Alas, Harold Demsetz has passed away


Wikipedia: "[Demsetz's] expository style is devoid of mathematical formalism to an extent unusual for someone who began his career after 1950." Perhaps that explains why he never received a Nobel. No, that's not a criticism of Demsetz, but a criticism of economics. What economics needs are scholars with good ideas they can clearly and convincingly express. What economics has are scholars who have few ideas worth expressing, which may explain why they cannot express them in clear and convincing prose, relying instead on mathematical formalism that obscures more than it reveals.

Here's something about Cowen I had forgotten: in January 2015, Cowen designated Andrew Sullivan as the most influential public intellectual. Whatever one may think of Sullivan's politics or philosophy, he is a great writer and public speaker/debater. Cowen's recent turn toward more of a public intellectual, with his posts at Bloomberg more likely categorized as politics and policy than as economics (his latest post on the Democrats' idea of a 70% marginal tax bracket), is part of an evolution that will reward Cowen with influence if not with the rewards conferred on economists by their peers who stay within the mathematical formalism that is safe if not of much consequence.

I loathed Harold Demsetz. He took a dislike to me as soon as he met me, which was when I started talking with Armen Alchian about limited liability. My idea was that limiting a firm’s liability to the firm assets had nothing to do with risk aversion, but that it was a superior assignment of liability because it severed any link between the assets of shareholders and the credit-worthiness of the firm. Severing this link was crucial because it meant that the value of the firm and its debt did not depend on who the shareholders were and whether they could pay the firm’s bills, and that there would be no trading with the goal of escaping liability. Any benefit from adding protection to those inside or outside the firm can be met with insurance carried by the firm. Armen thought this was a great insight and Harold resented the attention and appreciation I got from Armen.
Around that time, (1980 – 1983? …about then) Harold started making little passes at me. A touch here, a suggestive comment there. I mentioned it to Linda Kreiger, an administrator and lecturer, and she said oh yes, he does it to me and Edie (Reichard) too, and to a young women whose name I don’t remember who was cute and had red hair and was for some years secretary to the chairman of the department. Linda further contributed that his passes were not flattering, did not make us feel charming and lovely, but icky. “He doesn’t invite me to a week in Paris, but to noontime at a motel in Westwood. Indeed.
Soon after that, I snapped at him, and told him he was like a dog chasing cars, he didn’t really want to catch one, and God help him if he did. So let’s innovate, you say Arf Arf, and I’ll say Honk Honk, and we can go back to the cost of capital (or whatever). He did say Arf Arf a few times, but he wasn’t pleased, didn’t think this was so funny, and there was an undertow of resentment. The touches did not stop, but also they did not go anywhere. So far as I know, none of his little icky aggressions to anyone ever came to anything.
Yes, Armen knew, and did not really approve. Armen had a sort of permanent low-level wince over this.
The most insightful comment from anyone who knew about this was from Kevin James, a UCLA student a few years younger than me, who said “How can anyone, who believes that information flows with such force that even an industry with a single firm is competitive, fail to anticipate that women talk to each other about these things?”
There must be some little thrill, some feeling of power or potential, or satisfaction, that comes with making these passes. And truly, they are a bit of a threat. Today the University of California could be sued for millions of dollars for behavior like this. I’m not sure how much this helps, because liability might stop the behavior, but can it stop the lustful thoughts behind it? How much force in the world do the lustful thoughts have even if not acted upon?

Years ago I was an academic in a small department where the academic staff had been all male. Our first female was appointed; she was a stranger to me but I had championed her appointment as the outstanding candidate among the applicants.

It's true that I had a pretty poor opinion of some of my colleagues but I was unprepared for what happened next. Two behaved so badly that the poor lass was reduced to tears more than once.

Fortunately she proved a toughie and has flourished greatly. But I still remember my shock. Probably I had been naive; if I had reflected on the lame reasons some colleagues had given for not appointing her I might have foreseen the trouble. Though in that case Lord knows what I might have done about it.

Some men just have difficulties with girls. Better men probably ought to punch them but don't. Maybe academic life would be healthier with a few more punches thrown. It's hard to know.

You must be Susan E. Woodward. I'm not sure which is stranger: Demsetz's behavior toward you or his questioning your insight about limited liability. I can't speak to the former, but the latter reveals ignorance on his part about corporations and finance. I am a long-time corporate lawyer, which means in my early years in law we devoted considerable attention to limiting liability of investors/equity owners. This was before the limited liability company (or limited liability partnership, etc.), when the choice of entity was limited to regular corporations and limited partnerships. The hours we devoted to the issue of limited liability was a grossly inefficient use of our time. Sure, piercing the corporate veil is still a potential remedy for claimants, but it's available in only extreme cases. The effort that went into reassuring investors that they would not be liable for the debts and obligations of the corporation may seem like ancient news today, but it was real back then. To give a concrete example, back then limited partnerships were the only pass through entities with limited liability, but they required a general partner that had unlimited liability for the partnership debts and obligations. And if the general partner was an entity with minimal assets, that would expose the limited partners to potential liability for the debts and obligations of the partnership - the idea was that the general partner wasn't adequately capitalized to be treated as a general partner and, hence, the partnership could not be a limited partnership. Anyway, if you are Susan E. Woodward, you have enjoyed a very successful career in spite of you experience with Demsetz.

yup, I am Susan E. (for Ellen) Woodward, and yes, I have had a successful career despite my experience with Demsetz. It wasn't that Harold questioned my view on limited liability (he offers exactly my view in several of his writings) but that he was envious of Alchian's enthusiasm. As to why Harold treated women the way he did (it wasn't just me!), I am still myself baffled. He seemed pretty happily married, and devoted to his kids, yet still had some itch to scratch.

Men have such fragile egos. Are they drawn to careers that put them in a position of power over women, or does the position of power alter their behavior? I must say that I have been shocked by the revelations of the past couple of years. I've always been sensitive to discrimination against women, but little did I know that discrimination was the lesser evil. My grandmother was a physician, and my inspiration even though she died when I was very young. She practiced until she was 80; she loved being a doctor. I like to tell people she was a product of the 60s. Yes, she was a product of the 60s: she was born in 1868. She attended college at Smith, where she was an art major. Art majors were required to take a course in anatomy, and she was hooked. In her day, medical school for women meant Women's Medical College of Philadelphia. When she graduated and sought specialty training no major medical center would accept her because she was a woman. So off to Europe she went, where she studied and trained with the leading physicians in her specialty (EEN&T), in Vienna, Berlin, and London. The discrimination against her in America turned into a blessing. And mine too: she met her husband, who was training in the same specialty. I mention this because she had four brothers: three graduates of Harvard (two from the college, one from the law school) and one from Johns Hopkins (the medical school). Women, even today, must work harder, must ignore the abuse, must persevere notwithstanding the obstacles they face. The world would be a better place if my grandmother had been allowed to attend Harvard along with her brothers, if women had been in positions of power over all these years. For what it's worth, I am a male. Besides the influence of my grandmother has been the influence of my three older sisters. Progress comes slowly but cannot be denied.

Susan E. Woodward,

Do you think Harold Demsetz's research work was -

(1) Good,
(2) Great
(3) Average
(4) Exceptionally scholarly

I don't like "passed away" but I'll grant it's better than "passed".

If you can't cope with the austere beauty of "died" could you at least vary the euphemism? The Norwegian Blue sketch gives a handy guide.

I am sorry about these reports about Demsetz's behavior. I never met him and have no knowledge about this. Anyway, I am concerned about his intellectual place in the history of economic thought, in particular the claim by some on the twitter feed that he deserved a Nobel.

That may well have been the case, but I think his best chance was with the late Armen Alchian, whatever was the nature of their personal relationship. So, I think that when Alchian died without either or both of them getting it, Demsetz's chances became quite low. Anyway, it did not happen, for better or worse.

Comments for this post are closed