A Depression childhood in New York
Kenneth Joseph Arrow was born in New York City on August 23, 1921. His parents, Harry Arrow and Lilian Greenberg, were Romanian Jews who had been brought to America as infants, his mother’s family from Iași, his father’s from the nearby town of Podu Iloaiei. English was spoken at home, but his grandparents spoke only Yiddish and Romanian. His mother finished high school; his father worked his way through the New York City School of Business and rose, during the 1920s, to a responsible position in banking.
Then the bottom fell out. The family lost everything in the Great Depression, and for roughly seven years, as Arrow later put it, they lived hand to mouth. There was no steady income, and he remembered at least five moves as rent went unpaid. A sickly child who missed a good deal of school, he was kept supplied by his parents with history books and novels, and he read omnivorously. He also raced ahead of his age group, graduating from Townsend Harris High School before he was fifteen. The hard years left a lasting mark on his politics: as a young man he embraced socialism, and though he later moved away from it, he remained a man of the left who remembered the New Deal as a breath of fresh air.
A mathematician who was “bought”
College had to be free, and so it was the City College of New York, from which he graduated in mathematics in 1940. He had planned to become a high-school mathematics teacher, but the Depression had created such a backlog of applicants that no new examination for teachers was even offered. With no job in sight he went to Columbia University to study statistics, thinking he might become a life-insurance actuary. Columbia had no statistics department, so he enrolled in mathematics, hoping to work with the statistician Harold Hotelling, and earned a master’s degree in 1941.
When Arrow asked Hotelling for help winning a fellowship, Hotelling replied that he had no influence in the mathematics department but could do something in economics. Arrow switched fields. Years later he summed up the decision in three words: “I was bought.”
After Pearl Harbor, Arrow, who had been a pacifist and came to regard that position as selfish, enlisted in the Army Air Forces and chose meteorology, hoping to use at least some of his training. He served as a weather officer in Washington, in Asheville, North Carolina, and finally at Langley Field in Virginia, rising to captain. He worked on verifying forecasts and on routing aircraft to exploit the winds, and the war produced his first publication, in meteorology. He left the service in 1946.
The impossibility theorem
Back at Columbia on a fellowship and the G.I. Bill, Arrow was already known as brilliant but still lacked a thesis. In 1947 he joined the Cowles Commission for economic research in Chicago, and in the summer of 1948 he was at the RAND Corporation in Santa Monica, where theorists were applying the new mathematics of game theory to international relations. During a coffee break the philosopher Olaf Helmer asked how a whole country could be said to have a single set of goals. Arrow answered that economists had already solved the problem. When he sat down to write out that answer, he found that he could not.
What he proved instead became the impossibility theorem, published in 1951 as Social Choice and Individual Values. Arrow laid down a handful of conditions that any fair method of turning individual preferences into a group ranking ought to meet: if everyone prefers A to B, the group should too; the group’s ranking of two options should not depend on how people feel about some irrelevant third option; and no single person should be able to dictate the outcome. He then showed that, when there are three or more options, no method can satisfy all of these at once. Every voting rule, every committee procedure, every attempt to add up a society’s wishes must give way somewhere.
His Columbia advisers barely recognised the work as economics, and a young econometrician, T. W. Anderson, was brought in to judge it. Anderson pronounced it sound. It had, in fact, founded an entire discipline, social choice theory, and reshaped thinking about voting, welfare economics and theories of justice.
Proving that markets can balance
Arrow joined Stanford in 1949 as an acting assistant professor of economics and statistics, received his Columbia PhD in 1951, and entered a period of extraordinary creativity. In 1954, with Gérard Debreu, he published the first rigorous proof that a competitive economy can have a general equilibrium, a set of prices at which supply equals demand in every market at once, putting on firm mathematical ground an idea economists had assumed since Adam Smith. In 1951 he had also given new, more general proofs of the two fundamental theorems of welfare economics, which link competitive markets to efficient outcomes.
He extended that framework to a world of risk by introducing the “contingent commodity”: a claim whose value depends on which state of the world turns out to occur. These Arrow securities became a cornerstone of modern financial theory, the abstract skeleton beneath insurance, options and the pricing of risk. Stanford’s memorial resolution would later say that his work arguably qualified him for at least four Nobel Prizes. In 1957 he received the John Bates Clark Medal, awarded to the most promising American economist under forty.
Information, learning and the economics of medicine
From the 1960s onward Arrow turned increasingly to questions where markets behave badly. His 1962 paper “The Economic Implications of Learning by Doing” argued that productivity rises as firms gain experience, an idea that, decades later, helped seed the endogenous growth theory of Paul Romer and others. Another paper the same year, on the allocation of resources for invention, identified what makes investment in knowledge unlike investment in machines, it is indivisible, hard to keep for oneself, and deeply uncertain, and became a founding text in the economics of technology and research policy.
Most influential of all was “Uncertainty and the Welfare Economics of Medical Care” published in the American Economic Review in 1963. Arrow showed that health care is riddled with uncertainty and with gaps in information between doctors and patients, insurers and the insured, so that the ordinary assumptions of competitive markets do not hold. The paper effectively created the field of health economics and set its agenda for half a century; it is still cited in arguments over insurance and health reform. In 2010 Arrow joined a friend-of-the-court brief supporting the Affordable Care Act.
Stockholm, Harvard and back to Stanford
Arrow served on the staff of President Kennedy’s Council of Economic Advisers in the early 1960s, working alongside Robert Solow. In 1968 he moved to Harvard, and it was there, in 1972, that he shared the Nobel Memorial Prize in Economic Sciences with the British economist John Hicks for pioneering contributions to general equilibrium and welfare theory. He was fifty-one, and he remains the youngest person ever to receive the economics prize.
He returned to Stanford in 1979 as Joan Kenney Professor of Economics and professor of operations research, retiring in 1991 but remaining an active researcher and a fixture in the department until his death. He was a prodigious teacher and mentor: John Harsanyi, Michael Spence, Eric Maskin and Roger Myerson, all of whom studied or worked under him, went on to win Nobel Prizes of their own. He was a founding member of the Pontifical Academy of Social Sciences, sat on the board of the Santa Fe Institute, and in 2004 received the National Medal of Science, the United States’ highest scientific honour.
A Jewish son of immigrants
Arrow’s story is in many ways the classic story of New York’s Jewish immigrant families between the wars: grandparents who spoke Yiddish, parents who climbed into the middle class, a collapse in the Depression, and a gifted child for whom the free City College was the only road to higher education. He was not known for religious observance, and he did not make his Jewish background a theme of his public life. But he did not forget the barriers of his youth. Recalling how Columbia had turned him away when he applied at fifteen, below its minimum age, he later attributed the rejection in part to antisemitism.
The family produced a remarkable economic dynasty. His sister, Anita Summers, became an economist; she married the economist Robert Summers, brother of Paul Samuelson, and their son Lawrence Summers became Secretary of the Treasury and president of Harvard.
The private man
At Cowles, Arrow met Selma Schweitzer, an economics graduate who had won a fellowship for women doing quantitative social science. They married in 1947, four months after meeting, and remained together until her death in 2015. Selma later practised as a psychotherapist. They had two sons, David and Andrew, both of whom became professional actors.
For all his eminence, colleagues remembered him as humble and endlessly curious. Students called him simply “Ken.” Lawrence Summers wrote that, save for American football, there was no topic, from politics to music, from classics to physics, on which his uncle was not infinitely curious and apparently omniscient, and that he never flaunted his intelligence. He would discuss anyone’s ideas patiently, helpfully, and seldom without criticism.
Public causes and legacy
Arrow spent his so-called retirement on public problems. He chaired Institute of Medicine committees, including one whose report on antimalarial drugs, Saving Lives, Buying Time, helped drive down the cost of treatment. His deepest late passion was climate change, which he considered a grave threat to future generations. He was a lead author of the Intergovernmental Panel on Climate Change’s Second Assessment Report in 1995, co-wrote the 1997 Economists’ Statement on Climate Change signed by some 2,400 American economists, and in December 2016, at ninety-five, signed an open letter from thousands of scientists urging the new administration and Congress to protect the role of science in public policy.
He died at his home in Palo Alto on February 21, 2017. His legacy runs through almost every corner of modern economics: through voting theory and the design of fair institutions, through general equilibrium and finance, through the economics of information, innovation and health. When people argue over whether a voting system can be fair, why health insurance markets fail, or how to price the risks of a warming world, they are working inside questions Kenneth Arrow first made precise.
Sources & further reading
Kenneth Arrow, Wikipedia · Memorial Resolution: Kenneth Joseph Arrow (Stanford University) · Kenneth Arrow, The National WWII Museum oral history (WW2 Online) · Kenneth Arrow, youngest to win Nobel for economics, dies at 95, Associated Press via Bangor Daily News · Kenneth J. Arrow, INFORMS biographical profile · Researched from the sources above and checked against them. Spotted an error? Tell us.
A life of tikkun olam. This is part of tikkun olam, the Jewish idea of repairing the world, and every one of us can add to it.