Learning From a Laureate: Dr. Kenneth J. Arrow

Youth is wasted on the young. Or in my case, graduate school. Looking back over my carefully hand-written notes, I see that so many of the questions that have come up in my subsequent research and teaching were already answered, had I recognized it at the time. Even if not answered, the questions were at least well-posed, with the theoretical framework, empirical findings, and still-thorny problems clearly laid out, providing a solid foundation for future learning and research. Or as the saying goes, shoulders to stand on.

Nowhere is this more the case than in my writing and teaching about economic inequality. Nearly 30 years ago, as a graduate student at Stanford University in the early 1990s, I had the privilege of taking Kenneth Arrow’s course entitled The Distribution of Income and Wealth, jointly offered to undergraduate and graduate students in the Economics department at Stanford University as Economics 185/285. I also had the good fortune of taking Professor Arrow’s graduate course on the History of Economic Thought, Econ 200, which addressed the transition from classical to “neoclassical” economics, also known as the marginal revolution. I include the syllabi and reading lists for both classes as Appendices.

By the time I arrived in his classroom, Kenneth Arrow was rightly revered as an “undisputed and deserved giant of economics” (Wright, 2017, p. 287). In 1957, he had received the John Bates Clark Medal of the American Economic Association, awarded to the American economist under 40 who has made the greatest contribution to the economic thought and knowledge. In 1972, jointly with Sir John Hicks, he was awarded the Nobel Prize in economics for his pioneering contributions to general equilibrium and welfare theory. At 51, he was the youngest recipient of the Nobel Prize at the time, since unseated in that respect by Esther Duflo, who was awarded the Nobel Prize in 2019 at the age of 47. In 2004, President George W. Bush presented Arrow the National Medal of Science.

Because of his work on general equilibrium models, Arrow is sometimes mistakenly associated with the libertarian view that unrestricted markets are the solution to society’s problems. For example, John Komlos concludes a 2020 article on racism in economics by declaring “Righteousness will not flow like a mighty stream so long as our minds are trapped in the Arrow-Debreu world of general equilibrium which might well be eloquent on academic blackboards but is harmful at the street level and especially so for groups that are disadvantaged from birth by the real-existing economy” (Komlos, 2021, pp. 23–23). Komlos does point out, in a footnote, that Arrow would have agreed. Rather than a justification for unrestricted markets, the Arrow-Debreu model illustrates the unrealistic and highly unlikely conditions that are required for markets to achieve the efficiency for which they are over-credited.

In addition to his work on general equilibrium theory, Arrow made pathbreaking contributions to several other areas of economics, including the economics of information, discrimination, technology, health care, and the environment. In a 2019 paper, Eric Maskin provides a thorough and accessible exposition of Arrow’s contributions to social choice theory and general equilibrium theory (Maskin, 2019). For those who would like to dig deeper into Arrow’s thinking, his papers are archived in the Economist’s Papers Archive at Duke University’s David M. Rubenstein Rare Book & Manuscript Library, alongside those of more than 70 significant economists, including 12 Nobel laureates. Unlike linguist Ferdinand de Saussure whose work on structural linguistics had to be reconstructed through the lecture notes of his students, Arrow left behind a rich record of his scholarly life, 60.4 linear feet and 37,800 items, including the lecture notes from his first class in economics, Harold Hotelling’s Mathematical Economics (Weintraub et al., 1998, p. 1499; Economists’ Papers Archives).

Along with his contributions to economics, Arrow was widely admired for the astonishing breadth of his knowledge outside the field. Colleagues describe him as a “Renaissance person, a polymath, interested in and most knowledgeable about literature, politics, other disciplines and also people” (Harcourt, 2017, p. 352), and as a “cultured genius of enviable modesty” Velupillai, 2017 p. 624. In the words of his Stanford colleague, philosopher Debra Satz, “He knew everything—and not just about economics, but also about Kant’s philosophy, Shakespeare, Roman history, even whale mating patterns” (Satz, 2017). His nephew, Lawrence Summers, wrote that “Save for the NFL, there was no topic—from politics to music, from classics to physics—on which Kenneth was not infinitely curious and apparently omniscient” (Summers, 2017).

Despite his awe-inspiring intellect and accomplishments, Professor Arrow’s presence in the department and the classroom was modest and accessible. During my graduate school days at Stanford University in the early 1990s, the most frequent Kenneth Arrow sighting was not in front of a podium but on a bicycle. Each morning he would wheel his bike into the lobby of the economics department, take off his white bicycle helmet, remove the strap that kept one of his pants legs safe from the bicycle chain, and then roll his bicycle down the hall to his office and get to work. Perhaps the bicycle was the secret to staying active and intellectually engaged as long as he did, well into his 90s.

Arrow’s modesty extended to the field of economics. Despite his extraordinary fluency in the language of economics and its models, he was keenly aware of the limits of the discipline, as well as appreciative of the contributions of other intellectual traditions. His approach was the opposite of Maslow’s “When you have a hammer, everything looks like a nail.” He was not inclined to view the world exclusively through an economic lens. Rather than trying to reduce the world’s complexities to those explicable by economic theory, he embraced the possibility of a multi-disciplinary approach (see, among many examples, Arrow, 1974).

Only now do I realize that by the time I arrived in his classroom in the early 1990s, Kenneth Arrow would have been in his early 70s. Although he had been compelled by mandatory retirement rules to retire when he reached the age of 70 in 1991, he had apparently found a way to continue teaching well past that date (what department chair would say no?). Everything in his demeanor and in the construction of his courses suggested that he was still energetically and fully engaged in his teaching. He personified the maxim that Hilary Hoynes, my Stanford classmate at the time, displayed on her coffee mug: “Those who can, teach.”

Professor Arrow’s practices as a teacher were generous and humane. The structure of the course was thoughtfully laid out in advance. The reading list was vast, and involved several books, as well as many articles. Hard copies of the books were on reserve at the library and could be checked out for 2 hours at a time. In the days prior to the arrival of course websites and online journals, Professor Arrow took the effort to compile the relevant journal articles in a photocopied course reader, to save students the trouble of chasing each of them down individually.

The course meetings themselves consisted mainly of lectures, with material presented in handwriting on the chalkboard. At the time, PowerPoint was uncommon, even unheard of, in the classroom. Projection was still largely reserved for research seminars or job talks, where I recall clear plastic overhead transparencies making a frequent appearance. In Professor Arrow’s courses, evaluation took place via open-book, take-home midterm and final examinations, which gave opportunities for the student both to demonstrate competence in the basics of the material and to grapple with the more complex, less tractable questions.

Professor Arrow was a spirited lecturer, eager to bring us along on each day’s intellectual adventure. His lectures on the history of economic thought consisted of a rich mix of theoretical exposition and storytelling. He discouraged a Whig interpretation or rational reconstruction of history, the approach taken by Paul Samuelson and Mark Blaug. Instead, he encouraged us to put ourselves in the mindset and environment of the author, and to embrace Leopold von Ranke’s principle of Wie es eigentlich gewesen (how things actually were). To that end, his lectures filled in the social and intellectual background of the economist and illustrated how the economist was consonant or dissonant with contemporary society. In my lecture notes, pages of mathematical proofs are interspersed with nearly as many pages of biography, politics, and history. In the language of sports, Professor Arrow was simultaneously the announcer and the color commentator. Notably, Professor Arrow could outline precisely what an economist did not say because he knew everything that the economist did say.

Because, as already noted, Professor Arrow “knew everything,” he could draw a rich web of connections, pointing out multiple links between ideas and scholars. For example, when describing David Ricardo, Arrow pointed out that Ricardo was “interested in geology, until he came across Adam Smith’s book and was hooked.” Arrow noted that it was John Stuart Mill who first presented Ricardo to with the challenge of writing a book on economics. Arrow then, from memory, richly recounted Ricardo’s life, including details such as the fact that Ricardo’s position on birth control was unknown and that he “didn’t believe in the trinity.” Like his lectures, Professor Arrow’s research is dotted not only with references to the multiple economists whose work paved the way for his own, but also with allusions to Shakespeare, Braque, and even Sherlock Holmes.

I believe he viewed today’s economists as an equal footing with yesterday’s. Each economist, he said, past, present, or future, must contend with the economic issues of the day, the intellectual climate of the day, their own personal idiosyncrasies, and the past of the discipline. What I took away from Arrow’s lectures was that economics is not just theorems and axioms, data and results, graphs and equations. Economics is human beings grappling with the question as to how to best establish the material basis for our flourishing, both individually and as a society. Arrow was careful to reject the methodological individualism for which economics is sometimes caricatured, writing “Economic theories require social elements as well even under the strictest acceptance of standard economic assumptions” (Arrow, 1994, p. 4), and continuing, “Social variables, not attached to individuals, are essential in studying the economy or any other social system” (Arrow, 1994, p. 8).

As a person of his time, Arrow was concerned by the inequality of income and wealth in the United States (Arrow, 2011). Growing income and wealth inequality was already apparent in the early 1990s, when I was a student in Professor Arrow’s course on the Distribution of Income and Wealth. Looking back on my notes, I find that despite the two decades that have passed since I took the course, it remains an exceptionally clear guide to economic thinking on inequality. The first useful distinction is the one that Professor Arrow drew between the causal and the descriptive approaches to the distribution of income. On the causal side of the ledger, Professor Arrow frankly stated that “not much can be said.” He nonetheless walked us carefully through the available theoretical explanations for inequality, from Ricardo and Marx on the functional distribution right up to contemporary theories of CEO compensation. He concluded that while neoclassical competitive theory remained “the favorite explanation of factor incomes and therefore of the income distribution,” there were multiple phenomena that were not explicable on those grounds.

This raises the question as to what Arrow would have made of Thomas Piketty’s “r is greater than g” as a contribution to the causal side of the inequality story. In fact, in 2016, Arrow sat down with Thomas Piketty for a conversation on income inequality, still available online (Arrow, Piketty, and Inequality, 2016). In their discussion, Arrow mainly poses questions to Piketty, seeking to draw out Piketty’s insights on the challenging questions that vex anyone who ventures into the field of inequality. Arrow asks Piketty, for example, why we should be concerned about inequality per se, rather than poverty? Piketty’s reply is that inequality itself is not inherently problematic, but that it is a matter of degree. At the end of the conversation, Piketty, Debra Satz, and Arrow are still grappling with the question of whether and why inequality is problematic. Arrow wraps up by observing, “One thing that strikes me in this country is that I am amazed at how little people resent inequality” (Arrow, Piketty and Inequality, 2016).

Arrow found the descriptive side of the economic literature on inequality better developed than the causal side. On the measurement of inequality, he said, “a lot of work has been done.” Using up-to-the-minute data, Arrow walked us through the issues involved in measuring inequality, from the Pareto distribution to the poverty line. Along the way, Arrow conscientiously traced each idea carefully back to its source in the history of economic thought. I also find my notes sprinkled with asides, such as the fact that in Francis Edgeworth’s early work, he justified income differences by arguing that the rich have “finer sensibilities than the poor,” a striking reversal of the alleged declining marginal utility of income.

Arrow’s course also addressed in detail the ethical implications of inequality. Here, my lecture notes are remarkable in their sheer density. Arrow presented an astounding number and variety of ideas in rapid succession, and as usual, drew surprising connections between them. For example, he presented the classic opponents, John Rawls and Robert Nozick, as being in agreement. On Arrow’s account, the two philosophers differed in their definition of justice but agreed on its primacy—its status as the first virtue of any social institution, and especially of the state.

In addition to his teaching, Arrow participated in the public discourse regarding inequality. In October 2011, during the Occupy Movement, Arrow contributed an essay to the Boston Review on potential policy responses to growing economic inequality. In the essay, he compared the information asymmetries in the financial industry to those in the health care industry, making a case for stronger regulation of both. He further advocated for steepening the progressivity of the income tax, removing blatant loopholes, such as the special treatment of capital gains, and reducing the exemption level for estates. A few years later, he llaid out what he called his “strong moral commitment” on the issue, stating that “The freedom to make choices in a market economy demands the ability to choose jobs and goods. I therefore have a built-in belief that reducing income inequality is not in contradiction to economic freedom but part of it” (Klein, 2013, p. 260).

Arrow’s death in 2017 at the age of 95 elicited a flood of written remembrances by former students and colleagues. Reading over the remembrances and obituaries, I must disagree with the Economist magazine’s assertion that Arrow “never had the certitude required for activism” (An Impossible Mind, 2017, p. 62). Perhaps The Economist was overly reliant on Professor Arrow’s self-assessment, writing in 1978, “I have always preferred the contemplative to the active life. I prefer the freedom to see matters from several viewpoints, to appreciate ironies, and indeed to change my opinion as I learn something new. To be politically active means to surrender this freedom. I say nothing against activism—for others. It is only through the committed that necessary changes come. But each to his own path” (Arrow, 1978, p. 472). Despite his willingness to see maters from multiple viewpoints, on significant issues Arrow by no means lacked conviction, declaring, for example, that racial discrimination is “an evil, even if grounded in widespread popular opinion” (Klein, 2013, p. 269).

One might argue that, following the dictates of comparative advantage, Arrow’s activism took the form of scholarship and mentorship rather than speeches and protests. In the final decades of his life, he became deeply engaged in issues of ecological economics. Arrow is remembered by Partha Dasgupta for his “tireless espousal of ecological economics,” and as a teacher and mentor to young economists in the developing world who were “helped by him to formulate problems they had found on their own ground” (Dasgupta, 2017, p. 10). Beginning in 1990, Arrow worked closely with the Beijer Institute of Ecological Economics in Stockholm, attending all but six of their annual meetings from 1993 until his last in 2016, where he actively participated in policy debates despite his failing health (Dasgupta, 2017, p. 8). In the words of Debra Satz, “Whether tackling climate change, international security, healthcare provision, inequality, or racial prejudice, for Ken, economics was first and foremost a means to help improve human well-being” (Satz, 2017).

If I had only one word to summarize Arrow’s legacy, I would choose an old-fashioned one: stewardship. The Merriam-Webster dictionary defines stewardship as “the careful and responsible management of something entrusted to one’s care” (Merriam-Webster, n.d.). As a teacher and scholar, Arrow was a steward of knowledge. His deep roots in the history of the discipline nourished authentic growth, rather than superficial novelty. In his later years, Arrow’s time and energy became focused on environmental stewardship—perhaps coming full circle, given his initial work in meteorology. Most of us in academia will never make a fraction of Arrow’s contribution to our disciplines. That said, we can be inspired by Arrow to approach our work with a spirit of stewardship, managing with care the gifts of knowledge we have been fortunate enough to receive and passing them along to our students.