Remarks on the liberal arts by Alan Greenspan Chairman of the Federal Reserve Board - Perspectives - excerpts from remarks made at the International Understanding Award Dinner of the Institute of International Education, 2002

Liberal Education, Summer, 2003 by Alan Greenspan

I PLAN TO ADDRESS THE IMPORTANT ROLE that education has played in raising standards of living, especially in the United States, and in contributing to positive social and economic relationships across the globe. Although I will focus on institutions of formal education, we need to be reminded that people have been educating themselves one way or the other since the dawn of history. Our faculty for rational thought has carried us one arduous step at a time into a deeper understanding of how the world works. Decade by decade, scholars have recorded their insights, building knowledge from one generation to the next. Although wars, international conflicts, and economic crises have interrupted our progress from time to time, we have, nonetheless, persisted in learning to use our hard-won knowledge to alter our physical and social environment for the better. Especially notable has been our application of both scientific advances and organizational paradigms to raise living standards across most of the population, and, as a consequence, engender marked increases in average longevity and quality of life.

Over the last century, for example, real gross domestic product in the United States has grown at an average of more than 3 percent per year. Only a small fraction of that increased value represents a rise in the tonnage of physical materials--oil, coal, ores, wood, and raw chemicals, for example. The remainder represents new insights into how to rearrange those physical materials to better serve human needs. This process has enabled valued goods to be transported more easily and to be produced with ever fewer workers, allowing a more efficient division of labor to propel overall output and standards of living progressively higher.

The share of the nation's output that is conceptual appears to have accelerated after World War II with the insights that led to the development of the transistor and micro-processor. They have spawned remarkable alterations in how we, and many other societies, live. Computers, telecommunications, and satellite technologies have enabled data and ideas--the ever more important elements of valued output--to be expeditiously transferred geographically to where they can be put to best use. Thus, these advanced means of communication have added much the same type of value that the railroads added in transporting the more-physical goods of an earlier century.

In broad terms, the available empirical economic research has identified a complex of factors as key determinants of how successful any country will be in transforming its physical and human assets into economic growth: openness to trade, a strong institutional infrastructure, disciplined macroeconomic policies, and an effective system of education--formal or otherwise. Although the relative contribution of any single factor remains under debate, most observers would agree that the success of these factors in accounting for relative rates of economic growth across countries lies importantly in the interactions of the determinants themselves. An educated workforce, then, is a necessary ingredient for economic advance, but it is apparently much more powerful when combined with a strong, competitive economic system, where rights of persons and property are protected. In that regard, an economist can scarcely fail to notice the advantages that we have accrued in this country by having the marketplace work efficiently to guide our educational system, defined in its widest sense, toward the broader needs of our economy.

America's reputation as a world leader in higher education is grounded in the ability of these versatile institutions, taken together, to serve the practical needs of an economy and, more important, to unleash the creative thinking that moves a society forward. It is the recognition of these values that has attracted such a large segment of the world student population to our institutions of higher learning.

What our colleges and universities produce is obviously highly valued in today's economy. The rise in that value over the past several decades has been reflected in a widening spread between compensation paid to college-educated workers relative to those with less schooling. This increased investment in college-trained human capital has resulted in a flow of labor input into the economy that has made an important ongoing contribution to U.S. economic growth.

[C]reative intellectual energy ... drives our system forward. As the conceptual inputs to the value added in our economic processes continue to grow, the ability to think abstractly will be increasingly important across a broad range of professions. Critical awareness and the abilities to hypothesize, to interpret, and to communicate are essential elements of successful innovation in a conceptual-based economy.

The roots and nature of how the human mind innovates have always been subject to controversy. Yet, even without hard indisputable evidence, a remarkable and broad presumption is that the ability to think conceptually is fostered through exposure to philosophy, literature, music, art, and languages. So-called liberal education is presumed to spawn a greater understanding of all aspects of living--an essential ingredient to broaden one's worldview. As the president of the University of Pennsylvania, Judith Rodin, put it, such an understanding comes by "vaulting over disciplinary walls" and exploring other fields of study. Most great conceptual advances are interdisciplinary and involve synergies of different specialties.