Bryan Caplan  

What Samuelson Said About Inflation in the 70s

Monetary Institutions... Who is a Realist?...

New Keynesian economics has been around for so long that it's hard to remember what Old Keynesian economics was like.  Here are two quotes (via Garett Jones via Robert Hetzel) from Samuelson to remind us of the days when Dinosaur Keynesians walked the earth:

Paul Samuelson embraces reverse causation - inflation usually causes monetary expansion, not the other way around:

One is forced by the facts of experience into an eclectic position....[E]xplanation of the varied pattern of ongoing experience [with inflation] calls for bold combination of causations....Microeconomic commodity inflation--whether in food, in fuels, or indeed in any important sector of the domestic or international economy--refuses to remain microeconomic....Monetary typically more the result than the cause of sustained general inflation, simply because...central bankers...must be accommodative and avoid policies that would acutely worsen short-run unemployment and stagnation problems.

And here's Samuelson on what it would take to disinflate:

Today's inflation is chronic.  Its roots are deep in the very nature of the welfare state.  [Establishment of price stability through monetary policy would require] abolishing the humane society [and would] reimpose inequality and suffering not tolerated under democracy.  A fascist political state would be required to impose such a regime and preserve it.  Short of a military junta that imprisons trade union activists and terrorizes intellectuals, this solution to inflation is unrealistic--and, to most of us, undesirable.

These quotes aren't hard for me to believe - after all, I learned my Econ 1 from Samuelson's 1989 textbook which told us that "the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive"!  But if you've come to the econ game a little later, and can't believe the stories about the Bad Old Days, you ought to.

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The author at Economic Investigations in a related article titled Views are Transitory, Theorems are Forever writes:
    Despite What Samuelson Said About Inflation in the 70s I still think that he’s awesome for a simple reason… Even if his views at one time were wrong (and they were, I guess), his work on economic theory laid the foundations (phun intended) for later de... [Tracked on October 7, 2008 5:59 PM]
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Francis writes:

The first comment is not so bad, in my opinion. It just says that central bankers lack the will or political backing to do their job as they should.

The second is awful. Did he really write such an thing in 1989? My memory of that period is that pro-soviet people would walk the streets with brown bags over their heads.

Francis writes:

Sorry - my last paragraph should be split in two:

The second is awful, but representative of what pundits commonly thought at that time.

About the sentence on Soviet Union: did he really write such an thing in 1989? My memory of that period is that pro-soviet people would walk the streets with brown bags over their heads.

lwaaks writes:

Yes, Samuelson really did write such a thing. And these views were echoed at the same time by similar statements by J.K. Galbraith and Arthur Schlesinger, indicating this type of thinking was not just the aberration of one liberal mind.

Mace writes:

It appears that Samuelson, Schlesinger, and Galbraith were engaged in wishful thinking rather than analysis. It looks like we may be getting a bigger dose of this after November 4.

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