Merton Miller Was Principled on Principal and Interest
By David Henderson
A friend of mine was reminiscing Sunday about Dennis Peron, a friend of his who died last week. My friend told me how he managed to get a whole bunch of people in San Francisco informed about Peron’s upcoming trial on marijuana charges in the late 1970s. Peron could have gone to prison for 95 years. My friend told me that he publicized the case in San Francisco so that it would be hard for the district attorney to find jurors who would convict. He even managed to waylay Willie Brown, a powerful and legendary San Francisco politician and put him on the spot, in front of media microphones, to support Peron.
Result: the D.A. offered a sentence of 5 months. Deal.
That got us talking about various juror stories we remembered and I told him one of my favorites–about Merton Miller. Merton was a very sharp financial economist at the University of Chicago who won the 1990 Nobel Prize in economics along with Harry Markowitz and William F. Sharpe.
In 1997, I was working on a book review for Fortune of Miller’s book Merton Miller on Derivatives. I remembered a story that a junior colleague and friend of his, who was also a good friend of mine, had told me about Merton. I wanted to tell this story in my review to show what a principled man Merton was. Sometimes stories get exaggerated and sometimes they’re not even close to true. So I called Merton and asked him if it was true. It was. Unfortunately, Fortune (no pun intended) edited it out.
Here’s the story. Sometime in the 1970s or 1980s, Merton was on a jury in Chicago deciding a civil case. The case seemed clearcut to all the jurors and so they decided to award damages to one side. My vague recall was that the award was about $2,000. The jurors thought they were done. Merton didn’t. What follows is my wording of his thoughts–he might have used different words. “Remember,” he said, “that the event for which we’re ordering damages happened 3 years ago. We need to grant interest.” Many of the other jurors objected. Merton wouldn’t let it go. “I’m not signing off on the damage award until we grant interest,” he said. “I don’t care how long we’re here.”
Think about it. This was when Miller was well along in his career as a finance professor. Finance professors are the highest paid professors in business schools and earn huge hourly rates as consultants. So the guy with the highest opportunity cost of time was the guy insisting on spending the time until the jury got the decision right.
I have a vague recall that after Merton died, I called his widow to tell her the story and she appreciated it. I also have a vague recall that she remembered it independent of my call.