By Douglas Clement
Leonid Hurwicz knows how to achieve desired objectives in economics and in life
In OCTOBER 1917 Russia gave birth to the Bolshevik Revolution, launching history's longest experiment in centralized economic planning. Just two months earlier, Russia also saw the birth of leonid Hurwicz, who would later become the world authority on economic decentralization. Sitting in his Minneapolis dining room 89 years later, the Regents Professor Emeritus acknowledges the irony. "I feel somewhat historic," Hurwicz jokes, "to see that I was born before the Revolution and I outlived it."
But in truth, Hurwicz launched a revolution of his own by dramatically transforming the way economists think about economic systems. Rather than passively accept the given structure of an economy and optimizing within its constraints--the standard method--Hurwicz's theory of "mechanism design" provided a rigorous method for creating rules of interaction (mechanisms) so as to achieve desired objectives. "This new approach," Hurwicz wrote in 1973, "refuses to accept the institutional status quo... as the only legitimate object of interest." Revolutionary indeed.
Hurwicz's work has allowed economists not only to analyze competitive markets but also to devise alternatives. "A lot of classical welfare economics starts with a particular mechanism, the competitive economic system," observes Hurwicz's university of Minnesota colleague and collaborator, John Chipman. "He goes further behind that to designing mechanisms from scratch." The competitive market system is remarkably robust, but there are clear examples-- coping with pollution, for instance, or providing public goods--where markets fail. In such situations, mechanism design excels in the creation of alternatives. Today it's used in applications as varied and vital as the design of airwave spectrum auctions, analysis of monetary policy rules, internal organization of large corporations, and shaping of computer networks.
Other ContributionsWhile many consider mechanism design to be Hurwicz's most innovative work, his contributions are far broader. In the early 1940s he worked at the Cowles Commission, a think tank dedicated to econometrics. His research there on small sample properties, says Chipman, "is still cited as fundamental."
And in the late 1950s, soon after his arrival at the university, he published three seminal papers, coauthored with Stanford University's Kenneth Arrow, on the dynamic stability of competitive equilibria. Economists had long studied equilibrium in competitive economic systems, but no one had carefully evaluated their stability. "Much teaching, even now, is focused on the system being in equilibrium," observes Hurwicz. "But any economist worth his salt will tell you that most of the time the system is not in equilibrium; it's moving up or down or oscillating."
For Arrow, the collaboration was especially significant. "My joint work with Leo Hurwicz is one of the finest intellectual experiences of my life," he wrote. "His depth, his caution and demand for rigor, and most of all, his sense of the essence of the problems, were powerfully educative." (Hurwicz smiles when he hears of Arrow's message: "I'm amazed that you have tracked down such people who are willing to perjure themselves.")
A decade later, he published a set of papers on consumer demand theory, which analyzed the derivation of utility functions from demand functions. "In my opinion," says Chipman, "both these contributions made him deserving of a nobel Prize." Hurwicz hasn't yet received the Nobel, but in 1990 he was awarded the national Medal of Science by President George H.W. Bush, "for his pioneering work on the theory of modern decentralized allocation mechanisms." Only six economists in history-- the others are Nobel laureates Arrow, Gary Becker, Milton Friedman, Paul Samuelson and Robert Solow--have received the Medal of Science, and Hurwicz is the only scholar from the university to be so recognized.
"I thought it was a case of mistaken identity," Hurwicz quipped when he first heard of the award. Now he admits that while he was very surprised to get it, he was "delighted that the concept of decentralization is [recognized] as important for economics." Mechanism design doesn't necessitate a decentralized structure, but "I have a value prejudice in favor of decentralization," he admits. "When I think the market is not good at taking care of something, and I look for alternatives, I first look for decentralized alternatives."
A Winding RoadFrom Bolsheviks to Bush is a long journey. Hurwicz began it in a horse-drawn wagon when his family, fearing political persecution, left Moscow in 1919. "It was something you could make a Dr. Zhivago movie about," Hurwicz says. They returned to their native Poland, and he studied in Warsaw schools, receiving a law degree from the University of Warsaw in 1938.
The legal education was his father's idea; Hurwicz was more interested in astrophysics. So in addition to attending law school, he studied physics and entered the piano conservatory, indulging another of his talents. "I was running like mad," he recalls. But it was a second-year course in economics, taken while working toward his law degree, that hooked him. After graduation, he was admitted to the London School of Economics. His English was rudimentary, and the classes he understood best were
taught by a Hungarian economist. "He had a worse accent than I did, but I could understand it, so I took all the courses he was teaching." The professor: renowned theorist Nicholas Kaldor.
Hurwicz took night classes at lSE as well, and "was able to more or less do two years in one, at least in terms of inhaling knowledge." In 1939 he went to Geneva for further study, but when Hitler invaded Poland, Hurwicz became a Jewish refugee, and his parents and brother fled Warsaw only to be interned in Soviet labor camps. After several tense months in Switzerlandand Portugal, Hurwicz emigrated to the United States, completing his studies at the University of Chicago and Harvard. His family eventually joined Hurwicz in the United States. He taught meteorology at the University of Chicago from 1942 to 1944, and--sight unseen, he claims--hired economics undergraduate Evelyn Jensen, a farm girl from western Wisconsin, as his teaching assistant. He and Evelyn, along with their four children (Sarah, Michael, Ruth and Maxim), celebrated their sixty-second wedding anniversary in July.
Shaping the DepartmentHurwicz arrived at the university of Minnesota in 1951, recruited by Walter Heller. Heller was the worldly policymaker; Hurwicz, the quintessential mathematical theorist. But the two worked in brilliant concert, creating an independent spirit and identity for economists at the university, recruiting talented young economists, and teaching students the technique and beauty of economics. The department's national standing owes much to Hurwicz. "I would say he's responsible almost single-handedly for its high reputation," says Chipman. In his Nobel autobiography, laureate Daniel McFadden points out that when he was a student, it was Hurwicz, along with Chipman, who drew him to economics because of his insight into mathematical models of learning and choice. Other students and colleagues emphasize that Hurwicz is both demanding and supportive as a teacher, giving students second, third, fourth and fifth chances to learn skills but accepting nothing less than mastery.
More than EconomicsOne expects rigor from a mathematical theorist. More surprising perhaps, is Hurwicz's vigor. Handing a visitor his 39-page curriculum vitae, he notes that it needs updating to include several recent articles, an honorary doctorate from the university of Bielefeld, and a book published in late May, "Designing Economic Mechanisms," written with Stanley Reiter of northwestern university. Even as an emeritus professor, Hurwicz carries a teaching load. His dining room table is covered with research papers. And his deep knowledge of current controversies in economics and public affairs is astounding. As Arrow observes, "his bubbling sense of enthusiasm and his intellectual curiosity are undiminished by years."
Hurwicz's passions extend well beyond economics. He and Evelyn sponsored a Cuban refugee who came to Minnesota as part of the Mariel boatlift, a parallel to his own life. He's also been deeply active in DFL politics; in 1968 he was a Minnesota delegate for Eugene McCarthy at the Democratic national Convention in Chicago. Ask him about an unusual word, and he'll tell you its etymology, language-by-language. During international travels, he has often explored archeological sites, in locations as disparate as northern India and Israel. And friends and colleagues note that at his fiftieth wedding anniversary, no one danced more than Leo Hurwicz.
Hurwicz, then, is a mensch--the kind of intellectual that universities prize, a collaborator sought out by fellow scholars, a teacher feared and then revered by his students, and a citizen with a deep concern for his community.
"Someone asked me recently if I could think of a single individual who might epitomize the University," said Craig Swan, a colleague in the economics department and University vice provost. "They were looking for great figures in our history. And I said 'Leo Hurwicz,' because of his commitment to working with students, his intelligence, and his dedication to pursuit of truth. He has a first-rate mind and he's also a terrific person. He really does epitomize, I think, all of the things that are best about this University."