LN-11 Trygve Haavelmo from Frisch's laboratory to Cowles Commission. The Oslo School Oslo School (Ragnar Frisch, Trygve Haavelmo, Leif Johansen) The smooth takeover of the Norwegian government administration by Frisch’s pupils after 1945 and the professionalization of economics in Norway. Frisch and his pupils. Haavelmo (1911-99) Graduated 1933. Assistant Frisch’s Institute from 1933. Grant for 3 months in London 1936 (Neyman). Travelled spring term 1937 to Berlin, Paris, Geneva (Tinbergen), Oxford (Marschak). Teacher statistics Aarhus University 1938/39. To USA June 1939. Nortraship, New York 1942-43; Norwegian government, Wash. DC 1944-45; Cowles Commission, Chicago 1946. Back to Norway March 1947. Norwegian Economic Planning Administration 1947/48. Professor 1948- 79. Briefly summarized: Haavelmo worked 4 years for Frisch at the Institute. Then he travelled in Europe for two years – Wanderjahre . In USA he planned to stay 1 – 1 ½ years but he ended up spending 6 ½ years, of which he was a student (unregistered) for 2 ½ years and worked for the Norwegian government 4 years. Haavelmo is almost unique in choosing to return after the war ended.
Some glimpses from Frisch’s laboratory Frisch’s institute was a laboratory for mathematical-statistical experiments and empirical studies. The Institute had at the outset a grant from Rockefeller Foundation. Frisch hired a number of assistants, students and young graduates, and acquired the computational equipment he could afford, stretching the means by offering low pay. Perhaps the laboratory was run with some similarities to the jeweller’s shop. Thus Haavelmo was thus hired to be a computor . Frisch must have discovered Haavelmo’s talent but he was not offered particularly favorable conditions. After two years Frisch redefined Haavelmo’s position to be chief computor and doubled his pay. The Institute’s research program in the first five years comprised: I. Time Series and Business Cycle Analysis+ Economic Dynamics+ II. Productivity Studies III. Demand and Utility Analysis IV. Statistical-Technical Studies for Developing Tools Necessary in the The projects under I were Frisch’s most ambitious and certainly most time consuming project. It was about “economic dynamics”, in the institute jargon often called “shock theory”, Haavelmo got very deeply involved. The Confluence Analysis book of 1934 was the main outcome under IV. The confluence analysis attracted scholars to Frisch as a generator of new and fruitful ideas. Among the visitors were Jan Tinbergen (1903-1994) and Tjalling Koopmans (1919-1985), both from the Netherlands and future Nobel laureates, and both figure prominently in the history of econometrics. Another person who wanted to visit but never arrived was Jakob Marschak (1898-1977). Marschak had a position in Heidelberg in 1933 when he fled Germany. He preferred to come to Frisch’s Institute but ended in Oxford. From 1943 he was research director of Cowles Commission in Chicago.
Koopmans was in Oslo the autumn of 1935 and was primarily concerned with “the problems, arising from the circumstances that classical sampling theory does not regard cases in which observational series develop in time in such a way, that the probability distribution of the second term is not independent of the value attained by the first.” He gave a series of lectures, On Modern Sampling Theory . Koopmans worked on a dissertation to study whether Frisch’s views could be incorporated in a more formalized probabilistic framework. Koopmans’s lectures provided Haavelmo’s introduction to the recently developed Neyman–Pearson theory of testing and is likely to have ignited Haavelmo’s interest in learning more about probability theory and statistics. In addition to working within Frisch’s two main scientific paradigms, Haavelmo took part in a number of Frisch’s empirical studies falling under production and demand studies, number II and III in the list above.
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One production study was about chocolate with data from Freia ( The principle of substitution. An example of its application in the chocolate industry ). Oslo’s biggest bakery commissioned a project to investigate the quality of its bread; the econometric analysis revealed that the dough needed more water! An interesting demand study was undertaken in 1934 for the breweries’ association, whose concern was that deflation under nominal taxation had caused a doubling of the real price of beer whereas the consumption was halved. The breweries wanted corroborated evidence to convince the government that lower taxes would increase tax revenues. The task seemed simple, a question of determining the price elasticity. Direct regressions gave highly uncertain estimates around -1. Frisch used his connections with the statistical bureau and borrowed the entire data files for the most recent household surveys, from which Haavelmo estimated a short- and long-term price elasticity of -1.74 and -1.55, respectively. Frisch was still not satisfied; he produced a questionnaire and sent students out to interview acquaintances about their reactions to hypothetical changes in the price of beer. Analysis of the polled answers gave an aggregate estimate equal to -1.65, corroborating the earlier result. The two future Nobel laureates sat together at the end of June 1936, drafting the report to the breweries’ association.
The project considered many research ideas that didn’t make it into the final report. One was to use regional data, even for small communities. This required demographic data, adapted for beer demand use. The concept of “beer capability” (“ølførhet”) was coined. The legal beer capability age was 18 years but the statistical beer capability age was set to 15 years. For setting weights for men and women old sources were quoted: ”Når ølet er godt, drikker kvinnen en pæl og mannen en pott”. Men aged 15-70 were given weight 1, women 1/3 og men above 70 1/2. The idea was inter alia to study sudden local changes in beer consumption in new industrial communities (Sauda, Odda) and railway construction (Nord- og Sørlandsbanen) caused by accumulation of “ølføre”. Soon after the beer project Frisch and Haavelmo took of to the sixth Europen Society European meeting in Oxford, September 1936. It must have been the first international meeting discussing Keynes’ General Theory . Also an important experience for Haavelmo. After the meeting Haavelmo remained three months in London, in Neyman’s Department. Another demand study resulting in the only published joint paper by Frisch and Haavelmo was a study of the demand for milk in 1938. In 1937 Frisch initiated a project on developing national accounts for Norway. Haavelmo took part until he left for Denmark. The Probability Approach In 1989 Haavelmo was awarded the Nobel Memorial Prize in Economics for ‘his clarification of the probability theory foundations of econometrics and his analyses of simultaneous economic structures’.
The two publications mentioned in the Nobel announcement were: 1943 The Statistical Implications of a System of Simultaneous Equations, Econometrica 1944 The Probability Approach in Econometrics, Econometrica (supplement) Haavelmo had studied much probability theory and statistics before he left for USA. His main purpose was to study how economic theory could be tested. Some presentations of the history of econmetrics conveys an impression of a divide between Frisch and Haavelmo over the role of probability. Morgan’s book is fairly balanced in this regard. After two years in USA, that is already by August 1941, Haavelmo had completed the treatise that would become known as the Probability Approach . It was mimeographed at Harvard with the title On the Theory and Measurement of Economic Relations .
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