[Robert Solow]'s students of growth -- they included Joseph Stiglitz, Peter Diamond, Avinash Dixit, George Akerlof, William Nordhaus, Eytan Sheshinki -- had a different sort of esprit, a sense of mission. Among their teachers was Karl Shell, a PhD from Stanford newly minted by Kenneth Arrow, whose paper on "learning by doing," with its emphasis on the economics of knowledge, was on everbody's mind.
It was only with the introduction of something called Pontryagin's Maximum Principle that the new brand of formalism really flowered, by inputting "shadow prices" where otherwise no real prices could be observed. Suddenly at MIT in the mid-1960s, "optimal control theory" was the hot topic. Students learned for the first time to manipulate "Hamiltonians," "mini-max principles" and "phase diagrams."
Then in the summer of 1965, the bright young students from MIT all went to Chicago to study with Hirofumi Uzawa, the foremost student of abstract ideas about growth after Solow himself and the chief wizard of the new high mathematics. Their goal: "endogenizing" technology, that is, taking it inside the models they employed to think about growth, making it part of the system. They hoped to find something more concrete to say about why economies grew at different rates over time, perhaps even to formulate an important adjunct to Keynes' ideas on how to damp the oscillations of the business cycle. It was a golden time, according to the participants. "We were in touch with the secrets of the universe," Sheshinki recalls.
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