One year before he died in 1896, Alfred Nobel stated in his will that a large part of his inheritance should fund a yearly prize awarded to persons who made exceptional contributions to the fields of Physics, Chemistry, Medicine, Literature, and Peace. As you might have noticed, Alfred Nobel himself did not mention a prize for economic sciences. What is more, while these prizes are known as the Nobel prize in Physics, Chemistry etc. The prize for economic sciences is actually known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.
Is it therefore not a ‘real’ Nobel prize?
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The Nobel prizes today
On first inspection, the Nobel prize in economic sciences looks a lot like the other Nobel Prizes. It is announced at the same time as all the other prizes. The winners are featured on the official Nobel prize website, along with the other winners, and the prize is awarded at the same event as the Physics, Chemistry, Medicine and Peace prices in Stockholm, Sweden.
So then, why is there still any doubt that this is a real Nobel prize?
History of the Nobel prizes
To understand why, we must first go back to 1888, the year when a French newspaper published an obituary that read: the merchant of death is dead, referring to Alfred Nobel who was not only the inventor of dynamite but also the owner of more than 90 weapons companies.
However, the catch was that…. Alfred Nobel was not dead at all. The newspaper had mistaken his dead brother for the man himself. And when Mr. Nobel read the article, he was so appalled at the thought of being remembered as the merchant of death, that he changed hill will so that his fortune would be used to create a series of prizes, awarded to those who confer the “greatest benefit on mankind in physics, chemistry, medicine, literature, and peace.”
Notice that the only prize that was not mentioned in his will is the one in economic sciences.
This prize was established much later, in 1968 to be exact, when the Swedish central bank committed to funding it. And that is why it is called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel instead.
At the time, the Swedish central bank, like many others around the world, was in a struggle to gain independence from the government. A Nobel prize for economic sciences would establish once and for all that economics was a science just like physics, chemistry, and medicine. Hence, it makes sense that the central bank is not controlled by politicians, but rather by experts, right? Now, we don’t know if this was indeed why the prize was created. But, it was really convenient for the Riksbank at the time…. That is for sure.
Common arguments in favour of a Nobel prize in economics
But, it was also just the 300th anniversary of the bank, and their reasons for establishing the price could be far more altruistic. For example, it could be argued that if there is a need for any science to up its game, and save humanity, it is economics. After all, while the Nobel was awarded for the discovery of a Tetanus vaccine, no vaccine to poverty has yet been discovered. Furthermore, there is a clear correlation between which countries do well economically, and how many Nobel prize winners are produced. Economic success allows all sciences to flourish. Hence, it makes sense for there to be an extra motivation for economists to do well in the form of a Nobel prize.
Finally, it could be said that the winners in auction theory, which I talked about in the previous two posts of this mini-series, have made very tangible contributions to the progress of humanity. After all, they have invented auction formats that have saved governments billions of dollars that could now be spent on helping people instead. Thus, it could be said that they have made a contribution that is just as / if not more important than, say the Physics prize winners, which made some additional discoveries about black holes.
So why then, is this prize still so controversial?
Common arguments against of a Nobel prize in economics
One question that is often asked is: what about mathematics, engineering, biology or computer science? Aren’t they just as important as economics? To that question the Nobel Prize committee has decided to keep the original five plus the economics prize intact and not to permit any new additions. It seems a bit arbitrary to allow for the economics prize but not the other ones. A more scathing criticism comes from Peter Nobel, one of the descendants of Alfred Nobel. Peter has said that his great uncle Alfred despised people who cared more about profits than society’s well-being. Given that profits, returns, income, or GDP are generally the main variable of interest for economists, Peter has said, among other things, “that there is nothing to indicate that Alfred Nobel would have wanted such a prize;” also he said “the Prize has often been awarded to stock market speculators, which does not reflect Alfred Nobel’s spirit of improving the human condition” and that “the Economics Prize is nothing more than a PR coup by economists to improve their reputation.”
Another argument that is often heard is that the contributions of social scientists like economists are often much more ambiguous than those of so-called hard sciences such as Physics, Chemistry, and Medicine. These prizes have gone to great inventors such as those who invented the techniques to edit DNA, and the Hepatitis C virus this year. In contrast, the prize in economic sciences has often gone to economists who have added well known phenomena such as climate change (2018), technological innovations (2018), human behaviour (2017), and market power (2014) to abstract economic models or to economists who “contributed” to the empirical analysis of poverty (2015, 2019), asset prices (2013), and economic governance (2009). These are far less obvious improvements to the human condition.
Why the economics prize is a proper Nobel prize
But, I while I think there is some truth to that last argument, there is also a Nobel prize for literature and one for peace. Especially that last one has been far more controversial than the economics prize.
Also, there is some merit to the argument that establishing the Nobel Prize in economics was a PR stunt with political motivations. However, even if it was, that is water under the bridge. The prize has now been well established and, sure, while there is a valid case to be made for more sciences to receive a Nobel prize, that doesn’t mean that the economics prize is a fake Nobel prize. Furthermore, even if there are no Nobel prizes in other fields, there are other highest honours for them that basically serve the same purpose such as the Fields medal in mathematics and the Turing prize in computer science.
And given that the Nobel institute itself considers it a Nobel prize like all the others, and treats its winners the same as all the others. I think it is clear that the economics Nobel prize is here to stay and even though it will remain the odd one out because of its name and history, it is for all practical purposes, a real Nobel prize!
So, with the case being closed for the economic sciences in memory of Alfred Nobel prize being a proper Nobel prize, that closes this mini-series on the 2020 Nobel prize in economic sciences. What do you think, have I made the case convincingly? Let me know in the comments. If you haven’t done so already, check out the both previous posts on the 1996 prize on the Vickrey Auction and the 2020 prize for the Simultaneous Multiple Round Auction.