Honoring Founding Fathers of Modern Finance Economics

Abstract

In science it isn't always a case of asking, What have you done for us lately? It becomes a matter of King is dead. Long live the new King or Queen. Fair enough. Max Planck got it right when he wrote: Science advances funeral by funeral. Nonetheless, we scholars all do stand on the shoulders of giants. On this occasion when we make toasts to Sharpes and Modiglianis and Markowitzes-and to Fischer Blacks and Myron Scholeses and Robert Mertons-I want to say some informed words about our teachers and uncles, the pioneers upon whose work all my great contemporaries needed to use in carrying the flag of science steps forward toward the Holy Grail at the North Pole. Therefore, I have invented a new Nobel Prize. It did not begin 30 years ago in 1969 when the Bank of Sweden, to celebrate its 300th Anniversary, set apart a capital sum to fund the economics Nobel Prize alongside those prizes from Alfred Nobel's will dedicated to Physics, Chemistry, Physiology, and Medicine, and also to Literature and Peace. My new Prize, call it the Samuelson-Nobel Prize, got set up around 1950 out of the undeserved jackpot from my bestselling Economics textbook. Who got the first Samuelson Prize? Of course it went to Louis Bachelier, the Abraham of our finance line, still alive in 1950 but with a 1900 University of Paris classic thesis not yet discovered by the economics fraternity. From 1900 Bachelier to 1970 Robert Merton was just one little step: but how gigantic that little step is was known only to Norbert Wiener and the Japanese mathematician Kiyoshi Ito. In those pre-inflation days the prize was only $50,000, but invested judiciously in the SP but using proper statistical tests of significance, Cowles discovered that 17 monkeys typing randomly in the British Museum would have their best contestant do better than the rest in the same non-significant way that the market forecasters did. The Dow Theory of Markets, which beat out the other methods from 1900 to 1937, after 1937 never did perform very well at all. Cowles gave his prize money to Yale University: Harvard, watch out. Cowles was a double-threat team player. It was he who constructed the