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Monday, December 14, 2009

Paul Samuelson, 1915 - 2009

Paul Samuelson died over the weekend, at age 94. He was born in Gary, Indiana (one of two Noble prize winners in Economics born in Gary, a remarkable enough fact), and he changed the world, in a very real sense.

Samuelson transformed economics, both through his scholarship (starting with Foundations of Economic Analysis, and going on from there) and through his textbook, Economics (recently co-authored by William Nordhaus). Unlike a lot of economists, he did not write books (either scholarly or popular), but published extensively in a large number of fields. What do I mean by a large number of fields?

He developed the theory of revealed preference and used it to derive both product demand curves and consumer surplus.

His doctoral dissertation (Foundations of Economic Analysis) demonstrated how advanced mathematical tools could be applied to problems in economic theory.

He developed and formalized the accelerator principle in macro theory.

He did work in trade theory, notable drawing out implications of the Heckscher-Olin trade hypothesis and developing the Stolper-Samuelson theorem.

He formalized the theory of public goods (building on the work of Richard Musgrave).

He extended the overlapping generations model.

With Robert Solow and Robert Dorfman, he developed the application of linear programming analysis to economics.

He pioneered the analysis of stock market prices; his work laid the groundwork for the studies that led to an Economics Nobel for Robert Merton and for the development of the Black-Scholes formula for valuing complex financial instruments.

He was responsible for the neoclassical synthesis in macroeconomics.

And that's just a taste of what he accomplished.

His textbook, Economics, which first appeared in 1947 and is now in its 19th edition, transformed the teaching of economics. Virtually every economics textbook currently available has borrowed the structure of Samuelson's book--and much of its analytical content. Whether they have used his book or not, every economics instructor and every economics student has bee influenced by it.

Keynes once wrote: "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas…. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil…"

Samuelson laid the basis for much that economists have created in the past 70 years. It has been mostly for good. His presence will be missed, but his example should continue to inspire and to stimulate economists well into the future.


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