Oskar Morgenstern (1902-1977)

Today is economist Oskar Morgenstern’s birthday. Born on January 23, 1902, he passed away on July 26, 1977. Morgenstern is best known as one of the developers of Game Theory with John von Neumann in their 1944 book, “The Theory of Games and Economic Behavior.” But he was also trained in the tradition of the Austrian School of Economics at the University of Vienna, with Hans Mayer having been an early influential mentor.
His first book, “Economic Forecasting” (1928) was a critical analysis of the inability for detailed quantitative economic prediction due to the unique qualities and characteristics of the social sciences in comparison to the natural sciences. He followed up with this idea in his 1935 article, “Perfect Foresight and Economic Equilibrium,” in which he argued the logical impossibilities in the assumption of perfect knowledge and perfect foresight as conceptual tools for understanding any process by which a general equilibrium might be established.
In 1937, Morgenstern published his book, “The Limits of Economic Policy,” one aspect of it being to analyze the workings of government intervention in the context of the idea of “concentration of benefits and diffusion of burdens” arising from such interventions; but he gave it an “Austrian” twist by emphasizing the temporal-sequential process by which different sectors of the economy are impacted by the intervention starting from the point at which it is first injected into the market at a particular place in the economy.
Morgenstern’s 1950 book, “On the Accuracy of Economic Observations” (revised ed., 1963) is a classic on the limits, abuses and misinterpretations in the study and use of statistical and other empirical data in economic analysis and as a basis for economic policy decision-making.
Related to this, is his 1975 article, “Does GNP Measure Growth and Welfare?” in which Morgenstern highlights not only the measurement and interpretative problems and short-comings with GNP (now, GDP), but also the superficiality of such macro-aggregation of the complex economic relationships at work at the microeconomic level, and which as a result hides from view the reality of market processes generating wealth and welfare.
Finally, in his 1972 article, “Thirteen Critical Points in Contemporary Economic Theory” he challenged many of the standard assumptions in microeconomics, including some logical contradictions in the construction and use of “indifference curves,” “revealed preference” theory, the meaning and significance of Pareto Optimality; he also called for a “Back to Cantillon” in terms of an appreciation of and analytical focus on the “non-neutrality of money” in developing a theory of inflationary processes.
I would not like to create a false impression of Oskar Morgenstern and his relationship to the Austrian School and some of its prominent members, such as Ludwig von Mises and F.A. Hayek. In a 2010 review that I wrote of Robert Leonard’s book, “Von Neumann, Morgenstern and the Creation of Game Theory,” I highlighted the antagonistic, envious, and sometimes anti-Semitic sentiments that Morgenstern expressed toward Mises and other members of the Austrian School in the Vienna between the two World Wars.
http://blogs.northwood.edu/…/game-theory-and-the-dark-side…/
Having taken a course with Morgenstern at New York University in the mid-1970s before his death in 1977, and having found him a delightful lecturer and a most generous teacher with his time for questions about the old Vienna days and the Austrian School, I was in fact shocked to read some of these revelations about him.
Yet, it nonetheless remains a fact, in spite of the human imperfections in his attitudes and words, Oskar Morgenstern’s contributions to economics were almost always unique and insightful, and often showed the enduring influence of his Austrian School roots from those, now, long ago Vienna days.