Arnold Kling  

Paul Samuelson

Labor Market Puzzle... Town Vs. Gown...

Since the name of Paul Samuelson came up recently, I thought I would toss out a few random impressions of him.

I only had Samuelson for one course, which I believe was in the Spring of 1977. It was part of the graduate theory sequence (gosh, I cannot remember if it was micro or macro--probably micro), and it covered capital theory. I think that what many students most enjoyed about the course was Samuelson's pronunciation of the last name of Austrian capital theorist Eugen Von Bohm-Bawerk, which Samuelson rendered as "Bame-Bah-verick." Both the pronunciation and the theory of capital as "round-about production" seemed exotic. My version of what Samuelson described of Austrian capital theory is given as part of my essay on The Sect of Austrian Economics.

Another salient memory from Samuelson's class was a time he told a Gauss story. I had read the story before, which was that as a young boy Gauss did not like eating peas. His parents told him to simply eat half of them. He did, and then they told him to eat half of the remainder, and at that point he realized that if he continued to do this he would end up eating all of them, and he burst into tears. Samuelson told the story as "As a young boy, Gauss was fed some peas. Then he burst into tears." Samuelson had no idea that he had skipped the entire middle of the story.

Samuelson's famous papers also typically contained mistakes or skipped steps in his proofs. His work is riddled with careless errors, but he was almost always correct in his conclusions.

Samuelson belonged to a generation of economists whose leading lights were as brilliant as the top stars in any field. In the 1930's, with the world economy in turmoil and the excitement created by John Maynard Keynes, economics drew a caliber of intellect that simply is not found in the profession today. Nowadays, a Samuelson or a Kenneth Arrow or a Milton Friedman would go into nanotechnology or computer technology or--most likely--biology.

Samuelson's accomplishments are probably worth 2-1/2 times those of the average Nobel Prize winner in economics. His Foundations of Economic Analysis was exactly that--the basis for the bulk of all of the work published subsequently. However, if you removed that from his resume, you would still have his international trade theory, his part in the development of the efficient markets hypothesis, and his development of the "overlapping generations model" of the role of money as a store of value.

Although he certainly can hold his own in debates within the profession, Samuelson would be awkward and uncomfortable in contemporary media and politics. One cannot picture him appearing with Lou Dobbs or Bill O'Reilly.

My guess is that Samuelson's forthcoming paper, on the possibility of foreign growth being bad for a home country, will not make the highlight film for his career. The response by Bhagwati and others is a gentle but firm put-down.

For Discussion. Are the greatest minds in economics over the past three decades comparable to those of Samuelson's generation?

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COMMENTS (9 to date)
Bruce Bartlett writes:

The short answer is no. The longer answer is, Who cares? All the really important theoretical questions have been answered. All that is left are periferal matters of no great import. The real challenge of economics today is not to refine or revise basic theory, but to utilize economic reasoning and analysis to improve economic policy and business practices.

I think in time we will view economics as similar to classical music. All the great composers are long gone and likely never will be replaced or added to. For those with the talent to be another Mozart, there are too many more luctrative ways to use that talent today than writing classical music, which was, after all, the popular music of its day. But there is still enormous value in the existing canon that will continue to be enjoyed and exploited forever.

An interesting question is whether there are other fields that essentially have been played out, where there is no reason to expect any new important additions to the existing stock of knowledge? Sociology, psychology, law and political science come quickly to mind.

Peter Mork writes:

"All the really important theoretical questions have been answered. All that is left are periferal matters of no great import."

What is your take on this article from George Reisman.

I'd be interested in reading a critique of this theory. If valid it seems to me it would be quite important. Any feedback would be great as I'm currently going through his self-study program and book Capitalism which I've found very educational. The article has a couple quotes from Samuelson as well.

Patri Friedman writes:

All the really important theoretical questions have been answered.

Hmm...Perhaps you'd call this a practical question, but what about the question of how economies work that use real people who are consistently irrational? Hasn't most theoretical work assumed rationality?

To me, this seems like a difficult but fruitful direction for the science. And if it wants to be relevant to the real world, it must go that way, since people have been conclusively shown to be consistently irrational, including when they are making major financial decisions.

prag writes:

wasn't it the head of the US patent issuing authority that famously said something about all the real inventions have been made?

i also seem to remember a book a few years about purporting that science is dead as all the important discoveries have been made.

i find it impossible to accept the notion that we humans understand all systems. at best, we describe phenomena. when we can establish a set of equations that predict (in expectation and dispersion) the behavior of each individual human on the planet, i'll start to listen to the idea that all discoveries have been made.

especially in economics -- economics is, to me, at heart the study of human behavior. we may have models that we think describe the aggregate of human behavior, but as prospect theory shows us, we are just beginning to understand that there are more granular processes at work.

Lawrance George Lux writes:

One has to question the reverence of the Elders often seen, and to a degree, deserved. Keynes has fundamentally been discredited, Hayek has proven to have been too narrow, Milton Freidman has always gotten into trouble in the details of policy implementation, even Alan Greenspan is showing cracks and fallibility. Galbraith is no longer quoted, a polite method to discredit. Now Arnold mentions Bhagwati as quietly putting down Samuelson.

First, I think Samuelson is right, Bhagwati wrong. Second, current Economists are finding cracks in the works of the Great daily. The Elders were original for their Time, but I think their time ended some days ago. As far as the immortal canons go, I did not realize immortality endured corruption. lgl

Lawrance George Lux writes:

Peter, the Reisman theory is basically correct, but not of especially high relevance. Economic models are constructed to evaluate actual market conditions, and do not have to express complete total realism. The models need only be consistently constructed, using common criteria, and cover the basic elements. In and of itself, what the exact GDP is means nothing to anyone. lgl

Peter Mork writes:

Thanks for the reply Lawrance but I tend to agree with Reisman that this would be relevant especially with regards to understanding the roll of saving and consumption in the economy. Here is his quote from the summary:

The implications of these findings for macroeconomic theory are major and include a radically different approach to the respective roles of saving and consumption in spending and income formation,and recognition of the fact that today’s concept of gross product is actually a concept of net product.

Chris G. writes:

Cross posted from my personal blog:

This one paragraph has been stuck in my head since I read it Friday, found in a post about Paul Samuelson by Arnold Kling, who writes the blog for the Library of Economics and Liberty:

Samuelson belonged to a generation of economists whose leading lights were as brilliant as the top stars in any field. In the 1930's, with the world economy in turmoil and the excitement created by John Maynard Keynes, economics drew a caliber of intellect that simply is not found in the profession today. Nowadays, a Samuelson or a Kenneth Arrow or a Milton Friedman would go into nanotechnology or computer technology or--most likely--biology.

I certainly would not place myself in the caliber of those thinkers, but my initial attraction to biology was indeed due to the incredible pace of progress in the field. However, there is an important distinction between those great economic thinkers and modern biologists. While the former were theoreticians, the later primarily compose of empiricists.

Case in point, one of the greatest theoretical biologists was RA Fisher. Not only did he provide the much of the basis for population genetics, but his arguments for the 1:1 sex ratio utilized game theory over a decade before von Neumann and Morgenstern published their book on the subject. However, he was not trained as a biologist, but a statistician. On the other hand, Watson and Crick, the eminent biologists who revealed the molecular structure of DNA, where not trying to develop a theory to unlock the secrets of genetics. Rather, they were merely trying to interpret the x-ray crystalgraphs of the molecule.

This brings me to the personal point I wished to make: my reasons for forgoing graduate studies in biology. The simple fact is biologists generally do not train theoreticians. Most of the work in theoretical biology is being done by philosophers or applied mathematicians. Biologists who are interested in theory tend to only pursue the subject after they are comfortably tenured. This is going to become a major problem in the future, as the collection of data is vastly outpacing the development of theory. Without new paradigms within to interpret this data, the rate of progress in biology will eventually diminish.

L Finney writes:

I eagerly bought Samuelson's famous textbook as a freshman in the mid-1970s and started reading it even before classes began. Although I learned a lot, I found parts confusing and wondered at times, "What exactly is the point he's trying to make?" Arnold, I concur completely with your comment about his work being careless and filled with mistakes.

I've got to believe that his textbook was too often over the head of the average college student. Perhaps I'm too critical, as his textbook was probably a great advance in the late 1950s. I never taught economics, but the textbooks I glanced through in college bookstores in the 1980s looked a lot better.

As to the question of whether there are any economists of today as great as those in Saumulson's generation, I answer "probably not". The intellectual firepower migh still be there, but it's unlikely that they will have as great an impact, as the field has become too diverse and specialized to make such sweeping advancements as those in Samuelson's generation. Besides, those with tremendously curious minds about economics are tempted to go into finance (hedge funds, investment banking) these days. Why break new theory in economics when you can get ten times more wealthy applying your economic ideas in finance? (As well as get better funding in doing research, avoid the whole hassle of tenure, and possibly even get more famous.)

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