INTRODUCTION: PAUL SAMUELSON AND MODERN ECONOMICS
ON December 28, 1947, in the Knickerbocker Hotel in Chicago, the president of the American Economic Association (AEA), Paul H. Douglas, who was shortly to leave academic life for a long career in the U.S.
Senate, presented the association’s first John Bates Clark medal to Paul Samuelson. This medal, which was to be awarded biennially to the economist under the age of forty who was judged to have made the greatest contribution to economics, marked him among the rising generation of American economists. Douglas described Samuelson as having made “extraordinarily penetrating contributions to the theory of employment, production, distribution, and value,” a long list to which he could have added the theory of the consumer, the theory of international trade, and welfare economics.1 Three months earlier, Harvard University Press had published a book based on Samuelson’s PhD thesis, written in 1940 when he was only 25; the book’s title, Foundations of Economic Analysis, revealed the extent of his ambition: to provide a framework within which all economic analysis could subsequently be undertaken. Five months after the award, Samuelson’s ambition to reshape the discipline was confirmed when McGraw-Hill published the textbook Economics: An Introductory Analysis, which virtually swept the board in teaching economics in American colleges and universities and made Samuelson a fortune.Over the following thirty years it became clear that Samuelson’s ambitions had been realized. By 1970, the techniques he had developed in Foundations had become central to the graduate curriculum and his introductory textbook had entered its eighth edition, having dominated the market for many years. His presence at Massachusetts Institute of Technology (MIT) had been instrumental in turning a department focused on teaching elementary economics to engineering students into one of the world's leading economics departments.a Samuelson had also become a prominent commentator on economic events, writing regularly for major newspapers, with many of his articles syndicated worldwide.
He had been an economic advisor to President John F. Kennedy and was known as one of the leading American proponents of the Keynesian economics that dominated debates over economic policy in what came to be known as a golden age. In 1970, he became the first American to be awarded the Nobel Memorial Prize in Economic Science “for the scientific work through which he has developed static and dynamic economic theory and actively contributed to raising the level of analysis in economic science.”b Excepting those who felt themselves more deserving, the vast majority of economists would have supported this judgment. “Samuelson” had become an institution in world economics.When he received the John Bates Clark medal, Samuelson was only thirty-two years old. Though he was still in the early stages of an immensely productive career, this award, together with the publication of his two books and his appointment as a full professor at MIT, mark the end of the period in which his vision of economics and his position within economics were established. This phase of his career, which had begun in 1932 when he first encountered economics as an undergraduate at the University of Chicago and which ended in 1948, is the subject of this book. Economics changed dramatically during this sixteen-year period. The most well known of these changes is the “Keynesian revolution,” which involved the emergence of a new way of thinking about both economic theory and the conduct of economic policy, closely tied to a revolution in national accounting/ This period also saw the transformation of mathematical economics and the analysis of economic data using formal statistical methods (“econometrics”) from being the concern of a tiny minority of economists to occupying a well-established place in
a. A survey in 1964 ranked MIT's economics department second only to Harvard, with department chairs and junior scholars ranking it equal to Harvard. It was considered to have the most attractive graduate program in the country.
MIT had not even figured in the equivalent survey in 1957 (Cartter 1966, pp. 34—35).b. The first prize, in 1969, had gone to two European economists, Ragnar Frisch and Jan Tinbergen, born in 1895 and 1903, respectively, for work on dynamic statistical models, most of which was undertaken in the 1930s. See http://www.nobelprize.org/nobel_prizes/ economic-sciences/laureates/1970/samuelson-facts.html; accessed September 25,2015.
c. The concept of national income, or gross national product (GNP), now a routine part of economic discourse, was not defined until the 1930s, and the wider system of national accounts, of which GNP forms a part, was not formally laid down until the 1940s. the discipline. American economics changed from being a pluralistic discipline in which there was no dominant theoretical framework and in which there was a divide between “institutionalists,” who sought to ground their thinking firmly in data, and “neoclassical economists,” who saw a greater role for abstract mathematical theory, to one in which “neoclassical economics” dominated.2 Samuelson was such an important player in these developments that to understand his intellectual development is to understand some of the most important developments in this period of dramatic change. This book, therefore, is a story about both Samuelson and the transition in economics in which he played a major role.