About the Bernoulli Center for Economics
In honour of Bernoulli’s famous research, the Bernoulli Center for Economics invites economists, who have also been involved in pathbreaking research in economic theory, to hold the Bernoulli Lecture.
Daniel Bernoulli – What Economics Owes Him
Daniel Bernoulli was born on the 8th of February in 1700 in Groningen, the Netherlands. He was the son of the mathematician Johann Bernoulli. When he was five years old, his parents moved to Basel, Switzerland. Although he was brought up among many talented scientists, the town did not yet know that the little boy would one day become its most famous mathematician.
Bernoulli first studied medicine in Basel, Heidelberg and Strassbourg and graduated in 1721. However, his actual interest was mathematics, a discipline he considered basic for all other sciences. In 1723 he went to Venice for further studies where he published his first mathematical paper called Excercitationes quaedam in mathematicae.
In this work, he suggested a solution for the Riccati-differential equation, which made him famous all over Europe. He refused to accept presidency of the newly founded academy of Padua and went, together with his brother Niclaus, to St. Petersburg, Russia.
It is not at all exaggerated to say that the time Daniel Bernoulli spent in St. Petersburg rang in a new era in the history of mathematics and physics.
St. Petersburg had only recently been founded – to be specific, in 1703, and its architect, Trezzini from Malcantone near Lugano, Switzerland, had received the task of building nothing less than a whole city. Times were rough back then. Rumors circulated that Peter Magnus had killed his own son because he considered him unfit to rule the whole empire. When Peter Magnus died in 1725 political chaos erupted, and self-proclaimed rulers came and went. Political power was often gained by murder. In addition to this, Niclaus, who had a close relationship with his brother Daniel, died in St. Petersburg.
But even so, Bernoulli managed to do great work at the Academiae Scientiarum Imperialis Petropolitanae , especially in the field of physics and hydrodynamics.
Interesting for economists is his paper on probability and political economy, where he made the assumption, that “the moral value of the increase in a person’s wealth is inversely proportional to the amount of that wealth”.1
However, Bernoulli was not at all comfortable in St. Petersburg and, most notably, he did not get along well with his colleagues.
So he returned to Basel in 1734 where he started to give botany lectures. From the point of view of economics it is surprising that his greatest contribution to economics stems from this period.
In 1738, Bernoulli published a paper on Evolution and Economics under Risk; a paper that has profoundly influenced economic theory, portfolio theory and operations research2.
What was it about? Bernoulli thought of measuring risk with the geometric mean and brought up the idea of minimizing risk by spreading it across a set of independent events. This is nothing less than the paramount economic concept of diversification.
1738 seems to have been quite a good year for Bernoulli because he also thought out a solution to the St. Petersburg Paradox. Read more about that in a separate article.
The air of Basel was not only propitious for bringing astonishing economic ideas to life but also proved helpful in revitalizing Bernoulli as a human being.
In a note he wrote to Leonhard Euler, he talks about becoming a different kind of man, thanks to the pure and fresh air of Switzerland.
However, there were troubles there too…
Already in 1734, his highly competitive father decided to end his relationship with his son because Daniel had been awarded the first prize of the Paris Academy along with him.
A few years later, his father published a paper on hydrodynamics, which was, as a matter of fact, largely based on his son’s work, even though Johann tried to claim that it was the other way around.
Johann died in 1748 and Daniel was able to change his botany lectures for physics lectures, which he held until 1776.
Daniel Bernoulli always emphasized the independence, originality and influence of mathematics but also criticized mathematicians who only cared about their formulae without considering the system as a whole.
He never got married because, in his own words, he was afraid of losing freedom and calmness for a single day.
In 1782, Daniel passed away, loved by the citizens of Basel and honoured by the leading scientists of his day.
“There is no philosophy which is not founded upon the knowledge of phenomena, but to get any profit from this knowledge it is absolutely necessary to be a mathematician.”
Daniel Bernoulli
2 Stearns, S.C., “Daniel Bernoulli (1738): Evolution and Economics under Risk.” Journal of Biosciences Vol. 25, 2000.
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