Paul Anthony Samuelson turned 90 last week, and the Massachusetts Institute of Technology (his long-time employer) and McGraw Hill Co. (his long-time publisher) threw him a grand party in Boston. Some 400 of his friends from around the world trooped to the Copley Plaza Hotel for an afternoon of panel discussions among his former students and a gala dinner.
Samuelson himself designed the program, and, as usual, it centered on the topics that interested him, and artfully deflected attention from the history he had made himself. MIT professor James Poterba served as master of ceremonies.
A panel on the stock market featured Jeremy Siegel of the University of Pennsylvania, Robert Shiller of Yale and Robert Merton of the Harvard Business School.
Another, on the significance and likely consequences of imbalances in global trade, featured Stanley Fischer, governor of the Bank of Israel, Paul Krugman of Princeton University and The New York Times; and Princeton’s Avinash Dixit.
Ben Bernanke, member of the Federal Reserve Board of Governors, Olivier Blanchard of MIT and Alan Blinder of Princeton debated whether macroeconomic research and policy had drifted too far apart.
Michael Szenberg of Pace University, presented a Festschrift he had organized, a collection of essays on “Samuelsonian Economics and the 21st Century” bound for eventual publication.
From a biography he is writing, Szenberg enumerated “Ten Ways of Knowing Paul Samuelson:” as maestro, exemplar of the balanced life, paragon of civil manners, politically savvy operator, wit, citizen, sage, mentor, pioneer, nonagenarian..
And in the evening, MIT economics department chair Bengt Holmström; MIT President Susan Hockfield; historian of thought Donald Walker, a professor at Indiana University of Pennsylvania; Robert Samuelson (the economist’s son, not the Newsweek columnist, who is no relation); and his research partner of more than half a century, Robert Solow, took turns making speeches.
Guests went home serene in the conviction that they has had basked in the presence of one of the most remarkable men in the history of 20th-century economics.
But remarkable how? And what history? One way to understand Samuelson is to place him in the context of his generation. Inevitably, that means a comparison with Milton Friedman, who celebrated his 90th birthday in 2002.
In preparation for the birthday celebration, I spent a few days reading over the alternating columns that the two men wrote for Newsweek in the 1960s, ’70s and ’80. It has been nearly a quarter of a century now since PAS sent off the last of his 257 columns to Newsweek, but there is some significant portion of the generation of the Baby Boom who formed their opinion of professional economics on the basis of his fifteen-year biweekly exchanges there with Friedman.
The addition of the two economists’ columns was part of a dramatic makeover of that magazine which had begun in early 1961, when Washington Post publisher Phil Graham bought it with a view to challenging the dominance of Henry Luce’s pioneering newsweekly, Time. When they began writing in September 1966, Samuelson and Friedman were in their early 50s.
Not one in ten can remember the third member of Newsweek’s economic troika, though in fact Yale’s “middle-roading” Henry Wallich came first. Editor Osborne (“Oz”) Elliott hired him in 1965 to counterbalance the 71-year-old Henry Hazlitt, famous for his Economics in One Lesson — and his antediluvian views.
Elliott next approached John Kenneth Galbraith, who said he could not write as short as would be required by the magazine. So Elliott “went across the river to MIT” (such was the view of MIT that a well-born Harvard man had in those days!) and put the question to Samuelson. He agreed to represent the liberal wing of the economics profession, whereupon Elliott replaced Hazlitt with Milton Friedman.
Wallich quit in 1974 after being appointed a governor of the Federal Reserve Board and was quickly forgotten by the lay public. But even now the tenor of that Samuelson and Friedman exchange is something to remember and marvel at — the serene and oblique Samuelson, the peppery and practical Friedman, a rivalry that will remain fascinating as long as there are tortoises and hares. One more thing to say about PAS is that long ago he understood the value of a foil.
From the first, these columns reflected the differing interests and presuppositions of their authors. The first exchange set the tone.
In “Science and Stocks,” Samuelson addressed the relationship between the stock market and the business cycle. Share prices were down 22 percent from their record high earlier in the year, he noted, yet the economy was buoyant. “Can economic science explain the paradox…?” Probably not. “The way to a fortune as a speculative plunger is not via the PhD program in economics.” But then the stock market taken as a whole didn’t offer a reliable forecast of the economy, either, having predicted nine of the last five recessions.
The next week, Friedman excoriated Congress for having raised the minimum wage to $1.60 an hour from $1.25. “Does a merchant increase his sales by raising prices? Does higher pay of domestic servants induce more housewives to hire help?” The legal mandate was “a monument to the power of superficial thinking.”
And so it went, for fifteen years.
I have no very great insight into how the macro-battles of those years should be viewed through the prism of present day. Much of the talk during the birthday party panels was devoted to the arguments about policy effectiveness that raged then. Economists will debate them among themselves for many years to come, and they will be resolved mainly as the new generation takes over from the old.
Politically, however, Friedman seems to have won the match and Samuelson to have lost. Surely that is the verdict of their times — Paul Volcker, Margaret Thatcher, Ronald Reagan and all the rest of the “swing towards conservatism,” in Samuelson’s phrase. Working as an economic journalist during those years, I usually found Friedman’s columns more compelling, at least up to a point, because they focused so clearly on market mechanisms.
Kenneth Arrow, when he reviewed Samuelson’s Collected Scientific Papers, Volumes I and II, published in 1966 (the series is now up to Volume V, which appeared in 1986, with two more volumes in preparation), noted how little interest in microeconomics those papers displayed. Asked to lecture in 1958 on “What Economists Know,” Arrow observed, Samuelson “does not at any point refer to the allocation of resources through the price system.”
Nor did the omission on that occasion seem to be an accidental oversight. “A careful examination of the papers both on theory and on policy yields only the most oblique suggestions that neoclassical price theory is descriptive of the real world,” Arrow continued.
Arrow was right. So, too, among the columns, very few are devoted to the operation of the price system. Nor, when you think about it, should this be surprising.
Though only three years separated them at birth, Paul Samuelson was on the cutting edge of an intellectual revolution in macroeconomics from its very beginning. Milton Friedman fought a rear-guard action against it throughout. Throughout his professional career, Friedman has been an eloquent spokesman for the Marshallian tradition in economics — precisely the analytic framework that Samuelsonian economics supplanted around the world, including, eventually, Chicago.
Anyone who has ever witnessed the profitable operation of a manufacturing plant or capital good that has been superseded by competitors’ investments in new, more expensive and ultimately more efficient technologies — a New England textile mill, for instance, or an old-fashioned DC3 — will understand the logic of Friedman’s brilliant career.
In fact, the old analytic framework worked pretty well. For many purposes, it is enough to say, “It’s all in Marshall,” or even, “It’s all in Adam Smith.” There is a definite sense in which it’s true.
But how much more significant is it to recognize that progress is made in economics. Samuelson in those Newsweek columns is forever a spokesman for the research enterprise, for economics as a body of knowledge that accumulates.
To be sure, as the author of an elementary text that sold over a million copies, he is as good at teaching marginal cost pricing as the next professor. But that never was where the action was in Samuelson’s generation, nor was it the issue that engaged him personally. Cost analysis was what already had been figured out.
In conveying the excitement about developments in macroeconomics — about the taming of the business cycle, the integration of the global economy, the search for cures for inflation and unemployment — Samuelson has been luminous.
Like the peninsular city of Singapore, however, whose guns on the eve of World War II were pointed out to sea, only to be approached and captured overland, Samuelson directed his arguments mainly at others who were interested in the aggregate analyses that interested him.
No wonder, then, Friedman was able to win a conquest of sorts by supplying in the last third of the 20th century the enthusiasm for price theory that Samuelson failed to convey. Nor has it been surprising that, at least in the profession, that Friedman’s triumph has been short-lived.
Thus, because no strictly personal account can contain both the excitement of the new and the value of the tried an true, does economics tend to advance, as Samuelson has often said it does, two steps forward, one step back. His student Robert Merton sometimes describes it as an upward spiral. The point in each case is the same. Ignore either man, Samuelson or Friedman, at your peril. The economic historian William Parker once put it this way, in a slightly different connection:
“Training economists is a work best accomplished in a family with both parents. Life and education is improved by the contrasts, even the tensions, between them. And everyone is damaged and diminished by a divorce.”