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Ted Balbach: an appreciation.

Anatol Berkman Balbach. Welcome to what is naively called the leisure class. And kiss your leisure good-bye: You had that by working for the Fed. Retirement? No, you've shed that and now you're on your own time as you rush from here to there, no longer working under the 5:00 o'clock mentality. You and Rae have shed one taskmaster for another. But there is some good news. You are now old--a senior citizen or "senile" as I like to say. You'll get senior discounts at restaurants and hotels and theaters, but not from doctors or hospitals. You'll get haircuts that are overpriced.

By the way, I'll offer you some advice. Because the capital value of us old people is very small--we've got a short life expectancy--we lose little by breaking our contracts and commitments. You may therefore wonder why I am here even though I promised to come. Well, I'd really planned to call at the last minute and say, "I'm sorry I have to go to the hospital to have an angiogram and I can't make it." I've done that twice already at other places and it's a good excuse. So why'd I come? Rae--she's the one. She's smarter than you or me. She knew what I was going to do, so she phoned me about a month ago and said, "I got a golf date for you on Friday afternoon at Bellerive." That's why I'm here.

Enough about me and about the wisdom of maturity. You, Ted, were born in Konigsburg, Germany, on October 31, 1927, Halloween's day, a mother's trick-or-treat. We are glad to know now that it was a treat. As a youth I understand you were drafted into the labor camp and you shoveled stuff from here to there learning about comparative advantage. But then something remarkable happened I'm told. You, in another labor camp, met your mother quite by surprise. I think that's right--a story we have to hear sometime. You came with her as displaced persons to Los Angeles because of the prevalence in that area of some earlier relatives, immigrant relatives. Los Angeles still is a haven for refugees and in many ways is better for it. Driving from the west side of Los Angeles, where UCLA is, to the east side is like a quick trip through Israel, Japan, Korea, China, Vietnam, Mexico, Iran, Armenia and Africa. You came to UCLA, Ted, after attending high school in Los Angeles, where you thought you learned to speak English. Well, your pronunciation was a lot better than the graduate students we still have there.

But the problem is: Why did you choose UCLA? You didn't know anything about it except it was a low-tuition school and near your home. I presume you hadn't yet learned about the principle about the travels of good and bad grapes. You weren't shipped very far. To do you justice, though--and the principle, too--you really were shipped a long way from Konigsburg to Los Angeles. So that's pretty powerful evidence that you really were a good grape.

I can't say you came to UCLA because I was there. I only taught statistics during your undergraduate years, 1947-51. It might have been Karl Brunner, about whom I'll say more later. You graduated in 1951 and, confronted with earning a real living, you entered graduate school. You set a record that will never be broken, earning your Ph.D. in record time: only 11 years. You must have learned an awful lot, though the truth is you were taken in the U.S. Army in 1955 until 1957. For that underpaid service to your new nation and assuming confidently your army discharge, I thank you now on behalf of the people of the United States of America.

After release from the army, you became an instructor at the University of California at the Santa Barbara campus and then a teaching assistant at UCLA. You now had to earn a living--you were married. In '52, I believe, you started as my research assistant, or agent, in managing a study of common stock prices to test the anticipation of inflation, done with Reuben Kessel. You foisted on to me a graduate student, Rachel Benveniste, you told me would help in the data collection. She did--she took over and managed the whole project. I now know that you and she had something going. I hope you realize your appointment was close to planned nepotism. But it worked well, and I soon received an invitation to attend the marriage of Rae and Ted. I wished you both well and that wish has been granted. What you would have done without me I don't know.

But for that matter, what of the many other students I have had who have married in my class, or at least married later? But only a word of gratitude. Upon reflection after 50 years experience as a successful though unintended marriage broker, my conviction is that college's main function in one in 10 cases is as a marriage market.

As I recall your years at UCLA, I'm astounded at the superb quality of graduate and undergraduate students we had at UCLA in the late 1950s and '60s. Ted and Rae, you were prime examples. I used to contend seriously that the economics department at UCLA during those years had a ratio of student quality to faculty quality that was the highest in the nation. I like ambiguities, but it was true. You, Ted and Rae, were two of those who helped raise the stature of UCLA's department to where Chicago became known as the "UCLA of the East."

Speaking of Chicago, particularly "Chicago boys," Rae was, I believe, the first of what really distinguished UCLA from Chicago. We had the "UCLA girls" compared to the Chicago boys. Not many of you know we had, without question, the most spectacular female graduate students: Rae, Anita Dance, Linda Kliger, Judith Mann, Susan Woodward, Vicki Carnahan to name only a few. You haven't heard of most of them: after graduation they said to hell with it and they married rich people. Rae married a little too early.

The question this provokes in my mind is: "From whence came all these good students?" The likes of Walter Oi, Tibor Fabian, Martin Bailey, Allan Meltzer, Steven Cheung, Mike Mussa, Lee Hoskins, Art Devaney, Jerry Jordan, Cliff Stone, and Robert Summers, who married Ken Arrow's sister and founded a dynasty. I apologize to others whom I could name. Of course I haven't forgotten Bill Sharpe of whose Nobel award-winning dissertation I was a director. But we all know, of course, that it was Harry Markowitz, whose help I asked for, who really was a director. Incidentally, upon hearing about Bill Sharpe's receiving the award, I went and got his dissertation and reread it. It is an astonishing expository paper; it is beautifully written. I now tell all the students there, "Go read Bill Sharpe's dissertation. It is so well written and it contains a lot of good economics."

So, when I heard about this honor to you, I went and got your dissertation. Would I be one of the signers as I was on Bill Sharpe's? No. My God, Ted, if I had signed it, you would be getting a Nobel Prize now. But it wasn't a bad dissertation; after all, it was signed by J. Fred Barron who suffered shortly thereafter a tragic, debilitating stroke. And by Bob Baldwin of international trade fame and William R. Allen, author of the best textbook in economics. And Robert Rutland and Robert Williams.

And last, the director, Karl Brunner, to whom you and I owe so much. No one enjoyed his students more than Karl. He was very demanding. He treated them as his children, training, disciplining, scolding, abusing and teaching. I have a hard time speaking about him, such a dear friend. As a bright side of one who got him to UCLA, after Lloyd Metzler. He's the one who said to me: "He's the one you should get--the young man from Switzerland, on a Rockefeller Scholarship." So I met with him in Chicago at the Palmer House hotel. And I was convinced. So I went back to UCLA and, after some hard work, convinced the older, senile citizens of the department to bring him there and they did and struck a load for all of us.

During his early years at UCLA, Karl interrupted his career to study statistics, philosophy of logic and the scientific method. As a result of that time taken out, his promotion in rank was scandalously delayed and denied because they said he hadn't published enough. He suffered, but we gained by what he had learned. The gains to you are evident in the rigor of your dissertation about the meaningfulness and the evidence pertinent to Clark Warburton's interpretation of the effects of money supply changes. You showed and told Warburton that he was arguing essentially only that money supply changes predicted changes of the price level better than would have a purely random prediction. And it did, but it did not exceed a naive model.

Your dissertation reported evidence consistent with the implication that the elasticity of the demand for money was positive with respect to wealth and negative with respect to the rate of interest. You blasted a conception of a distinction between idle and total cash balances and ended by saying the data you collected were consistent with the proposition of money relevance.

But that was way back in the '50s. Most significant, in my opinion, was your emphasis on the evidence of the usefulness of the higher level hypothesis, the basic economic model from which it is derived, the existence and effects of money supply changes. Money is implied, yet, as you said in a footnote on page 34, we allow for information costs. We now know they will also imply the real income effects that we attribute to money. You illustrated in that section that cheap information about recognition of commodities reduces those costs as compared to barter and is the key characteristic explaining the effects of money--what makes it money. Had Earl Thompson been there, he'd have explained why virtually costless recognizable receipts for prepayment of taxes serve as our money.

As I reread your dissertation, signed September 20, 1962, almost 30 years to the day I was reading it, I was reminded vividly of the hours we all spent with Karl Brunner trying to clarify and find answers to questions like "What is money?" "Why is it money?" "Why do changes in its supply affect real income and employment, even if only transiently, whereas changes in the supply of shoes, automobiles and wheat do not?" "What presumptions or high-level hypotheses had to be altered for that effect to be implied? "You had seen beyond the simple monetary patterns. By the way, I noticed you labeled your series M1 and M2. Had that been done before or is it original to you?

Fortunately your early understanding of a prescription for research remained with you and is reflected in what you have been doing here ever since at the St. Louis Fed. Your career exemplifies and extends the American Promise: immigrant to honorable success and freedom in a capitalist economy. Ted and all of you here associated with Ted at the St. Louis Fed, from Homer Jones to Ted and most likely those who follow, you have our gratitude. Thank you and best wishes.
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Title Annotation:Dimensions of Monetary Policy: Essays in Honor of Anatol B. Balbach
Author:Alchian, Armen A.
Publication:Federal Reserve Bank of St. Louis Review
Date:Mar 1, 1993
Previous Article:Commentary.
Next Article:The government's role in deposit insurance.

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