Monday, December 14, 2009

Paul Samuelson: Form and Function in Economics

Paul Samuelson (1915-2009), economics titan, died Sunday. He was the first American to win a Nobel Prize in Economics.

Early in my life I was exposed to economics thanks to the celebrated textbook that he wrote with Nordhaus. My father had an old two-volume Brazilian edition of 1975 (cover on the right). I was just a kid and yet loved to flip through its pages, searching for colorful maps, graphs and tables that illustrated economic concepts.

Samuelson's influence in economics is extraordinary, but especially unique in methodology. All his contributions were based on the strict logic of mathematics and after him it became clear that any further development in the field wouldn't be achieved without the help of rigorous analytical thinking.

I always wondered however how was it that an intellectual giant like Samuelson could have ignored so blatantly the failures of socialism and communism, as described by Beichman:
World-class economist Paul Samuelson, a Nobel laureate, wrote in the tenth edition of his textbook Economics: “It is a vulgar mistake to think that most people in Eastern Europe are miserable.” This, mind you, in the aftermath of the 1953 East German uprising, the 1956 Hungarian uprising and the Poznan protests in Poland, the 1968 revolution in Czechoslovakia— all suppressed with bloodshed by Soviet tanks. In the eleventh edition, he took out the word “vulgar.” In the 1985 twelfth edition, that entire passage had disappeared. Instead, he and his coauthor, William Nordhaus, substituted a sentence asking whether Soviet political repression was “worth the economic gains.” This non-question was identified as “one of the most profound dilemmas of human society.” After 70 years of Leninism, Stalinism, and Maoism that took at least 100 million lives, this was still a dilemma?
Naturally, intellectuals of the time tended to have pro-Soviet views, but Samuelson was not your run-of-the-mill social thinker. So what was Samuelson thinking when he wrote (or reviewed) those passages?

My favorite explanation comes from my early training as an engineer. Mathematicians are entranced by theoretical elegance, while engineers are fond of intellectual achievements that are physically and economically robust. I believe that economists like Samuelson tend to think more like mathematicians than like engineers. This is to me the main reason why he (and many that followed on his steps) may have put too much emphasis on theoretical form in detriment of economic function. The cleanliness and elegance of central planning as an intellectual construct for example, despite its incompatibility with human nature, was probably very attractive to the mathematician living inside Samuelson's mind.

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