained than we may be tempted to attribute this to the genius of William L. Mellon who provided the money! But we know that even a visible hand requires an organization to be effective, and we know therefore that money alone was not enough. Perhaps it was the genius of Lee Bach, the first dean. He certainly spent Mr. Mellon's money wisely. He picked the early faculty from fields and places that no one had ever looked before for business school professors. But while important, Lee Bach's rationality was bounded, and that even he could not have gotten everything exactly right without help from other causes. What else might have helped?

Certainly the air and water in Pittsburgh at that time were different than most other places! What else was going on at that time? The subject of business education was attracting attention and some criticism. There were those who thought that business education in the late 1940s was in a state similar to that of medical education in 1910. It was being suggested that ideas from other parts of the university might be useful to students of business. It was even suggested that faculty from a variety of academic disciplines might work together to do serious work on business issues. After all, there had been much progress in such social sciences as psychology, sociology and political science that seemed to be relevant.

The Keynesian revolution had suggested new ways to think about the economy and applied mathematics had been used on operations problems in the war. These ideas were not secret; they were in the air and were available to every person. But to those business schools with already successful programs, the introduction of such ideas in a business school seemed risky, perhaps especially to the existing faculty members. And it was. But to Lee Bach, these ideas and Mr. Mellon's money provided an unusual opportunity. He thought these ideas might be a risk worth taking.

Then, new people were brought to focus their attention on what were exciting, new problems. Business problems that many of them had never thought about before. And the rest is history, and we've heard a lot of that history here this morning. It was a burst of creativity that we all remember. But why did it happen at Carnegie and nowhere else? Well, of course, something like this has happened in lots of other places. Over the 40+ years since those early days, many business schools have been aggressively recruiting research faculty and they have attracted more and more able students. Much new and exciting work has been done and is being done at many places, some of them far from Carnegie. But since much of the risk has gone out of the idea of a new kind of business school, some of the fun has gone out as well. And it is the fun of those risky early days that we all remember.

"New people were brought in to focus their attention on what were exciting, new problems. Business problems that many had never thought about before. And the rest is history."

- William Pounds, Sloan School Of Management, MIT

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