The Scopus Award
Hebrew University

The Fairmont Hotel
Chicago, Illinois
June 18, 2007

decoline

Education

Aristotle told us that the fate of empires depends on the education of its youth.

In ancient Greece, education for free men was a matter of studying Homer, mathematics, music, and gymnastics. Higher education was carried on by the Sophists and philosophers. Hebrews left education to its Talmudic scholars and rabbis. In medieval Western Europe, education was also typically a charge of the church. With the Renaissance, education in classics and mathematics became widespread. After the Reformation, both Protestant and Roman Catholic groups began to offer formal education to more people, and there was a great increase in the number of private and public schools.

American education developed from European intellectual traditions transmitted to the New World. Throughout the 13 colonies, the English language, laws, and customs came to define colonial educational practice. The first American formal schools appeared in the 1630s. The Boston Latin School, established in 1635, is considered the first town-supported school with a continuous history. In 1647, Massachusetts enacted a law requiring every town of at least 50 households to hire a teacher for reading and writing; those of 100 or more were required to establish and operate a grammar school.

Americans have always had a passion for higher education. Harvard College came first in 1636, William and Mary of Virginia followed in 1693, Yale in 1701, and Princeton in 1746. America's institutions of higher education are today accepted as the best in the world. Through a combination of growth, pluralism, and competition, our colleges and universities provide the widest access to postsecondary education anywhere on the globe. Indeed, recent international studies have concluded that 17 of the top 20 universities in the world are American.

It is said that education is the process, either formal or informal, that shapes the potential of a maturing organism.

It was 1939, the world was on fire, but my parents, consummate teachers both, never lost sight of their priorities. Although we were chased by the Gestapo and the KGB, my father sat me down one day to lecture.

In one hand, he held up a Polish zloty, in the other a Lithuanian lit.

"Do you know what these are?" he asked.

"Money," I answered, proud to show off my deep understanding of such matters.

"Yes," he agreed. "And do you know how much each of them is worth?"

I shrugged my shoulders, having exhausted my expertise in high finance.

My father then carefully explained that the value of those two units of currency could be determined only by what they can buy in the marketplace. What followed was my first exposure to the logic of Milton Friedman. I learned that while the official rate of exchange between the zloty and the lit was one for one, in fact it would take two zlotys to buy a loaf of bread but only one lit. "The government's official rate doesn't mean a thing," my father admonished. "Real value can only be determined in the marketplace."

These lessons in Milton Friedman's free market economics left an indelible impression as we chased around the world, and as the lit changed to a ruble, the ruble to a yen, and finally a yen to a dollar.

In the mid-1950s, when this young law student, futures trader cum financial engineer was captured by the tumult and dazzle of the floor at the Chicago Mercantile Exchange, his font of knowledge were the grizzled old-timers on the Exchange floor who sometimes would take pity on the wide-eyed youngster thirsting for every smidgen of information and offer some of their precious wisdom. Their lore was thoroughly appreciated. There was virtually nothing of any academic substance about the markets of futures available anywhere. It was still some 15 years before Thomas Hieronymus of the University of Illinois would publish his Economics of Futures Trading, the 1971 seminal work on our markets—a work that quickly became the bible of futures trade and established the author as the high priest of futures.

As Professor Hieronymus stated at the time, the arcane world of futures was "little known and less understood." For the very first time, someone with his academic authority defined a futures contract, explained the need for price discovery, the role of speculation, the mechanics of hedging, the value of risk management, as well as the architecture of a futures exchange, its unique operation, singular terminology, and its historical development.

Nelson Mandela lectured that education is the most powerful weapon with which to change the world.

The Chicago Mercantile Exchange today is well known as the house that innovation built. Its original logo, "The Exchange of Ideas," was as much a catchy phrase as a defining statement. However, far less known is the fact that among its greatest achievements is the Exchange's commitment to advancing market education. Beginning in the early 1970s and continuing throughout its three-decade rise in the financial world, the CME was a leading force, if not the leading force, in advancing academic education, courses, textbooks, studies, learning centers, workshops, and symposia in the field of futures options—and most recently on behalf of the advancement of electronic trade.

It was the first exchange to promote a center for futures education in partnership with the Comex at Columbia University, a prize at the University of Chicago to recognize outstanding scholarship by a business school professor, and to sponsor chairs for the study of futures at both Chicago and Northwestern universities. Nothing—neither success nor change in leadership—has altered or diminished this mission. In 2003, it founded the CME Center of Innovation. Among its accomplishments is the establishment of the Fred Arditti Innovation Award to individuals who have made significant conceptual or practical contributions to commerce or markets. The center also teamed up with the Mathematical Sciences Research Institute (MSRI) to create a prize for the innovation of mathematical, statistical, or computational methods in the study and behavior of markets.

Two years ago, the CME Trust—which originated in 1969 for customer protection—was converted to the CME Charitable Trust with a primary goal of promoting, teaching, and learning about financial markets. In 2006, toward that goal, the trust distributed grants in excess of $10 million, the greatest portion to universities and colleges in the Chicago area. Last week, the trustees announced an additional $1.75 million in grant commitments to Loyola University, University of Illinois at Chicago, and Erikson Institute of Chicago for early childhood education.

Albert Einstein believed that the supreme art of the teacher is to awaken joy in creative expression and knowledge.

It would be impossible to attempt to enumerate the number of books, textbooks, magazines, journals, and periodicals about financial futures and derivatives that permeate today's economic fabric, not to mention the daily coverage of these markets in the electronic and printed media. Suffice it to say that last week on my visit to the Shanghai campus of China Foreign Exchange Trading System (CFETS), with which the CME forged a historic agreement, I was escorted to its library, which boasted no less than 1,000 books, all in English, on the subject of financial futures and derivatives.

Futures and derivatives courses and MBA programs today exist at American universities too numerous to mention, including those at the top of the U.S. academic ladder, such as Harvard, Stanford, Pennsylvania, Cornell, Dartmouth, DePaul, Duke, MIT, Illinois, UIC, Loyola, University of Chicago, and Northwestern, as well as at relatively unknown academic institutions across the breadth of this country, from the likes of Emmanuel College in Boston, to Mills College in Oakland, California. Similarly, courses in futures and financial derivatives are available in universities throughout the world, including Singapore, India, Thailand, Spain, Great Britain, France, just to name but a few. And soon at Peking and Hebrew universities.

Indeed, the markets of futures have come a long way from the days of Thomas Hieronymus.

Clearly innovation has been the key to our achievements, but only because of our equal partnership with education. In no small measure, this success is due to a host of prestigious innovators and teachers, such as Milton Friedman, Merton Miller, Gary Becker, William Sharpe, Bob Merton, and Myron Scholes, to mention only those who have received the Nobel Prize for their academic contribution to our markets.

"The best thing for being sad," said Merlin, in T. H. White's The Once and Future King, "is to learn something. That's the only thing that never fails. You may grow old and trembling in your anatomies, you may lie awake at night listening to the disorder of your veins, you may miss your only love, you may see the world about you devastated by evil lunatics, or know your honor trampled in the sewers of baser minds. There is only one thing for it then—to learn. Learn why the world wags and what wags it. That is the only thing which the mind can never exhaust, never alienate, never be tortured by, never fear or distrust, and never dream of regretting. Learning is the only thing for you. Look what a lot of things there are to learn."

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