Lessons from history fuel passion for research in economics
Menachem Brenner knows something about challenges.
While most would be daunted by the rigours of studying and researching finance - let alone futures and derivatives - it's the sort of thing he has relished for the past two decades.
The professor of finance at New York University's (NYU) Leonard N. Stern School of Business, and former futures and options trader at the now-defunct New York Futures Exchange (NYFE), began his odyssey into finance in high school, from a history teacher who left his mark. 'My teacher's parents were from Germany,' Brenner recalls. 'I always remembered what he told us about the Great Depression and how there was immense monetary inflation; people had all this money but it wasn't worth anything.'
Although he grew up in Israel, thoughts of the past global economic collapse and the suffering it inflicted were still in the living memory of the adults around him.
Brenner was well on his way to becoming a probing economist and began deeply questioning how economies rose and fell.
'I wondered how the entire [economic] system could collapse. When it came time to choose topics at university after military service, economics seemed wise because it was based on common sense, good reasoning and seemed quantitative, which is the direction I was leaning in,' Brenner says.
He recalls how his professors at the Hebrew University in the 1960s were influenced by the Chicago School of Thought. 'They were young, brilliant and from places like MIT and the University of Chicago, so it was great,' Brenner says. However, for all its appeal, even in the 1960s, economics was not as specialised and quantitative as it now is.
Something that was key in its transformation, from a dismal science concerned with 19th century postulations to the empirical science it now is, was finance theory. 'I got into finance - and ultimately derivatives - through my research interests,' he says.
Finance has always been divided between 'capital markets' and 'corporate finance'. Brenner was deeply involved in the former and did so at a time when derivatives were first conceived as financial instruments which further propelled his interest in the subject.
'Economics in the late 1960s and early 1970s was too focused on the study of certainty. We hardly discussed the uncertainty of how to deal with prospective interest rates and inflation,' Brenner says.
To that end, he believes the field of finance was a pioneer into 'resolving issues of uncertainty'.
Brenner pursued his doctoral studies in the days when Harry Markowitz won a Nobel Prize for his 'efficient portfolio' theory, and when Fischer Black and Myron Scholes devised what is taught at business schools the world over - the 'Black Scholes' model, which is a mathematical description of investments and capital markets.
Coming of age at a time of fundamental paradigm shift greatly affected his understanding of the world and his scholarly endeavours. Today, as a professor of finance at NYU, he is overjoyed by the fact that New York remains a stimulating place to work.
'As far as I'm concerned, it's the centre of the world's [capital] markets, despite Chicago's [Mercantile Exchange] being the biggest derivatives trading centre for futures and options,' Brenner says, adding, 'it's nice to be close to the centre of the action'. It's something he knows all too well as he took a year-long sabbatical in the late 1980s to become a futures and options trader at the NYFE, which later merged with the New York Mercantile Exchange.
He believes New York's position as one of two truly global financial centres remains firm.
'NYU has one of the three best finance departments in the country, if not the world, some say. Most of my colleagues are the top of the crop - it's truly enjoyable.'