James Mirrlees interviewed by Alan Macfarlane 21st July 2009

0:09:07 Born in Minnigaff, south-west Scotland, in 1936; father's father very proud of having gone to work at seven and retired at seventy having become an analytical chemist in a dye works; my father was born in 1900 so my grandfather must have been born at least forty-five years before that; I do remember him in the War although he didn't quite make ninety; I never met my father's mother; my mother's father was the local electrician in a little town near Edinburgh, by that I mean that he was in charge of the power station as at that time electricity was generated in the village; I remember my mother's mother as a very nice character, a very small lady who cooked cakes and did the things that a Scottish mother was supposed to do; my father was a banker; he had to leave school at thirteen because the family needed the money; he went to work in a torpedo factory until just before the First World War began; at some stage he moved into a bank where exams were done in the job; my brother left school at fifteen and also went into a bank and took banking exams through evening classes; he moved up to being a Vice President of the Royal Bank of Canada, so it doesn't stop you going quite far in banking; my father was cheerful, full of often-repeated stories; I do remember him saying that they were not sure that they could afford to send me to university; Scotland had rather a low grant level from the local authority; perhaps he was just encouraging me to get some scholarships as I am sure they would have managed; I did not get on very well with my mother when I was a teenager; I am not sure she was particularly ambitious for me though they certainly wanted me to get a well-paid job and were very sceptical about my academic ambitions, indeed they thought it a great mistake; I had just one brother

6:29:22 On early memories, I remember on one occasion a teacher telling us about the Arctic and Antarctic and she got them the wrong way round; I remember standing up and telling her she had it upside down which I sensed was very rude of me; she was a nice person and I was not punished; I do remember being able to do arithmetic very quickly, certainly by the age of ten; mental arithmetic was a big thing as part of the exam to get into the high school; my teacher wanted to know why I seemed to always know the answers straight away; I remember doing it and her being puzzled, but I can't remember what I said but I clearly did know how I did it; it involved seeing patterns in numbers; in the early years there were evacuees from London to avoid the Blitz; interesting looking back that there were separate prizes for evacuees because they did much better than the local children; sadly I have totally lost touch with anyone that I was at school with and indeed can't remember any of their names; went to high school in Newton Stewart; it was a selective school and the classes were streamed into two levels, so it was pretty small with an annual intake of fifty or sixty; I enjoyed my time there; on games I was interested in tennis and cricket but you can't play football in glasses and my eyesight was pretty poor; I was presumably short-sighted from early on as I read a great deal, so the same reason that the Japanese and increasingly the Chinese are; I would probably have been more interested in sport if I had been better at it and I was not good at either cricket or tennis

12:19:14 I have never managed to catch a fish in my life although I have tried; my grandfather was a very keen fisherman, but there were no rods in the house; maybe we were a bit far from any good fishing; piano was my main hobby which I started playing at about twelve or thirteen; I still play; when I was in Cambridge I was able to play quite a bit of chamber music; one of the great advantages of Cambridge is the size of the rooms so you can rent a piano and there is room for other people to come in and play; to begin with I told my parents I would like to be able to play popular songs but took to the classical music that I had to learn; within that I have pretty catholic tastes; I have never been in a choir so don't listen to choral music; Donald Tovey said that choral music is the best and I can see that when it comes to lieder; I am much more involved with Bach and later; the big point of going to concerts, beside the fact that you are listening with others, it that you really concentrate; I find that at home I am inclined to pick up something to look at while I am listening to music, which I always regret; I don't recollect thinking I got stimulated to think by music, but the kind of economics I do involves thinking about problems and doing a certain amount of mathematics, and that is the kind of intellectual activity where you frequently get stuck; it seems to me that then going and playing the piano is helpful; it may be that doing almost anything else would be too, but that is the particular thing that I feel inclined to do

18:40:16 On religion, my father was a church Elder but my mother had little interest in it; I don't think she ever went to church after dad died; I do remember him getting worked up about religious issues such as whether you should have separate cups for communion wine or a single cup, which was tearing the congregation apart at some time in my youth; he cared about that issue entirely on health grounds and not on theological; I took Church of Scotland Christianity very much for granted; I was confirmed and would have gone to church most Sundays; I do remember that I listened to the sermons; at some stage when at university in Edinburgh I got drawn into the Student Christian Movement though it would not have taken much of my time there; looking back I really don't understand because now my view is that it is all nonsense, but when I was in Cambridge I was also a member of the Student Christian Movement and was President at one time; in Oxford in the 1970's I realized that I didn't understand why I had ever thought there was a case for belief; I don't believe but it would be wrong to say that I don't believe it is helpful for some people; I have no objection to listening to grace or going to Chapel to listen to good music; I do think there is something helpful about the ceremonials, memorial services, funerals

25:20:23 I enjoyed most subjects at school, as well as maths; in Scotland you do a whole range of subjects although we didn't do much history; Latin didn't appeal much but I seemed to manage it; I have noticed when reading some of the Nobel biographies that there were often obstacles in the way; what happened to me was that the school inspector noticed that I had got rather good marks in maths papers and said that I should go to Cambridge; the school was not quite sure what you did in order to get to Cambridge; they learned that although an English boy could get a grant from the local authority to go to a Scottish university, a Scottish boy could not do so for an English university; the grant was also smaller in Scotland; there was only one exception and that was if you got an open scholarship to Cambridge you would get supplementation from the Department of Education in Edinburgh; that was what the inspector was after, that I should take the scholarship exam; the maths scholarship is quite strange; normally people would be taught by people who had got to know that exam quite well, but in my school nobody had ever heard of the Cambridge open scholarship exam; we got hold of exam papers then I settled down to try to solve the problems which are at a level well beyond what you did for Scottish exams; my maths teacher, an really nice chap called MacFadyen, had been enormously helpful; it became a competition between the two of us to solve these problems; I am happy to say that I managed better than he did but there were some occasions when it took us a day or more; there was one key fact that we were not aware of; we thought that when you got a paper with ten questions on it you were supposed to answer them all, so we were working on enabling me to answer ten questions in three hours; I believe that that was not expected; if you got two or three done that would be enough; I got to that point and would have been fine, but a week before the exam I had a burst appendix and was rushed off to hospital in Glasgow; I went to Edinburgh instead and three years later I took the scholarship exam with Keith Moffatt, who was later Director of the Newton Institute; by that point it was easy for us to take the exam; I think that after us Trinity decided they would not take people to do another undergraduate degree, but I am rather happy with the fact that I started with an M.A. and then went on to get a B.A. because in Scotland it was a four year M.A. course, although I did it in three; all of this could have been a great waste of time but I don't think it was, partly because I escaped National Service; just at the point that I was going to Cambridge the Government said there was a terrible shortage in mathematics and that people who graduated with firsts in mathematics and were going on to use it were excused National Service; Trinity had insisted that everybody do it but because of this directive agreed that I could come straight away

33:25:15 Cambridge was a bit of a shock; I came down to do the scholarship exam and was put up for a few days in College; there was this palatial room with a separate bedroom, which was quite different from what I had in Edinburgh; that certainly impressed me; I arrived to start a week late as I had had 'flu so missed the usual introductory things so it was a bit confusing at first; very quickly I was tremendously impressed by the sense that people were teaching at a different intellectual level than Edinburgh; I am not saying they couldn't have done it there but somehow the tradition was that you wouldn't do the really abstract mathematics; in the first year in Cambridge they were doing things at a level of abstraction that was not done in an undergraduate degree in Edinburgh at all; this was partly associated with the sheer intellectual quality of the teachers; I think I became quite sensitive early on to people being very clever and I enjoyed that; the people who taught me in that first year were Michael Atiyah, John Polkinghorne, Peter Swinnerton-Dyer, with whom I became friendly; I did two years but the second year was Part III which didn't then involve any supervision at all; I probably didn't spend as much time on mathematics as I should have but it is generally believed that you can't spend an awful lot of time on it; I was presiding over the S.C.M., I was not in the Union but belonged to clubs such as the Labour Club; I later did become an Apostle but that was when I was an economist

37:57:24 In the second year of mathematics I am sure it was becoming hard which it hadn't been until that point, also I was getting bored with it and questioning its purpose; S.C.M Christianity was associated with social consciousness, and I wanted to do something useful; I was not sure what to do and did get as far as applying to do a PhD in maths, but just in the last term I decided it would be a mistake and that I should do social science; one of the many societies I was involved with was the Sociology Society; at that time sociology as a subject didn't exist in the University though I think it was just going to be introduced, and for a week or so I contemplated doing it; Peter Swinnerton-Dyer sent me to see Piero Sraffa, one of the more famous Trinity economists; I remember that Joan Robinson turned up and that was the first time I met her; honestly can't remember that they said anything that persuaded me that economics was right, but I had been curious about it for a while so I was quite easily nudged into it; one reason was that I thought it had to do with curing poverty and that was a strong motivation, the other was the puzzlement that it was a subject that I couldn't make head or tail of when talking to economics students; there was a very special teacher, David Champernowne, who had just come back from Oxford; he was a man of many eccentricities and one of them was that he got fed up with being Professor in Oxford and Cambridge managed to invent a readership for him; he once told me that the trouble with Oxford was that at high table you couldn't talk about either science fiction or computing as there was no one capable of discussing with; Dick Stone was assigned as my supervisor; he arranged that David would actually teach me economics; the first week he told me he had just been reading Keynes 'General Theory' and that I should go and write something about it for the next week; trying to grapple with Keynes was not that easy; things tended to go on in that way but I learned a lot; David had been a choral scholar at King's and was more than on the edge of the King's group though I don't think he was part of the sounding board group that read the drafts of the 'General Theory' and reported back comments to Keynes, but might have been along to some of it; he was much more mathematical than the others; he was a very good statistical economist; Keynes was dead by the time I arrived but his shadow has been over Cambridge economics for a very long time and affected a number of powerful personalities who took his ideas in other directions; Luigi Pasinetti was a research fellow when I started economics and was a lecturer by the time I came back from India; he was pretty much a contemporary of Amartya Sen who was a couple of years before me

46:41:19 Having explained how I was abandoning mathematics and going into economics to be able to do something about poverty, I got interested in planning; Dick Stone had a group who were devising a model of the British economy which could do what they called 'indicative planning'; this would show the way that the economy might go without anybody giving actual commands about how it should go; I got interested in the decision problems, and what should a government or country do; Dick Stone encouraged me to take an interest in Frank Ramsey's famous problem of how much you should save; I puzzled over the question for a time then thought that what was odd about it was that it took no account of uncertainty; non-economists tend to think that the thing about the economy is that it is very uncertain; I took that problem up and that is what my PhD thesis was about - how you could work out decisions on the question like how much an economy should save, and how that decision would be influenced by taking account of uncertainty; curiously enough this was a subject that quite a number of American economists had started to think about as well; a number of papers were then published on it but it was not until much later that I published anything on the subject; it was a paradigm shift and Ramsey saving is a key part of economics education, which it certainly wasn't in the sixties; it seems particularly surprising because American economists were not interested in planning and this seems to be very much a planning kind of question; during that time I had a serious interest in development and read a lot on the subject, didn't make any particular connection with my thesis, but was delighted to have a chance to go to India when I finished my PhD work; I did not write it until I came back from India; I did not continue with that work in India, and at that time I pretty much decided that taking a very command planning view was quite the wrong way to be running an economy having observed the bad results coming from the attempt at five-year planning in India; I was in India 1962-3; I was not aware of the disaster of the Great Leap Forward in China; on the contrary, I had probably heard Joan Robinson talk about China too much and she believed that it was more or less the perfect economy; during the time I was in India she passed through as her daughter was living there at the time; I remember going round fields in a village with her saying how very well organized the Chinese were, when told to do something they did it, whereas these Indians were feckless; in India there was a lot of fecklessness, but I was taken to some villages which were show-pieces and the next day to villages that were the complete opposite, so there was a wonderful honesty about it which shows up in things like its poverty data; we had managed to take a really nice big map to India but this was the year of the India-China War; I could have learned more about the economy if India had not been so focussed on the issue of war

54:33:14 While in my third year as an economics' student I got lured over to Oxford and Nuffield College offered me a research fellowship which I would have come back to after my year in India; within a week Trinity trumped it by offering me a teaching fellowship that was vacated because Amartya Sen was going to India to the Delhi School, so I grabbed that; I had put in for a research fellowship at the end of my second year with my thesis, in retrospect not something I should have been doing at that point; Nuffield would not have been so bad with the advantage of a good many years just doing research, but I came back to teaching here instead

Second Part

0:09:07 The things that supervisions can do that other kinds of education can't is to draw out creativity and originality by asking difficult questions; I believe in not telling them too much about what they should read; I only supervised undergraduates for five years; on lecturing, I enjoy the business of working out the subject and putting it together, yet I have never felt I could actually write a textbook despite having reams of notes; I might have been one of the earlier ones to like to provide notes to circulate to the class rather than have them scribble their account of what you said; that was not something that the maths lecturers that I'd had in Cambridge did; I also lectured on development; that was where I felt there was more scope for creativity, trying to think out what development economics was; I only did it for two years; I must have made most of it up out of my head, I certainly did not have a text book to follow, so my notes actually got into the Marshall Library; I would be curious to know whether they are still there; I was delighted when some years later it was reported to me that someone who then worked in developing countries thought that it had been the best course on development economics, and that he had been well prepared

4:20:20 Amartya Sen became a friend, indeed it was he who introduced me into the Apostles; I learned a lot from him, particularly reading his thesis and then his books; I worked through his book on social choice and the notes on it; I think my first publication was a review of the book that contained Amartya's PhD thesis; somehow that rather cemented our friendship; his range is great, but I am not entirely sure that social choice is a good topic to spend a lot of effort on though he has certainly done some very good things with it; in some ways some of the most intellectually admirable things in economics have been in social choice; I keep coming back to it; the closest I have got to it is a paper and a chapter on utilitarianism from the point of view of an economist, in a book that Bernard Williams and Amartya edited; Partha Dasgupta was my student; he did the one year diploma course and then I brought him into the same kind of problem that I did my thesis on, optimal saving, adding optimal population as well which James Meade had done very good things on; I don't know if that was how Partha met his wife, one of James's daughters, but they might have made contact that way

7:33:06 I married in 1961 before going to India; my wife was a teacher and had graduated from Homerton the previous year; she came with me to India which was harder for her than for me; we went via America because it was an MIT project, and there we were handed a piece of paper on culture shock to prepare us; we were amused by the instruction that if bitten by a dog, keep it there until the police arrive so that it can be tested for rabies; when it came to the point I don't think that culture shock is the right description for being in a very different country without an occupation; after the first six months it was OK; we had two daughters who have each produced two children, so we are proceeding in the appropriate steady state manner; she died of breast cancer in 1993, which was very sad; it would have been nice if she had lived to see me get the Noble Prize in 1996, but at least the girls were there; I have remarried since

11:09:10 Now head of a new college, Morningside College, at the Chinese University of Hong Kong, which will not exist until 1st August 2009 and will not take its first students until September 2010; for me it is important as in some ways I feel it is taking too long; it is not that I feel too old but it is not quite so easy to relate to students; heads of colleges in Cambridge are not necessarily much in contact with students, certainly in the past they were not; the President, Professor Lawrence J. Lau, had suggested that the college should be as much like a Cambridge college as possible; he had spent a year as a visiting fellow at Churchill and had been rather impressed; but being as much like as possible is still a long way from being like a Cambridge college because we don't have any real teaching fellows, although we will expect fellows to do a little teaching; the amount of teaching that we will do as a college will be little, particularly against the Hong Kong background where the examination questions tend to be pretty routine and rote like, and the students seem to want to know exactly what is expected of them; what I particularly valued about my Cambridge education and also what I thought I could achieve with graduate students, particularly later in Oxford, was drawing out originality from students that so many of them seemed to have already; at the college level that means getting people into the right sphere or subject; I am intrigued to know just how much we can do in order to achieve this; at the moment I am slightly fearful that there may be some conflict between what I would like to do as a college and what the university thinks colleges should do; they are increasingly saying that what they want the colleges to do is personal rather than academic development; I shall have a little bit of a task to make sure that we lean in the direction of creativity and independent thought; we expect to get a lot of people from mainland China, probably 30-40% of the student body in the College

16:26:18 I am not worried about what will happen in mainland China although we know the kinds of things that can happen; certainly I would like to see a move towards what I would think of as real democracy, but there is quite a way to go; there are independent lawyers and a great range of opinion; when I am in mainland China there is no serious restraint in conversation, so it would be wrong to say that there is not an openness in society already; we are not talking of a thoroughly authoritarian regime; it is interesting to see the way that it has gone, which has something to do with economic freedom but it is not only that; for an economist it is particularly interesting when you see universities where you see essentially two departments of economics, one of which will be quite Marxist and the other is called 'Western Economics'; the fact that they are both there is clear evidence of an openness in the society which people outside don't seem entirely aware of; one gets disturbed by such things as taking over property, but then reflects that that is not unheard of in Britain and America; a lot of the things that are referred to as problems are actually quite similar to things that happen in the West; recent troubles in Xinjiang are analogous with riots in Los Angeles or the Troubles in Northern Ireland; all this suggests that it has come a long way and there are grounds for general political optimism, although I would be surprised if there is anything analogous to the Soviet Union breakdown as they do seem to have a rather well-organized system; the Communist Party is exceptionally well-organized but with one proviso, certainly the Chinese Government sees a lot of corruption, and you don't expect corruption and good organization to go together; I dare say that there are more serious problems in some areas than others, and with that you are never quite sure which way it will go

20:50:16 On work that led to receiving a Nobel Prize: I got there by thinking about taxation; suppose you thought it a good idea to equalize incomes, and that you could do that by levying taxes at a very high rate, it is obvious to nearly everybody that this is not likely to work very well; the threat of doing that would create a pretty unsatisfactory economy; but I think it is important to find a rigorous formulation of that; part of what I was engaged on, working with Peter Diamond at MIT, was to give a fully rigorous account of the workings of the economy when you pay attention to the problem of incentives; the question is, what is the problem with incentives; I can see great economists like Paul Samuelson clearly understood what that is in some of their writings, but it seemed to me that most people did not; here is another of those areas where a number of us got onto the point simultaneously, saying that another way of looking at this is that it is all about information that people have about other people, and recognising that a lot of our economic relations with people are not like buying and selling in the local market but more like having a contract with them; on the recent financial global crisis, I think that one of the things we should have learned from all this might have prevented it; once you see the limitations that people have about one another this means that when you write a contract, for example, to get someone to deliver something to you in a couple of years time, and maybe you pay him now for it, it is not that you are not quite sure that you can trust him to do it, but you can't be sure that he is going to be able to do it; an absolutely key example of this is in relation to the government and the taxpayer; the government would like to levy a particular tax; the ideal tax is one where you tax people on the basis of their earning abilities; it would not be an entirely bad idea to base tax on examination results, but you would straight away run into the problem that if you do try to institute that idea then people will start getting very poor exam results; it is just the same sort of thing as the very form of the relationship, in this case the social contract between the government and individuals as described by the tax system, that this creates incentive problems; in deciding what the tax system should be we have to choose that, subject to the constraint that you have limited information about people's actual abilities; all you know about them is what they will do, you don't know what they can do; once you see this as being a central economic relationship, you realize it is not like buying and selling, so there is a whole area of economic activity which is missed from the standard basic model; I wrote down a particular model of this kind which I called an optimum income tax problem; it was intended to be a good description, as simple as possible, of an economy in which incentive problems mattered; of course it was mathematical because that's the way I do things, and then I found there was a really difficult problem of even finding equations which would describe the optimum; that was the problem I cracked and that was what I was really pleased about, that I found the answer to a partly conceptual, partly mathematical, problem; partly conceptual because it is a matter of expressing these general ideas in a form you can work with mathematically

27:27:18 It must have been a eureka moment but oddly enough I can't locate it in time; I think it must have been close to the end of my time in Cambridge; on the current financial crisis, in my view one of the major reasons we have suffered this is because there was a market for a particular kind of securities; people were buying and selling these famous CDOs, bundled mortgages, as though they were oranges and apples; so a market was established and priced; that meant that you didn't have a contractual relationship; it meant that nobody had taken the chance of creating the right kind of incentives for the lenders, for the bankers; as a result the banks were lending too much and they were lending carelessly; it didn't matter to them whether somebody was going to pay back or not because they were being sold on; twenty, thirty years earlier economists, of whom I was one, had developed a theory of these kinds of things and made it quite clear that you shouldn't have a market for securities of that kind; I suppose the economists who had worked that out didn't know what kind of securities were being traded; perhaps, like me, they were the sort of economists who were not much interested in self investments, that keep their money in savings accounts; there were some very good theories, such as moral hazard; the insurance industry had been well aware of moral hazard for a while but they don't seem to have been very good at understanding it; moral hazard is when there are things you might do which cannot be observed, where people cannot deduce what you did either, because the results of what you do were pretty uncertain; you might have some unobservable action; you don't know the sort of people that a bank has decided to lend a lot of money to, and you certainly don't know how carefully a lender considered the risks that were involved and what kind of information he got; moral hazard is a curious term as it does not get people to focus in and see just what it is that is going wrong; we need a term that describes the behaviour; the problem is when you have behaviour that you can only imperfectly deduce from the outcomes; therefore you have to write a suitable contract on these outcomes that will create the right kinds of incentives to behave appropriately; behaving appropriately isn't necessarily what you would do if you could be authoritative and tell someone what to do; you have to be moderate in the use of incentives; generally you get the right incentives if people have to bear some of the risk of their actions themselves; if you go to complete insurance which is what had effectively happened in the financial system then you get bad results

33:55:24 I haven't been looking at things in sufficient detail, just looking at newspapers and seeing what the central bankers are reported as saying; it does not seem to me that they are showing the right kind of understanding; they don't seem to have said that this is how we are going to ensure the moral hazard problem is solved, indeed they talk as though banks should be pretty much left to carry on as they were with people just observing more carefully; what they don't understand is that observing more carefully is not the answer; you have to pay attention to the incentives that the banks have to do their business, just as the banks should be paying attention to the incentives that the borrower has to pay back; the really important one is all these silly derivatives that have been created giving great financial reward to the individuals who create them with negative social value; lots of people should have seen what would happen as it had happened before

36:39:22 Something I value is the students that have passed through my ministrations, particularly graduate students; three of my students were professors in Cambridge, one in Oxford, several at LSE and at MIT, and so on; I am not saying that I should get a vast amount of credit for this, but they have done great research and sometimes have performed very well in other spheres and that has given me a lot of vicarious pleasure.