152 Book Reviews

Walras L. 2000, «Notes d’humeur», in Oeuvres diverses, Oeuvres économiques complètes, vol.
xiii, Paris, Economica, 503-622.
Weintraub E. R. 985, General Equilibrium Analysis : Studies in Appraisal, London, Cam-
bridge University Press.

John von Neumann and Oskar Morgenstern, Theory of Games and

Economic Behavior. Sixtieth-Anniversary Edition, Princeton University
Press, 2004, pp. xxxii+74.
This is a reprint of the classic work that six decades ago established the founda-
tions of the theoretical core of contemporary economics, namely, game theory. One
cannot but praise the publisher’s decision to produce a new, celebratory edition of
such an intellectual milestone for the whole of 20th-century social sciences : indeed,
the tgeb (as the Theory of Games and Economic Behavior is usually indicated) is one
of the last economics books that truly deserves to stand alongside the old master-
pieces, like Adam Smith’s Wealth of the Nations, Alfred Marshall’s Principles or John
Maynard Keynes’s General Theory. As is well known, in fact, post-ww ii economics
has become a science of papers, more than of books, so much so that were Jacob
Marschak still alive, he would have serious troubles to single out – as he famously
put it (Marschak 946, 5) – ten more volumes of equivalent importance for the
progress of economics published during the last 60 years.
Yet, the present edition is much more than just a reprint. The volume also con-
tains a lot of extra material which is of invaluable interest for the historian of mod-
ern economics. This includes an introduction by Harold Kuhn, with some personal
recollections of the very first years of the new discipline at Princeton mathematics
department, an afterword by Ariel Rubinstein, offering a few stimulating reflections
on what game theory is really about, and a reprint of Oskar Morgenstern’s 976 jel
paper on how the tgeb came to be. But the real treasure of the new edition is the
reprint of eleven of the several reviews and comments that appeared between 945
and the mid-960s in academic journals, newspapers and magazines. These pages
should give the historian a vivid impression of the deep impact that the tgeb had
on a rather broad audience which far exceeded the restricted milieu of economists
and mathematicians.
What I wish to do here is of course not to review the tgeb itself : even a quick
glance at the names of those who during time have endeavored to accomplish that
task should persuade even the most self-confident reviewer to abstain from daring
to join the list. I will focus instead precisely on some of those reviews and on the
influence that they might have exercised on the oscillating fortune of game theory
– an influence that was magnified by the fact that for a long time they constituted for
most economists the only source of information on the new discipline. In particu-
lar, I will argue that, rather than enhancing the tgeb’s fortune, these reviews actu-
ally curtailed it, by addressing the readers’ attention either away from game theory
proper or towards the latter’s application to a sub-field – industrial economics – that
was quite unwilling to welcome it.
How would you ‘sell’ a new theory to an audience that is supposed to be not so
technically prepared to appreciate its analytical nuances and not so well disposed to
embrace its explicit (cf. tgeb, ch. ) revolutionary intent ? Answer : first, by presenting
the theory as the new Gospel that no economist working at the theoretical frontier
may miss to read if he/she wishes to avoid being left behind by the discipline’s
progress, and, second, by pointing out one or more sub-fields where the new theory
may contribute to solving a few open problems and to systematizing an otherwise
Book Reviews 153
chaotic set of results. This is precisely what the most important reviewers of the
tgeb elected to do. However, a careful reading of these reviews, plus a fair amount
of hindsight, reveal that these promotional efforts were actually counterproductive as
they directed the economists’ attention both towards the wealthy set of new analyti-
cal tools offered in the book and towards a sub-field such as oligopoly theory where
von Neumann and Morgenstern’s theory had little if anything to offer, but, unfortu-
nately, also away from the tgeb’s core theme, the analysis of interactive rationality.
The two reviews that are most often indicated as exemplary of the enthusiasm
that welcomed game theory are those by Leonid Hurwicz and Jacob Marschak,
which appeared together as a working paper of the Cowles Commission. They were
then published, respectively, in the two most authoritative economics journals, the
American Economic Review (Hurwicz 945 ; repr. in the present volume) and the Jour-
nal of Political Economy (Marschak 946 ; regrettably not reprinted here). Hence, these
reviews constituted the ‘official’ presentation to the American economists’ commu-
nity of von Neumann and Morgenstern’s work. Their influence was considerable,
since many economists later admitted that all they knew about game theory was
based on them.
As is well known, the Cowles Commission was the temple of postwar math-
ematical economics in the us, and one of its most worshipped gods was John von
Neumann. So, it is hardly surprising to find its members among the most laudatory
reviewers of the tgeb, or to discover that in the single year 949 no less than seven
seminars were held at the Commission to deepen the knowledge of von Neumann
and Morgenstern’s book. However, when we look at the concrete outcome, it turns
out that only a negligible amount of research was actually devoted to game theory
proper,2 so much so that it may well be said that strategic analysis was a no-con-
tender in the Commission’s scientific agenda. How could this happen ?
The answer lies in the peculiar use the Commission members made of the tgeb.
The book was in fact considered just a gold-mine of mathematical notions, methods
and tools – from the axiomatic method to topology, from convex analysis to fixed-
point theorems – which were extremely useful to solve other economic problems,
different from those of strategic interaction. Thus, the tgeb did exercise consider-
able influence upon Cowles researchers, but merely as a tool-box.3 This kind of
reception was explicitly endorsed in the review written by the Commission then
research director : «…the main achievement of the book lies, more than in its con-
crete results, in its having introduced into economics the tools of modern logic».
(Marschak 946, 4; emphasis added). Historians have long recognized that the dis-
tinguishing feature of the so-called formalist revolution in post-war economics has
been the replacement of the old analytical tools and methods with brand new ones.
That the latter’s main source has been von Neumann and Morgenstern’s book bears
witness to Marschak’s and the other Cowlesmen’s role in the process. Thus, it may
well be said that the tgeb did trigger the formalist revolution. Yet, what actually fell
into oblivion was game theory proper (cf. Giocoli 2003, ch. 6).
Marschak’s review offers another example of the purely instrumental attitude
towards the tgeb typical of the Cowles Commission. The reviewer attributed to


Herbert Simon’s enthusiastic review in the American Journal of Sociology (945 ; repr. here)
might be added to the list, as the author was also about to join (in 947) the Cowles Commis-
sion.
2
See Dimand and Dimand 996, 53-54, and Kuhn’s own reminiscence here, at pp. ix-x.
3
This has been openly recognized by, for instance, Kenneth Arrow (a member of Cowles
from 947 to 949 : see Arrow 983 [968], -5) and Gerard Debreu (a member from 950 :
see Debreu 984, 267-70).
154 Book Reviews
von Neumann and Morgenstern a method of analysis that was not their own, as
he claimed that the authors had followed the method of detached reasoning. Such a
method, in Marschak’s presentation, entailed the translation of any heuristic reason-
ing and intuition in terms of formal concepts and propositions that, once stated,
could be totally detached from experience. The analysis then reached purely for-
mal conclusions that could only eventually be given a substantial content, that is,
re-translated into non-formal language (Marschak 946, 5). This method was of
course nothing but the formalist approach to axiomatics in its purest – that is, Bour-
bakist, or Debreuvian – form, but, unfortunately, it was not that of von Neumann
and Morgenstern. Such a serious misunderstanding of one of the key features of the
tgeb betrays the intention to use von Neumann’s name as a prestigious flag to be
exhibited ahead of the powerful army of formalist mathematical economists that
was gathering in Chicago.
Consider now the kind of applications of the new theory suggested by Hurwicz
and Marschak in their authoritative reviews. Both authors struggled to establish a
strong link between the tgeb and industrial economics. For example, Hurwicz ar-
gued that, starting from Cournot, economists had had recourse to ad hoc assump-
tions in tying down their oligopoly models : the commonest hypothesis was that
every firm had a well-defined idea of the rivals’ behavior, but this was simply unten-
able in a strategically interdependent setup. A possible way out, but surely not the
only one, was that suggested in the tgeb, namely, the refusal to identify rational stra-
tegic behavior with the maximization principle (here, pp. 647-648). Yet, Hurwicz was
skeptical about von Neumann and Morgenstern’s solution : first, because it entailed
that only the mathematical expectation, and not, for example, the variance, of the
payoffs was relevant for the decision-maker, and, second, because it was inspired by
the belief that it was necessary to search for a uniquely determined solution of all
games. He believed instead that the outcome of social interaction could be repre-
sented by the entire interval of possible solutions (here, p. 656). Note the peculiarity
of Hurwicz’s argument : after stating that the major problem of past oligopoly mod-
els was the impossibility of pinning down a definite solution and that von Neumann
and Morgenstern had finally solved it, he also claimed that, at the end of the day, the
tgeb’s solution was not a general one and should be replaced by an interval of al-
locations ! To make things worse, try to imagine what might have been the reaction
of those brave economists who endeavored to read the tgeb and found a model of
bilateral monopoly where, despite the employment of the ‘deterministic’ solution
concept criticized by Hurwicz, the result offered by von Neumann and Morgenstern
was still indeterminate…
Even Marschak’s review explicitly associated the tgeb with industrial economics.
Indeed, Marschak was even more direct in his effort to entice potential readers as he
started the review by presenting one of the final examples of the book, namely, the
three-player non-zero-sum game with one seller and two buyers. While the goal was
clearly to show how von Neumann and Morgenstern’s theory allowed a rigorous
handling of oligopolistic indeterminacy, the choice of the ‘one seller, two buyers’
game was a forced one, since this was the only completely developed economic ex-
ample in the book and the one that did offer an original result (namely, the possible
collusion between the two buyers) in terms of potential market structures. The
reviewer observed that economists had always considered the study of the motives
and forces inducing the bargainers to pick a specific imputation inside the interval
of possible ones as beyond the reach of formal analysis. In his view, the invaluable
contribution of von Neumann and Morgenstern had been to … increase the indeter-
minacy by adding a further degree of freedom. In fact, their result was that, beyond
Book Reviews 155
the infinite imputations inside the interval, we also had to take into account that
many possible intervals might exist (Marschak 946, 04) : what the rules of the game
allowed was just the determination of the set of possible solutions. Thus, in the eyes
of a reader of the review, von Neumann and Morgenstern’s solution appeared far
less determined than the traditional one – again, hardly a proper way to promote
the new discipline’s applicability to competition issues.
The reality was that, notwithstanding the reviewers’ optimistic claims, the tgeb’s
contribution to industrial economics was very poor. The only applications of some
interest to economists were the game of bilateral monopoly and the game with one
seller and two buyers. Yet, von Neumann and Morgenstern’s result in the former was
a price interval larger than that obtained by the traditional model, while in the latter
the emphasis with which the only really new result – the buyers’ coalition – was pre-
sented was a consequence of the dearth of other relevant outcomes. Furthermore,
von Neumann and Morgenstern’s approach to the analysis of competition was to-
tally abstract and formalized ; this at a time when the trend in industrial economics
was to abandon formalization and turn instead to more field work, following the ris-
ing structure-conduct-performance approach (see Mason 939). In short, to draw the
economists’ attention upon the tgeb’s alleged contributions to oligopoly theory was
a perfect own-goal by Hurwicz and Marschak, at least from the viewpoint of game
theory proper. However, if we take into account that the Cowlesmen real ambi-
tion was to reshape mathematical economics according to a formalist reformulation
of Walrasian theory, we can easily understand the reviewers’ choice to prudently
downplay the most anti-neoclassical aspects of von Neumann and Morgenstern’s
book, while at the same time presenting it as a contribution to a major sub-field of
orthodox economics in order to emphasize the potentialities of the new analytical
tools and methods.
The irony of this little story about the reviews of the tgeb is that the most thor-
ough and balanced assessments of the truly central point of von Neumann and Mor-
genstern’s theory were not given by the most fervent reviewers, but rather by the least
favorable ones, like Carl Kaysen in the Review of Economic Studies (946-947), Richard
Stone in the Economic Journal (948), Tibor Barna in Economica (946 ; repr. here), and,
outside of economics, Walter Rosenblith in Psychometrika (95 ; repr. here) and David
Hawkins in Philosophy of Science (945). For example, Kaysen correctly emphasized
that, contrary to what most other reviewers believed (or made their readers believe),
the tgeb did not aim at offering a new theory of oligopoly, but rather at demolishing
the whole edifice of standard economic theory founded upon the neutralization, via
the parametrization device (viz., the trick of considering as given some magnitudes
that should actually be taken as variables), of the interaction among rational agents.
He claimed that von Neumann and Morgenstern’s real innovation had been their
questioning the general validity of the parametrization method : game theory dealt
precisely with the cases where the device could not be used, since a game was de-
fined by the absence of parametrization (Kaysen 946-947, 2).
As it commonly happens, it is also at these more neutral reviews that we have to
look to find a broader methodological evaluation of the kind of scientific progress
embodied by the advent of game theory. This is well exemplified by Barna’s review,
where he argued that the mathematician’s viewpoint – and the related resolute pur-
suit of formal rigor – could hardly capture the whole of the economic problem
because, contrary to von Neumann and Morgenstern’s claim, «…the backwardness
of the science of economics is due not only to the lack of success of mathematical
economics, but also to the essential difference between the social and the natural
sciences…», namely, the former’s difficulty to subject their assumptions to empiri-
156 Book Reviews
cal testing. Thus, he concluded that the new discipline’s fortune among economists
would depend more on its usefulness in applied fields than on its mathematical con-
tent (here, p. 667). This was a far cry from the most enthusiastic reviewers’ claim
that such a result had already been achieved by the tgeb, and a prescient anticipation
of the true engine behind the eventual, 980s boom of game theory.
The contrast between two different views of what should really drive the progress
of economics – whether the pursuit of ever more rigorous formalizations or the ne-
cessity to tackle an ever wider set of empirical problems (possibly via less than fully
rigorous models) – has surfaced time and again during the last 60 years of the dismal
science. Historians must therefore be extremely grateful to Princeton University
Press for having brought to their attention, together with this new, wonderful edi-
tion of von Neumann and Morgenstern’s classic, a sample of the heterogeneity of
reactions with which the book was welcomed, as these may offer a few illuminating
insights about the history of postwar economics.
Nicola Giocoli
University of Pisa

References

Arrow K. J. 983 [968], «Economic equilibrium», in Collected Papers of Kenneth J. Arrow,

vol. 2, General Equilibrium, Oxford, Basil Blackwell, 07-32.
Debreu G. 984, «Economic theory in the mathematical mode», American Economic Re-
view, 74, 3, 267-278.
Dimand M. A. and Dimand R. W. 996, A History of Game Theory, vol. , From the begin-
nings to 1945, London, Routledge.
Giocoli N. 2003, Modeling Rational Agents. From Interwar Economics to Early Modern Game
Theory, Cheltenham, Edward Elgar.
Hawkins D. 945, «Review of Theory of Games and Economic Behavior», Philosophy of Sci-
ence, 2, 3, 22-227.
Kaysen C. 946-947, «A revolution in economic theory?», Review of Economic Studies, 4,
-5.
Marschak J. 946, «Neumann’s and Morgenstern’s new approach to static economics»,
Journal of Political Economy, 54, 97-5.
Mason E. S. 939, «Price and production policies of large-scale enterprises», American
Economic Review Papers and Proceedings, 29, , 6-74.
Stone R. 948, «The theory of games», Economic Journal, 58, 85-20.

Ingo Barens, Volker Caspari, Bertram Schefold (eds), Political Events

and Economic Ideas, Edward Elgar, Cheltenham (uk), Northampton
(ma, usa), 2004, pp. xiii+407.
The book collects the proceedings of the 5 th
Annual Conference of the European
Society for the History of Economic Thought (eshet). The first paper, by David Laid-
ler, sketches the switch of monetarism from left heritage to rightist shibbolet : a switch
caused and led by changes in economic theory. In the next essay Otmar Issing paints
a too optimistic picture of the process which has led to euro. Such a statement : «On
the one hand, the introduction of the single currency has fostered the completion of
the Single Market. On the other hand, relinquishing sovereignity in such an impor-
tant field as monetary policy and trasferring it to a supranational institution is a move
towards the creation of European statehood» has been recently subjected to a severe
check. Marcello De Cecco’s contribution assumes almost the form of an answer to
Issing. De Cecco reminds how Keynes’ reflection about managed currency was tight-