Economics after the War

In the period from the end of the Second World War to the 1960s, economics was transformed. It became more technical, with greater use of formal theory. It became normal for articles in academic journals to make a clear distinc­tion between theoretical and empirical work; the first part might present a theoretical model and the second part an empirical application, perhaps esti­mating the coefficients using statistical data.

Samuelson was not the only creator of the new ways of doing econom­ics. The Cowles Commission was mathematizing economics on the basis of Walrasian general equilibrium theory in ways that looked very different from anything in Samuelson’s book. With the support of the U.S. Air Force, methods of “activity analysis” were rapidly being developed, bearing a family resemblance to the input-output modeling of Samuelson’s teacher, Wassily Leontief. John von Neumann and Oskar Morgenstern had proposed a radi­cally new conception of economic equilibrium in The Theory of Games and Economic Behavior, using advanced mathematical techniques such as fixed- point theorems, that Samuelson did not use, but that were taken up at Cowles and elsewhere.

Although none of these approaches to modernizing economics was Samuelson’s, he was close to most of them. He might be skeptical about the econometric estimation of complex models, the techniques for which were being developed at the Cowles Commission; but beginning in 1948, he began to work closely with one of its leading figures, Tjalling Koopmans. And his first PhD student, Lawrence Klein, after a period at the Cowles Commission, became the leading figure in large-scale macroeconometric modeling in the 1950s. Samuelson became heavily involved in linear modeling; together with his MIT colleague Robert Solow and Harvard’s Robert Dorfman, he wrote an advanced textbook, Linear Programing and Economic Analysis, for RAND, a think tank established in 1948 that was to play an important role in both economics and policymaking.⁶

Samuelson was never a national income accountant, but during the war he had developed a close working relationship with Raymond Goldsmith, who was. He could also cooperate with and support those, such as Rutledge Vining, who continued to work in the National Bureau institutionalist tra­dition at the same time as being very close to those who were much more rigorously “neoclassical” in their approach, such as Solow and James Tobin, a Harvard graduate who soon was the dominant figure at Yale. Alongside Solow, Tobin, and Franco Modigliani (eventually hired at MIT), Samuelson became one of America’s leading Keynesian economists.

Samuelson was at the center of American, and arguably world, econom­ics from the publication of his two books until his retirement. The reason he could do this from a position at MIT was that, building on the position it had achieved in the natural sciences and engineering during wartime, the economics department at MIT became central to American economics. By the 1960s, its graduate program was producing the economists who would go on to become leading figures in the field. With the rise to prominence of Milton Friedman and his successors, Chicago might eventually displace MIT in the league of Nobel Prize winners, but MIT economists remained in prominent positions and ideas emanating from MIT were important in most branches of economics. Samuelson was not personally involved in all of these, although he was active in many major developments, includ­ing finance, public economics, modeling intergenerational transfers of resources, the theory of capital, and economic growth. He was a major presence in the department, making MIT the place where others wanted to work.

In this respect, he had much in common with the British econo­mist Alfred Marshall, whose attitudes he disparaged so prominently in Foundations. They both had a mission that involved establishing a new, sci­entific economics by building up a center of economic research and teaching. Of course, MIT in 1948 was not the University of Cambridge in 1885, and Samuelson was an enthusiast for mathematical economics in a way Marshall never was. However, though both of them contributed to the theory of profit­maximizing businesses and utility-maximizing consumers, neither was a simple neoclassical economist; both were cautious in applying such theo­ries to real-world problems and had the ability to appeal to widely differing groups of economists— even to economists who did not accept the value of their more formal theoretical work. Just as there is a strong historicist strand in Marshall’s work, it is possible to discern institutionalist traces in Samuelson's.⁷

This book is the story of how a student with a humanities background came to economics through an interdisciplinary education in the social sciences, recognizing as an undergraduate that mathematics could be key to unlocking the secrets of the subject. Discovering an aptitude for such work, he devel­oped under the guidance of Wilson and then Hansen into the economist who could dominate the field in the 1950s. In 1948, still only thirty-three years old, settled at MIT as a full professor, his eminence was recognized by the American Economic Association, and he soon had two important books to his name. From that point, the story of Samuelson changes. It ceases to be that of a young person finding his way and becomes that of an established figure in the field. That story is for a different book.