A Good Keynes Man

Paul Samuelson, 1916-2009.

Listener: 23 January, 2010

Keywords: History of Ideas, Methodology & Philosophy;

We called it “Sam”, but its official title was Economics. Written by Paul Samuelson, it’s the book that – as author Robert Heilbroner put it – “changed our vision of economics from the dismal science to a study of social possibilities”. The first edition of 1948 is said to have set a model for presentation, lucidity and humour for all textbooks. Eighteen editions later, it has sold over four million copies in 40 languages.

Samuelson says he “sweated blood” writing it to pay for raising the triplets from his wife’s fourth pregnancy. His wife also deserves a mention for her contribution to his earlier work. His first (1947) book, Foundations of Economic Analysis, includes the tribute: “My greatest debt is to Marion Crawford Samuelson whose contributions have been all too many. The result has been a vast mathematical, economic, and stylistic improvement . the quaint modern custom of excluding the value of a wife’s services from the national income [cannot] condone her exclusion from the title page.”

Writing the textbook probably turned the powerful applied mathematician into such a good stylist. He was not a policy-oriented economist, preferring to seek deep insights rather than shallow recommendations. Economics “was about discoveries and not merely opinions”. He became the most influential 20th century economist on other economists. John Maynard Keynes has had (and still has) more direct influence on macroeconomic policy, but Samuelson’s impact was wider, including on welfare economics, microeconomics and trade theory.

It was Samuelson who introduced Americans to Keynesianism, creating the “neoclassical synthesis”, which combined Keynes’ macroeconomics with the theory of how individual markets work. He did it with a lightness of touch: “The stock market has forecast nine of the last five recessions.” Even monetarism – the analytic rather than ideological version – is founded on his synthesis.

He grew up with his Polish Jew immigrant parents in the Midwest, graduating from the University of Chicago. Initially he resisted Keynes’ theories, but after four college summers on a beach – it was pointless to look for work when friends were being turned down so many times – he saw the logic of Keynes’ explanation of the Great Depression. His Keynesianism evolved and later in life he criticised its earlier version.

It is said that when he finished the oral exam for his Harvard doctorate, the interviewing panel asked itself whether it had passed. It failed by not offering him a job. Instead he went to the nearby Massachusetts Institute of Technology, whose economics department then topped his alma maters’ in the rankings for decades.

One can’t be an economist today without admitting Samuelson’s influence. The citation for his Nobel laureate said: ” more than any other contemporary economist, he has contributed to raising the general analytical and methodological level in economic science”. That was because he focused on analysis rather than policy. He boasted he had never spent a week in Washington. His students – including Paul Krugman and Joseph Stiglitz – carry his work forward.

The enfant terrible became the enfant terrible emeritus. At 89, he published a paper that explained how offshoring does not always lead to an improvement in welfare. The result was already there in his pioneering international trade theory of the 1950s, but those ideologically over-committed to free trade overlooked it. He said, “Politicians like to tell people what they want to hear – and what they want to hear is what won’t happen.”

Despite his dazzling learning, insight, energy (his collected works are in five huge volumes), humour, profundity and amazing inventiveness, he was a humble man, telling his students that economists had much to be modest about. He recently commented: “What we know about the global financial crisis is that we don’t know very much.”

In the stressful “capital reversing” debate (don’t ask), he contributed to a serious analytic error (again, don’t ask), but he wrote the best explanation correcting it. He finished the retraction with: “If all this causes headaches for those nostalgic for the old parables of neoclassical writing, we must remind ourselves that scholars are not born to live an easy existence. We must respect, and appraise, the facts of life.”

Samuelson also said: “I don’t care who writes a nation’s laws if I can write its economics textbooks.” It was a great textbook, one he said aimed never to teach anything that had to be unlearned. Yet he taught us so much.