The Foundation of the DAE

Stone was appointed the Director of the newly founded DAE in the University of Cambridge in 1945. The DAE had been established by statute in 1939 with a budget of ?2,500, after the University accepted a proposal put forward by a committee consisting of Keynes, Piero Straffa, Joan Robinson, Austin Robinson, Gerald Shove, and David Champernowne. The purpose of the new department was ‘to foster economic research, particularly in the descriptive and statistical fields’. However, the start of the war led the University to delay the appointment of a Director and staff until the end of hostilities.

The University’s General Board established the DAE in a report dated 9 May 1945, with the objective of the Director being ‘to advance knowledge in his subject, to promote and direct research in it and to supervise the work of the Department under the general control of the Committee of Management’. The Faculty Board proposed Stone as Director with the strong support of Keynes and that ‘in view of his special qualifications, the appointment should be until the retiring age’. The General Board accepted this and made the appointment. The post had the status of a University Officer, with the salary of a Lecturer, and the residential and teaching conditions of a Reader or Professor. Stone was 32-years-old but he was appointed until retirement with no explicit restriction on him becoming a Professor at a later stage, as was normal with sufficient academic distinction for a University Lecturer. The ambiguity inherent in the status of the post and these conditions was to lead to problems later.

He brought to the new DAE some of the projects he had started at the National Institute of Economic and Social Research (NIESR), founded in London in 1938, and so began the Cambridge work on national accounting and econometrics, as discussed below. The funding for new research came from the Rockefeller Foundation, which had been approached by Keynes in 1942.^[1] The Foundation offered to ‘give prompt and preferred examination to a pro?posal sponsored by professor [sic] Keynes and to be submitted by Cambridge University upon the approximate termination of the war’.^[2] As it became clear that the Axis powers were being defeated, negotiations were reopened and funding was forthcoming.

Stone’s recruitment policy was to build up staff slowly and carefully and to cast the net widely. He spent three months at the Institute of Advanced Studies in Princeton in 1945 just before taking up the DAE post, working on national accounting problems and establishing links with others interested in the issue. In July 1948, he visited the East Coast of the USA^[3] to arrange the first General Conference of the International Association for Research in Income and Wealth (IARIW), founded in September 1947,^[4] which was to be held in Cambridge in 1949. Stone took the opportunity to meet many economists who were or became highly distinguished in the discipline. On his 1948 visit, he interviewed Tom Schelling at Harvard, met Paul Samuelson at the Massachusetts Institute of Technology (MIT), Simon Kuznets and Morris Copeland in New York, and visited Arthur Smithies in Washington, D.C. By 1948, he had built up the size of the DAE to six senior and four junior research staff and seven assistants.

As Director, Stone made the new DAE a renowned international centre, attracting young statisticians and economists as staff^[5] or visitors.^[6] The intellectual atmosphere of the fledging Department was innovative and vigorous. The venture was a new beginning after the war, with plans to establish applied economics as a scientific undertaking. Stone was able to recruit some of the most able, energetic, and talented of the new generation of economists and statisticians. However, the Department was physically separated from the rest of the Faculty of Economics and Politics and there was not much interaction between the different groups.^[7] Typically, Stone did not take sides or engage with controversies that continued to divide the economists of the Cambridge Faculty.^{[8] [9]}

When there was an offer of funds for Stone to occupy the P.D. Leake Chair in 1952, this was taken as an opportunity by some in the Faculty Board to impose a new condition on the Director, that he or she could not also hold a chair. Stone strongly objected, arguing that he would not have accepted the post under this condition. He was forced to choose between remaining Director and taking the Chair. He took the Chair, resigning as Director, but continued to work with a team in the DAE until he retired in 1980.

An Outline of This Chapter

This chapter continues with a discussion of Stone’s approach to theory and data in Section 2, including his contribution to national accounting for which he won the Nobel Prize. A short review of his contribution to the economics of consumer demand follows in Section 3 and to macroeconomic model building in Section 4. Section 5 is an assessment of his specific contribution to economics at Cambridge and Section 6 concludes.

• [1] Keynes to Kittredge, Rockefeller Foundation, New York, 1 May 1942, E.A.G. Robinson Papers,Marshall Library, Cambridge University: Box 36.
• [2] Willits to Keynes, Rockefeller Foundation, New York, 18 June 1942, E.A.G. Robinson Papers, MarshallLibrary, Cambridge University: Box 36.
• [3] Richard Stone Papers, King’s College Archive Centre, Cambridge University: Box JRNS 4/11.
• [4] Stone was a founding member of the Council of the IARIW and the first Chairman, 1949—1951 (seeCarson 1999).
• [5] Staff in the DAE during Stone’s tenure as Director included Sydney Afriat, Mike Farrell, T.W Anderson,J.S. Cramer, Phyllis Deane, James Duesenberry, Roy Geary, Alan Prest, Richard Brumberg, Sig Prais,Hendrik Houthakker, James Durbin, Geoff Watson, Don Cochrane, and Guy Orcutt.
• [6] Visitors included James Tobin, T.W. Anderson, Larry Klein, Wassily Leontief, Tjalling Koopmans,Ragnar Frisch, Gerhard Tintner, and Geoff Watson (of Durbin—Watson fame), an Australian writing athesis as a student of the University of North Carolina.
• [7] Geoff Watson remembers: ‘There were no departmental boundaries where I was concerned, but thejoke used to be that this was an applied economics group. We weren’t allowed in the door of Economics.All the economists were anti-mathematical. They believed you had to do it with words, which was bloodyhard. You have to be very clever to say all these things, for example marginal utilities—quite hard todefine in words but mathematically trivial. In fact, the economists thought that Richard Stone was sosubversive they made this little extra Department to keep him out of theirs. There were two or three
• [8] people in Stone’s group who subsequently got Nobel Prizes and every one of the first 15 Nobel Prize winners in economics visited Applied Economics’ (Watson quoted in Beran and Fisher 1998: 77).
• [9] Alan Prest was Lecturer in the Faculty and Fellow of Christ’s College after joining the Faculty in 1945 asa founding researcher in the DAE. His brother Wilfred Prest, visiting him in 1953, wrote in a memorandum: ‘I was rather shocked to find the Faculty there deeply divided on doctrinal, political and, indeed,racial grounds. On the one hand there is the Robertson party comprising, in addition to Sir Dennis himselfsuch diverse characters as Guillebaud, Richard Stone, R.F. Henderson and S.R. Dennison. This group hasnever quite accepted Keynes without reservation and its members are inclined to be conservative, politically and socially. On the other hand, there is the Kahn party comprising, in addition to Professor Kahn,Sraffa, Kaldor, Dobb, Rostas, Joan Robinson, Ruth Cohen and Harry Johnson. This group is neo-keynesian [sic] in outlook and is well to the left politically ... The conflict between the two parties is deep andbitter’ (report of visit to Britain, January—March 1953, Wilfred Prest Papers, University of MelbourneArchives, quoted in http://www.vu.edu.au/sites/default/files/cses/pdfs/millmow-paper.pdf: 3).