Tuesday, 15 December 2009

The significance of Paul Samuelson


The screenshot on the left - taken within a few hours of the announcement of his death - illustrates quite simply the huge impact Paul Samuelson made on the economics profession throughout the last seventy years.

As his New York Times obituary says, he was never as well known by the public as Keynes or Friedman - and had less direct political impact - but he almost forged a whole profession with his establishment of mathematical analysis as the way to do economics [Update: my mistake, the observation was actually in this Justin Fox article]

This interview with Conor Clarke reveals that his incisiveness and charm was unimpaired right up to this summer. Read it for a flavour of his ideas and personality, but read the obit to learn the scope of his influence. [Update: Marginal Revolution links to another excellent interview, this one from John Cassidy]

(A curious side note: both of these items mention in passing, but with some admiration, that Samuelson became wealthy from his textbook. This phenomenon will not be unfamiliar to readers of Greg Mankiw, whose beautiful home was also featured in a Lifestyles-of-the-Rich-and-Famous-style profile in the Harvard magazine. Do we expect our economists to prove their credibility by being rich, in the way we expect our environmentalists to drive electric cars?)

I must confess that while I knew of his influence on the teaching (and thus practice) of economics through his seminal textbook, I was not aware of the degree to which his theorems laid the foundations for so much of today's economic mainstream. Some, such as his influence on the efficient markets hypothesis and the Black-Scholes theorem, are still controversial (although Samuelson never took the idea seriously in the way that Lucas or his followers did). But his modelling of Keynesian liquidity traps, the impact of wage or tax changes on labour, the relative effects of trade on different groups, definitions of public goods and analysis of macroeconomic stability and the business cycle have all been adopted so deeply into the economic psyche that one treats them as established truths, forgetting that somebody had to invent them once.

But arching over all these was his creation of economics as a mathematical discipline, and the establishment of maximisation and equilibrium as its two fundamental principles. How could one man - in his PhD thesis, no less - revolutionise a field like this? Perhaps he gave economists the self-confidence to use the mathematical tools they were nervous of; perhaps he showed them such power and elegance in his proofs that narrative economics was immediately recognised as trite and weak; or maybe, in true economic style, he provided a new generation of economists with the technology to outcompete the old.

And although mathematical virtuosity has been criticised in some of the economic soul-searching of the last two years, and some would like to sideline it in favour of narrative treatments and economic history, that would be a mistake. Mathematics is what has given economics its power in the last century; and we need more of it, not less.

From the Cassidy interview:

"Lionel Robbins gave an address saying this math stuff is just a passing fad. I was all of twenty-eight, but I thought, 'Poor fellow, he just doesn't realize that he's missing the train.' That was just a bad understanding of the dynamics of the profession. Math is a problem for everybody in the profession and it has been for years. We all say, math should be used just up to the point that I have used it, and no more...I always say to our graduate students when they are leaving: 'As a graduate student at a top-notch university, you tend to lose touch with reality. You have been engaged in puzzle solving and learning a new language. When you emerge, you may tend to think you have been asleep for several years.' The paradox is that the best people in practical terms are the Jim Tobins, the Bob Solows - the guys who are awfully good at the technical stuff as well."

Samuelson's revolution goes beyond economics. It has set out an ambition for all of social science, and hints at a project on the scale and scope of the Enlightenment and the scientific revolution of the 18th century: the full and rich understanding of human society and progress. As we remember his life and contribution, let us make sure that revolution continues.

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