The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1984
I was born in
London on 30 August 1913, the only child of Gilbert and Elsie
Stone. My school days were spent first at Cliveden Place
Preparatory School and then at Westminster School, which I
attended from 1926 to 1930. At Westminster, I was on the
classical side: my father, who was a barrister, destined me for
the law, and for this, a classical education was deemed
indispensable. As a result, I learnt little mathematics beyond
elementary arithmetic, algebra and geometry and was rather bored.
I expect I could have had a more interesting education if I had
shown more interest in what I was taught, but as a boy, my
passion was model-building; not mathematical models but models of
trains and boats, an activity in which my father was a skilled
and enthusiastic collaborator.
In 1930, my father was appointed a High Court judge in Madras. When he was about to leave for India, he consulted the school about what was to be done with me. I think it would be a very good thing if he were to accompany you, said the headmaster, he doesn't seem to be doing much good here. So I had a year's break in India between school and university.
From 1931 to 1935, I was an undergraduate at Cambridge in my father's old college, Gonville and Caius, which was particularly strong in medicine and the law. However, after two years of law I switched to economics, much to my father's disappointment. At that time the world was in the depth of the great depression and my motive for wanting to change subject was the belief, bred of youthful ignorance and optimism, that if only economics were better understood, the world would be a better place.
My college did not have an economist among its Fellows, and so, for my weekly supervisions, I was sent to Richard Kahn at King's College. This was a piece of great good fortune, as Kahn was not only a brilliant theorist but also a stimulating and encouraging supervisor. Another of my teachers to whom I owe much was Colin Clark, who was lecturer in statistics and who became a close friend. Finally, there was Keynes, who was in the habit of giving a short course of lectures on whatever book he happened to be writing; at that time, the book on the stocks was The General Theory. I was invited to become a member of his Political Economy Club which met in his rooms at King's. He was kind to me as he was to all young people, but it was only later that I got to know him well.
Unlike my school performance, my undergraduate career had been uniformly successful, and after I had taken my degree in 1935, my college offered me a research studentship. But while I was much tempted by this opportunity, I had done only two years of economics and was not quite sure that I was ready for research. Furthermore, my father was anxious to see me settled in a job and so I did not take up my studentship but joined the staff of a firm of Lloyds brokers in the City. I was never cut out for a business career but I did learn a good deal about life from my brief encounter with the insurance world.
My job was not so heavy that I could not carry on with the kind of work that interested me. In 1936, I married Winifred Mary Jenkins, who had also read economics at Cambridge, and we spent much of our spare time writing on economic subjects. In particular, we were responsible for a little monthly called Trends, which appeared as a supplement to the periodical, Industry Illustrated. Colin Clark had been running it and bequeathed the task to me when he went to Australia in 1937. Following in his footsteps, we filled it every month with indicators of British economic conditions: employment, output, consumption, retail trade, investment, foreign trade, prices and so on. From time to time we would add a special article on regional employment, say, or the economic recovery of Germany, or the American stock market; in short, on any subject that seemed to us topical.
Trends was small and modest, nevertheless, it must have attracted some attention as, in 1939, I was asked whether I would be prepared to join the staff of the Ministry of Economic Warfare which was to be set up in the event of war. I accepted, and when, on 2 September, war did break out, I reported for duty.
I remained in the Ministry about nine months, in the section responsible for shipping and oil statistics. Then, in the summer of 1940, I was transferred to the Central Economic Information Service of the Offices of the War Cabinet, where James Meade was preparing the groundwork for a survey of the country's economic and financial situation and wanted somebody to help with the statistical side. By December 1940, Meade and I had completed a set of estimates which we showed to Keynes, who was then a member of the Chancellor's Consultative Council at the Treasury, and through his advocacy they were published as the second part of a White Paper entitled, An Analysis of the Sources of War Finance and an Estimate of the National Income and Expenditure in 1938 and 1940 which accompanied the budget of 1941. Our estimates consisted of three tables relating to the national income and expenditure, personal income, expenditure and saving, and the net amount of funds required by, and available from, private sources for government purposes. They hardly amounted to a set of national accounts but they were a beginning. In constructing the accounts, we made use of residual estimation. The balancing of the accounts, therefore, threw little light on the accuracy of the entries. But the sources for the first two tables were largely independent of those for the third, and the fact that for 1940 the sum of the first two residuals was not very different from the third, encouraged us to think that the results were not grossly inaccurate.
The Chancellor in his budget speech emphasised that the publication of official estimates of national income and expenditure should not be regarded as setting a precedent. In fact, they established themselves as an annual feature and have appeared in increasingly elaborate form ever since. At the instigation of Keynes, whose assistant I had become, I continued to be responsible for them until I left the government service at the end of the war.
The United States and Canada had also for some time been making estimates of national income and national expenditure, more detailed than ours though not cast in the form of balancing accounts, and while the three countries used similar concepts and definitions, it was clear that some adjustment would be needed to obtain reasonably comparable tables. So, in 1944, I was sent over to see how far agreement could be reached. I met my Canadian opposite number, George Luxton, in Ottawa and we travelled down to Washington for discussions with Milton Gilbert and his team at the Department of Commerce. The meetings were very friendly and the results extremely satisfactory, so that my first taste of international cooperation could not have been more encouraging.
In 1940 my marriage had been dissolved, and in 1941, I had married Feodora Leontinoff. From a background in philosophy, she had become, in 1939, the Secretary of the National Institute of Economic and Social Research which had been founded the year before. At the outbreak of war, the director and his staff had been absorbed into the Ministry of Economic Warfare, and Feodora's initial function was simply that of caretaker. The survival of the Institute looked very uncertain, but thanks to the drive of Henry Clay and Geoffrey Crowther, and to Feodora's energy and talent for administration, it came to life again.
In 1945, the war ended and I was chosen to be the first director of the newly-established Department of Applied Economics in Cambridge. Between leaving the government service and taking up my new post, I had a break of about three months which I spent at the Institute of Advanced Study in Princeton. I intended to use my time there writing up my ideas on a social accounting system for the measurement of economic flows, a thing I had wanted to do for years but had not had time for during the war. What happened was that, in Princeton, I met Alexander Loveday, the Director of Intelligence at the League of Nations, who wanted a paper on the problems of defining and measuring the national income and related totals for consideration by the League's Committee of Statistical Experts. He asked me if I would undertake the work and naturally I accepted. I soon had a memorandum ready and it was discussed in Princeton while I was still there by a subcommittee convened by Loveday. Their report was eventually published by the United Nations in Geneva in 1947 under the title, Measurement of National Income and the Construction of Social Accounts, with my memorandum as an appendix.
In Europe, interest in social accounting had been growing, and I had, around that time, many fruitful exchanges with my European colleagues. The catalyst, again, was an international body. In the late 1940's the Organisation for European Economic Cooperation was established in Paris with the initial aim of administering American aid under the Marshall Plan. It was decided, at the instigation I think of Richard Ruggles, that the national accounts would provide a useful framework for reviewing the progress of the member countries, and with this in mind, a National Accounts Research Unit was set up in Cambridge under my direction. The brief my European colleagues and I were given was, first, to produce a standard system of accounts; second, to prepare studies of the national accounts of individual countries; and, third, to train other statisticians from member countries in the appropriate techniques. It was a lively group, which included visitors from Austria, Denmark, France, Greece, the Netherlands, Norway, Sweden and Switzerland. Several reports resulted from our activity, among them, A Simplified System of National Accounts and A Standardised System of National Accounts, published by the OEEC in 1950 and 1952, respectively. The research unit lasted from 1949 to 1951, when its work was taken over by the economics and statistics section of the organisation in Paris, then directed by Milton Gilbert.
Concurrently with this work, my main research interest at the Department of Applied Economics was the analysis of consumers' behaviour. I had made a start on this during the war at the National Institute of Economic and Social Research, as part of a large project I had in mind, for estimating the British national accounts for the interwar period, so that we should have series going back over the 1920s and 1930s comparable as far as possible with the official estimates that had been started in 1941. My first paper on the subject, The Analysis of Market Demand, was read to the Royal Statistical Society and published in its journal in 1945. After moving to Cambridge, I continued my work with the help of Deryck Rowe of the National Institute, and, eventually, two large volumes appeared, the first in 1954, and the second in 1967, under the title, The Measurement of Consumers' Expenditure and Behaviour in the United Kingdom, 1920-1938. At the time of the publication of the first volume, I wrote a paper, applying to British data, a system of demand equations which I termed the linear expenditure system, in which the price of each commodity appeared along with income in each of the equations. The model had been devised by Lawrence Klein and Herman Rubin as a basis for constructing a constant-utility index of the cost of living. It is now superseded, but it had a good innings and has been used all over the world.
During the early 1950s, I made a number of trips abroad in connection with the national accounts. In 1950, I visited India with Simon Kuznets and J.B.D. Derksen to advise the National Income Committee on methods of estimation, and in 1952 I spent some time in Athens on a similar mission to the Ministry of Coordination.
In July of that same year, I was called to New York by the UN Statistical Office who wished to establish a standard system of national accounts and was convening a committee of experts for the purpose. I was chosen as chairman and work began. The weather was so hot that we decided to sleep by day and work by night. This proved very effective: our report was formulated, discussed and written in one month and was published by the UN with very little delay as A System of National Accounts and Supporting Tables (SNA).
In 1952, not many statisticians were familiar with national accounting and so there was no need for elaborate discussions outside the committee. The position was very different twelve years later, when the major revision of the SNA began. By that time most statistical offices were constructing national accounts and it was desirable to have a series of regional consultations if the new system was to prove acceptable. The consultative period lasted from 1964 to 1968 and the main task of explaining the revised version to committee after committee devolved on my friend Abraham Aidenoff of the UN Statistical Office. The new system appeared in 1968 as A System of National Accounts. I was responsible for writing the first four chapters and the remainder was the work of Aidenoff.
In 1955 I gave up the directorship of the Department of Applied Economics on being appointed P.D. Leake Professor of Finance and Accounting in the University. My duties in this capacity were to advance knowledge in my subject and live within five miles of the university church, two commitments which suited me very well.
Towards the end of the 1950s, stimulated by Alan Brown who had been working with me at the Department since 1952, I thought it would be a good idea to bring together various studies that were in progress at the Department and build an econometric model of the British economy. This was the start of the Cambridge Growth Project. In 1962, Alan and I published our ideas in A Computable Model of Economic Growth, the opening volume in our series, A Programme for Growth. The beginnings were comparatively modest, though the principal characteristics of the model were present from the outset: it was a disaggregated model in which several branches of production, types of commodity, consumers' goods and services and government purposes were distinguished, and it was based on a social accounting matrix. At first, it was a static model which provided projections for a period about five years ahead, without considering the path that would be followed in reaching the projected situation. Now it is one of the largest existing models of a national economy, and under the influence of T.S. Barker, who succeeded me as director of the project, it has assumed a dynamic form: given an initial state of the economy and future values of the exogenous variables such as tax rates and the level of world trade which we do not try to model, we can solve the several thousand equations of the system iteratively year by year so as to trace the course of each of the endogenous variables into the future. The model can also be used for purposes other than forecasting. Just for the record, I should add that the team engaged on the project, though changing in composition through the years, has never numbered more than ten people.
In 1956, my wife Feodora had died after a long illness. In 1960, I married Giovanna Croft-Murray (née Saffi) who, though not formally trained as an economist, has been for the last twenty-five years, my partner in all my work. We wrote two books together, Social Accounting and Economic Models (1959) and National Income and Expenditure (1961). The latter was an expanded fifth edition of a little book Meade and I had written in 1944; it went into five more editions, the last one appearing in 1977. Giovanna played a large part in editing the twelve volumes of A Programme for Growth which described the Cambridge Growth Model up to 1974, and threw herself with particular enthusiasm into the work on social demography and demographic accounting which I began in 1965.
I started this work with the idea of introducing education and training into the Growth Model. This never came to anything, but I continued to work on education and eventually was asked by the Organization for Economic Cooperation and Development to prepare a report on the subject for their Committee for Scientific and Technical Personnel. In this I explained what demographic accounting is, what kind of information is needed to carry it out and how it can be used as a basis for model-building. The report was illustrated by examples drawn from the British educational system and was published by the OECD in 1971 under the title Demographic Accounting and Model-Building. In 1970, the UN Statistical Office became interested in developing an integrated system of social and demographic statistics and called me in as a consultant. After preparing several drafts for the usual round of discussions, I finally wrote the report which was published by the UN in 1975 under the title, Towards a System of Social and Demographic Statistics (SSDS).
As with the revised SNA, the interpreter of the SSDS throughout the world during the period of gestation was Aidenoff. My long collaboration with him, like my collaboration with Milton Gilbert at the OEEC and with Alan Brown on the Cambridge Growth Project, was one of the many happy working relationships of my life.
In the last ten years, my interest has focused on three subjects. I have continued my work on social demography. I have tried out on the British national accounts the adjustment method on which I had written a paper in 1942 with David Champernowne and James Meade entitled, The Precision of National Income Estimates. And I have given some thought to mathematical simulation models of economic growth and fluctuation, their stability and their control.
In 1980, I retired from my university post. My retirement, however, has not severed my links with the two colleges with which I have been associated throughout my life in Cambridge: King's College, where I have held a Fellowship since 1945, and Gonville and Caius College, where I spent my undergraduate days and where I have been an Honorary Fellow since 1976. Nor has it altered my habits much except in so far as it has enabled me to work full time where I have always preferred to work at home. Recently a period of ill health has slowed me down, but now things are improving and I have started to pick up the threads again. I look forward to a productive 1985.
From Les Prix Nobel. The Nobel Prizes 1984, Editor Wilhelm Odelberg, [Nobel Foundation], Stockholm, 1985
This autobiography/biography was written at the time of the award and later published in the book series Les Prix Nobel/Nobel Lectures. The information is sometimes updated with an addendum submitted by the Laureate.
Richard Stone died on December 6, 1991.
Copyright © The Nobel Foundation 1984