Sunday, December 20, 2009

Paul Samuelson (RIP)

Paul Samuelson, who died yesterday, aged 94, was probably the most influential American economist of the 20th century. Certainly, no thinker did more to turn economics from a scattered selection of ideas into a social science.

Paul Samuelson

What makes economies grow? When and why do companies choose to invest? Does international trade cost jobs? There weren't many big questions in economics that Samuelson didn't lend his brain to. He once boasted: "My finger has been in every pie." When they started a Nobel Prize for economics in 1969, they gave the second award to him.

As his friend Paul Krugman has commented:

"[M]ost economists would love to have written even one seminal paper - a paper that fundamentally changes the way people think about some issue. Samuelson wrote dozens: from international trade to finance to growth theory to speculation to well, just about everything, underlying much of what we know is a key Samuelson paper that set the agenda for generations of scholars."

Samuelson did much to bring maths into the subject - in The Foundations of Economic Analysis he showed his fellow economists how equations could help them predict how households and businesses would behave. Critics now would say the mathematical turn took the subject away from the real world - eventually giving economists too much faith in abstract models, like the complex equations for estimating risk which have lately got the financial markets into so much trouble.

But if there's a link between Samuelson and our current troubles - and frankly I think it's a bit mean to draw one - it's a link that goes to the core of all of modern economics. For, whatever economics is today, for good and bad, it is, in no small part thanks to him.

His most famous student was a recently elected John F Kennedy, to whom he gave his first economics class on a beach near the Kennedy compound in New England in 1960.

With his seminal textbook - Economics - Samuelson brought the ideas of John Maynard Keynes to generations of students around the world.

As I discussed in my recent Analysis programme, ( The Economist's New Clothes ), some of Keynes insights - especially about the nature of uncertainty - got lost in Samuelson's effort to incorporate Keynes into the mainstream. But had it not been for Samuelson, Keynes might not have found his way into the standard textbooks at all.

Samuelson was lucky to have come to the subject when he did - when modern economics was just beginning. It would be all but impossible for one individual to leave such a mark today. "I don't care who writes a nation's laws - or crafts its advanced treatises" - he once said. "if I can write its economics textbooks".

by Stephanie Flanders

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