Merton H. Miller, the Nobel laureate and finance professor at the University of Chicago Graduate School of Business, recalled the 1983 telephone call he received from Thomas R. Donovan, president of the Chicago Board of Trade.
Donovan had asked Miller to succeed George Stigler, another Nobel Prize winner from the U. of C. business school who was completing a three-year term as an outside director on the CBOT`s 21-member governing board.
”For years there has been a close relationship between the Board of Trade and the University of Chicago. Tom wanted me to fill the vacancy. I call it the Chicago seat at the Board of Trade, kind of like an apostolic succession,” said Miller.
The soft-spoken, gray-haired native of New England who arrived on the Hyde Park campus in 1961, accepted Donovan`s offer. It was a move that was to have important consequences for Miller, an outspoken champion of free-market solutions to economic problems, and the future of the Board of Trade and Chicago Mercantile Exchange, the pre-eminent markets of their kind in the world.
Miller, 68, is here to address an annual risk management conference sponsored by the Board of Trade and the Chicago Board Options Exchange. Now in its eighth year, the 1992 gathering has brought together approximately 300 of the nation`s top corporate treasurers, pension plan sponsors, investment officers and portfolio managers and consultants to learn trading strategies using futures and options on futures and securities.
No risk management conference, it seems, would be complete without this veteran U. of C. professor, who is nearly as well-known for his engaging humor and easy-to-understand speaking style as he is for his theoretical contributions to corporate finance and related subjects.
Over the years, Miller has emerged as one of the most important allies of the Board of Trade and Merc, supplying these markets and their leaders with the intellectual grist to fight off regulators proposing rules they consider burdensome and congressmen seeking fresh tax revenue sources.
Since his first real-life encounter with the futures markets in 1983
(”In my work, of course, I had read about these markets,” he noted), Miller`s intellectual appreciation for them has grown. In a recently published thumbnail sketch, Miller writes that after being appointed a CBOT director, his research interests shifted from corporate finnance toward the economic and regulatory problems of the Board of Trade, Merc and other U.S. securities and derivative markets.
In the protracted debate between Wall Street and LaSalle Street in the late `80`s, when the Chicago markets were being blamed for the stock market plunges of 1987 and 1989, Miller worked feverishly and effectively behind the scenes. By pointing to important studies put together by Miller, the Chicago exchanges have been able to turn back claims by Nicholas Brady, before he became Treasury secretary, and others, that hypervolatility in the futures markets had caused the 1987 Wall Street crash.
In an interview, Miller talked about the challenges facing the Board of Trade and the Merc as they approach the 21st Century. An only child, Miller also talked about his late parents-Sylvia, a housewife, and Joel, a lawyer-and growing up in Boston (”My mother was a career woman-her career was taking care of me,” he said.)
He also described how he has become ”a peripatetic scholar” since winning the Nobel and a third of the $700,000 prize, globe-trotting to conferences such as this one to share the fruits of his research. An ardent sports fan, he is as comfortable talking about National Football League greats as he is discussing scholarly analyses of contemporary financial markets.
”In order to understand these exchanges, you have to remember that they are businesses first and foremost, with all the classic problems of any other business-personnel, regulation, production, competition and the like,” said Miller.
”If these markets don`t remain fast and cheap, lean without all the bells and whistles, then they risk losing their discount chain status, becoming instead a fancy department store, and that would make them uncompetitive,” he said.
Miller contends that at the heart of the most recent dispute between the securities and futures industries is not the market crash but the realization by Wall Street that the Chicago exchanges have taken business from them. The picture has been further complicated, he contends, by the stumbling manner in which Wall Street leaders subsequently sought help for their eroding market position from lawmakers and industry regulators in Washington.
”You don`t go to Washington and say: `Kill my competition so we will all be better off.`
”But I also give a lot of credit to the Chicago exchanges, to Tom Donovan, to Leo Melamed at the Merc, and the others, in standing their ground in this fight,” he adds. ”But, I should note that in that crazy town
(Washington), nothing is really over until it`s over.”
As a teenager, Miller attended the prestigious Boston Latin School. He entered Harvard University in 1940 and three years later graduated cum laude with a degree in economics. (”My parents could not afford to send me halfway across the country to the University of Chicago, so they sent me to Harvard, the best local college they could find,” Miller jests.)
In World War II he moved to Washington, where he was an economist for the U.S. Treasury and, later, the Federal Reserve. In 1949, he enrolled at Johns Hopkins University, receiving a doctorate in economics in the early `50s.
Miller spent a year as a lecturer at the London School of Economics in 1953 and then won an appointment to the faculty of the Carnegie Institute of Technology, now Carnegie-Mellon University. There he joined Herbert Simon and Franco Modigliani, two budding economists who also went on to win Nobel Prizes in economics.
In 1961, Miller joined the U. of C. Graduate School of Business. An author and prolific contributor to scholarly journals, Miller later was named the Robert R. McCormick Distinguished Service Professor and, in 1990, shared the Nobel with Harry M. Markowitz of Baruch College at the City University of New York and William Sharpe of Stanford University.
After the death in 1969 of his first wife, Eleanor, with whom he had three daughters, Miller remarried; Katherine is a treasurer for Sanwa Credit Corp. (”My wife is not an academic dreamer; she loves the rough-and-tumble action of the real world,” he said.)
Miller is optimistic about Chicago`s futures markets, citing two key developments of the last two decades.
He noted that the study of the use of futures and options and how they function is standard fare at virtually every important business school in the U.S. He also noted that the Board of Trade and Merc and the products they trade are being copied by major financial centers from the Pacific Rim to the former Soviet republics.
”Except for a bunch of old mossbacks, most of them living in New York, the younger generation is thoroughly at home with futures and options. As long as risk exists in the world, they will be around,” he said.
