The “Patinkin boys” and the Americanization of Israeli economics
Patinkin was a firm believer in market forces and the price mechanism as the best way to allocate resources. Like his teacher, Henry Simons, he believed the only role of the state is to defend the market economy (Simons, 1948).
As a mathematical economist, Patinkin held a universalist view regarding the functioning of modern economies and rejected institutional views according to which institutional differences between economies justify the use of different policies (Krampf, 2010a; Mehrling, 2002). Patinkin also turned the Maurice Falk Institute for Economic Research into an extension of the Economics Department, providing funding for its faculty and graduate students. At the early days of the Institute, Simon Kuznets was involved in its activities and tried to keep it open to various kinds of economic research, but Patinkin insisted on direct control of the Institute. As a consequence the copious harvest of the Institute reflected the Department’s theoretical and empirical pursuits (Krampf, 2010a).The graduates of the economics department at HU — often called, affectionately or ironically, “Patinkin boys” — were placed in key positions in the MOF, BI, other government ministries and agencies, and big (private, state, and Histadrut) corporations (Kleiman, 1981). Key policy makers — e.g. Levi Eshkol (Minister of Finance, 1952—63; Prime Minister 1963—69) and David Horowitz (first MOF Director-General, 1948-52; first BI Governor, 1954-71) - needed the new economic knowledge to regulate the economy, avoid special interests’ pressures, and fight economists who represented workers’ interests within their own party. The MOF DirectorGeneral from 1954 was Yaakov Arnon, an economist by training (from the Netherlands) whose top priority was the establishment of “mechanism for orderly economic thinking” within the Ministry of Finance (Michaeli, 2005, 10).
In 1952 he founded and headed the Budgets Department that has become the central place for economic planning within the government and absorbed many HU graduates. The BI also employed many graduates, especially in the Research Department, which was established by David Kokhav, a graduate of the first cohort of the Department (Michaeli, 2005, 10). The young graduates had little esteem toward the economists of the older generation and saw them as partisan experts, serving ideological and political interests. They perceived themselves as “pure professionals,” providing policy makers and the business community with objective analyses based on scientific research (Michaeli, 2005, 9).The dominance of the economics department at HU determined the direction that younger departments assumed. When the department was established, there was only one more institution of higher education where economics had been taught: The Higher School for Law and Economics (HSLE). It was a private school that provided professional training for the developing economy but lacked the academic reputation. In 1959 the HSLE merged into the HU and became its Tel-Aviv branch in an attempt of the HU to block the development of a competing university in Tel-Aviv, and although several senior HSLE faculty got nominations at the HU, the curriculum of the HU prevailed and became standard at the Tel-Aviv branch. Difficulties in running the branch and political pressures from the government led eventually to the transfer of the branch from the HU to the Tel-Aviv University (TAU; 1968). The Department of Economics became independent and within a few years gained prestige and influence similar to its older sister, but the two departments were similar in their programs and theoretical directions (Gross, 2009). One lecturer from HSLE, Isaac Guelfat, a specialist on cooperation and on economic thought, taught at the Jerusalem main campus and was mentioned by several of the department graduates. He published many books, and was a specialist on Soviet economic thinking.
Interestingly, Abba Lerner served as the first Dean of Social Science at Tel Aviv University (1965-66). Lerner had been previously a visiting lecturer at HU (1954-6) and an adviser to the government and BI (1953-6). His international reputation notwithstanding, Lerner did not have management skills and had little impact on the faculty, and after two years returned to the US.There are today four other departments of economics at research universities in Israel. They were established either by graduates of the HU and TAU departments, often after getting a PhD in the US, or immigrants from the US. They were all shaped from the beginning according to the norms that characterized American economics since 1960 and depended on the more established faculties of the HU and TAU for approval and recognition. Thus, even if each department had its own uniqueness, none could threaten the hegemony of the economic training established at the HU, and the programs of studies are quite homogeneous. Economists of the older generation continued to conduct research and promote their ideas within the Histadrut. They viewed the “Patinkin boys” as a group that served the capitalists and their allies within the government. But the Histadrut gradually lost its power, and even within the Histadrut, there was not much demand to the ideas and theories of the older schools. More importantly, since all training grounds in economics have been held by the mathematical neoclassicists, older approaches to economic research petered out with their European-trained carriers.
Israeli economics departments rank high in various lists of departments. In 2003 all the six research universities in Israel were included in the top 200 economics departments worldwide, with Tel Aviv and Hebrew University among the top 50 (nos. 25 and 48, respectively; they ranked third and eighth among European universities; Kalaitzidakis, Mamuneas, and Stengos, 2003). Among the 1,931 top 5 percent most-cited authors in the IDEAS database, 30 teach in Israeli universities, putting Israel at eleventh place in contributing to this list.
Given Israel's small population this is an extraordinary achievement. Many Israeli economists got their PhDs in the best departments in the US, and many Israelis teach in those departments. Given Israel's fixed salaries scales for all universities and all disciplines, economics departments find it hard to compete with salaries in the US and maintain their reputation by hiring the best Israeli economists as before. At least some of the most-cited economists have taught in Israel in the past. This brain drain is an adversity Israel shares with many other countries.Israel's excellence is expressed most obviously within game theory, which alone accounts for more than a third of the 30 Israeli most-cited economics authors. The Israeli success in this field is related to its excellence in mathematical research. Since the arrival of Abraham Halevi Fraenkel to the budding HU in 1929, Israel could boast numerous outstanding mathematicians, some born in Israel and others migrating from other countries. One of the latter is Robert John (Yisrael) Aumann (b. 1930), the Nobel laureate in economics in 2005, who was born in Germany but grew up in the US, got his PhD from MIT but made his career at the HU (Aumann, 2000). The single arrival of Aumann due to ideological reasons might have had a large impact through many of his students, including David Schmeidler (b. 1939) and Sergiu Hart (b. 1949) who made important contributions of their own. Aumann can claim also important intellectual “grandchildren” such as Itzhak Gilboa (b. 1963; 2009, 2010) who studied and worked with Schmeidler (Gilboa and Schmeidler, 2001). Many other Israeli game theorists teach in Israel and abroad, and Israel is considered a superpower in this field. Just for illustration, 7 out of the 124 of the 5 percent most cited authors in this field according to IDEAS teach in Israel.
Another Israeli contribution to economics came from psychology. Amos Tversky (1937—96) and Daniel Kahneman (b. 1934) are two psychologists who taught at the HU before moving to North America.
Since the early 1970s the two collaborated in a series of experiments about human decision-making, judgments, and biases, and developed what they called prospect theory. This work, which brought Kahneman the Nobel Prize in 2002 (Tversky passed away six years earlier), was very influential in the development of behavioral economics, one of the rising sub-fields in economics. While there are other prominent Israelis who have excelled in this field, e.g. Eldar Shafir and Uri Gneezy, there is no evidence that there is an “Israeli connection.” Shafir studied in the US since his undergraduate studies, and Gneezy got his PhD at the Center for Economic Research at Tilburg University. Moreover, although Gneezy had taught for a short while in economics departments in Israel before moving to the US, there is no tradition yet of experimental or behavioral economists in Israel.Although game theory and behavioral economics are obviously related to each other — both are concerned with interactive decision-making — they are based on very different epistemic principles and involve very different research practices. It is therefore hard to see any causal connection between the two successes. Yet there might be some recent connection in the unique Center for the Study of Rationality at the HU (est. 1991), where game theorists, psychologists, biologists, philosophers, mathematicians and others cooperate in exploring “the rational basis of decision-making.” It is also tempting to look for a link to Israel's strategic behavior in the Middle East conflict, but there is little evidence of formal ties between the academic practitioners and the defense establishment, and Ariel Rubinstein constantly warns against attempts to translate game theory insights into policy recipes.