Samuelson and the Modern Economics

This book has told the story of how a student who specialized in mathematical economics to an extent that some of his teachers thought him unemployable achieved, in less than a decade, a position from which he could dominate the discipline.

An age in which American economics was dominated by figures such as Frank Knight, Jacob Viner, Warren Persons, Wesley Mitchell, Edward Chamberlin, Joseph Schumpeter, and Alvin Hansen gave way to one of which younger, more technical, mathematically proficient economists such as Tjalling Koopmans, Jacob Marshak, Milton Friedman, Kenneth Arrow, Trygve Haavelmo, Lawrence Klein, James Tobin, Robert Solow, and, above all, Samuelson himself were representative figures. Samuelson’s career could prosper because the profession became more open to mathematical econom­ics, his own work making a significant contribution to that transformation. That process was not completed by 1948—far from it, for nonmathematical economists, including Viner, Chamberlin, and Hansen, remained important right up to the 1960s—but by then the trend was firmly established; math­ematical economics was no longer a marginal field.

Samuelson achieved this as an outsider who, with a large element of good fortune, passed through the two leading economics departments of his day. As the son of Jewish parents whose family had left Poland for the Midwest, whose money came from ventures including a drugstore and a restaurant, Samuelson was not part of any establishment that could give him assistance.

One of the main claims of this book is that this experience makes Samuelson a transitional figure. There is no doubt that he became a thor­oughly modern economist, whose work could look fresh even to students coming to it in the 1970s, and who continued to produce innovative work for many years after 1948 (such as the theory of public goods, the consump­tion-loan model, efficient markets theory, growth theory, and the theory of capital). However, his work retained traces of the way economics was done by his teachers. Skepticism about applicability of the mathematical theories he was developing pervaded the articles he wrote as a student, and some of this skepticism survived in his bestselling textbook. Modern, more technical economics did not come from nowhere to displace the older way of doing economics: it evolved out of it. This is obviously true of mathematical theo­ries of the consumer and the firm, where Samuelson refined ideas that had been in circulation for the entire twentieth century. But it was also true of “Keynesian” economics, where Samuelson’s response to Keynes was rooted in the work of Hansen and interwar American business cycle theory. The story of how Samuelson drew on the work of his teachers to write two books—one that was modern in the prominence it gave to mathematics, the other mod­ern in its style and its presentation of the new theories of income determina­tion—can be seen as the story of how modern economics emerged from the older approaches to the subject.^a

a. Though I have chosen not to use this terminology, the transition can be characterized as involving a move from pluralism to neoclassical economics (see Morgan and Rutherford 1998). Using this terminology, the argument is that Samuelson, though very much a