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Born in Detroit as son of a rich businessman, Gay attended schools in the United States and in Switzerland. In 1890 he obtained his A.B. in history and philosophy at the University of Michigan. He returned to Europe to study agriculture, industry, trade and history at universities in Leipzig, Göttingen. Zurich, Berlin and London. In 1892 he married his Michigan classmate Louise Randolph, with whom he shared his research. In 1902 he received his PhD from the University of Berlin under supervision of Gustav Schmoller.
Back in the United States in 1902 Gay was appointed instructor at the Harvard University, replacing William Ashley. In 1903 he was promoted Assistant Professor, and in 1906 Professor in the chair of Economic History at Harvard.