Founder of Modern Economics: Paul A. Samuelson: Volume 1: Becoming Samuelson, 1915-1948

by Roger E. Backhouse

Paul Samuelson was at the heart of a revolution in economics. He was "the foremost academic economist of the 20th century," according to the New York Times, and the first American to win the Nobel Prize in Economics. His work transformed the field of economics and helped give it the theoretical and mathematic rigor that increased its influence in business and policy making.
In Founder of Modern Economics, Roger E. Backhouse explores the central importance of Samuelson's personality and social networks to understanding his intellectual development. This is the first of two volumes covering Samuelson's extended and productive life and career. This volume surveys Samuelson's early years growing up in the Midwest to his experiences at the University of Chicago and Harvard University, where leading scholars in economics and other disciplines stimulated and rewarded his curiosity. His thinking was influenced by the natural sciences and he understood that a critical, scientific approach increased insights into important social and economic questions. He realized that these questions could not be answered through rhetorical debate but required rigor. His "eureka" moment came, he said, when "a good fairy whispered to me that math was a skeleton key to solve age old problems in economics."
Backhouse traces Samuelson's thinking from his early days to the publication of his groundbreaking book Foundations of Economic Analysis and Economics: An Introductory Analysis, which influenced generations of students. His work set the stage for economics to become a more cohesive and coherent discipline, based on mathematical techniques that provided surprising insights into many important topics, from business cycles to wage and unemployment rates, and from how competition influences trade to how tax rates affects tax collection.
Founder of Modern Economics is a profound contribution to understanding how modern economics developed and the thinking of a revolutionary thinker.

Genres: Economics, Biography

760 pages, Hardcover

First published May 9, 2017

Reviews

[Peter · Rating 5 out of 5]

I'm a card-carrying economist who knew Paul Samuelson, the man who made economics what it is today. I've dined with him, I've even played tennis with him—once, after which I'm sure he refused to play against rookies ever gain. My graduate school training began when Samuelson was in his fifties—beyond that spurt of creativity that marks the twenties and thirties of great innovators, but entering the academic stage of life called Éminence grise. But even then he was prolific and his long history of significant publications was as important to Ph.D. students as his 1947 textbook was to undergraduates.

So when I learned of Roger Backhouse's recent (2017) and massive (almost 700-pages of text) biography of Samuelson in the Oxford Studies in History of Economics I was compelled to bite the bullet and read Founder of Modern Economics: Becoming Samuelson, 1915-1948. There will be a second volume, possibly bringing to 1,400 pages the biography about a man about whom little is known.

This review will cover the book from Samuelson's birth in 1915 to 1940, the year he received his Ph. D and the John Bates Clark Medal for outstanding economist under 40. The bottom line is that I enjoyed the book, not only for its revelations about Samuelson's life but also for its remembrances of the field of economics in the period of transformation to the new methods of mathematics and econometrics, a transformation in which Samuelson was a major figure. This is undoubtedly a five-star book for specialists and fellow-travellers.

Few biographies begin with the author telling you how little is known about the subject other than his published papers. Samuelson was a man who lived and breathed economics; he had no time or interest in skydiving, fishing, dancing, idle entertainment, or writing memoirs. The papers he left tell little about him and the stories he left behind are rapidly disappearing as his cohort passes on; like all of us, he will pass into a distant memory; his skeleton is not hanging in a glass case at his university (as is Jeremy Bentham's at University College, London, where one can view his hay-stuffed and dressed skeleton on special occasions).

What we do know, what Samuelson left us, is a trail of innovative ideas and a new approach called mathematical economics that uses advanced mathematics to tease out subtleties in economic theory. So this is not a biography filled with chit-chat, it is a review of his life as a contributor. That makes this a niche biography, read by people like me who carry the card but can't walk the walk. At the time of this writing there were only five ratings of this work; all were 5s. I'll ad a sixth.

Born in Gary Indiana in 1915, Samuelson's father was a pharmacist who, as was common at the time, mixed his own potions and reaped a high profit margin: the family was financially secure though not affluent. Paul (1915-2009) had two brothers, Harold (1912-2017) and Robert (1922-2012); for an unknown reason, when young both brothers adopted the surname "Summers."

The Samuelson-Summers family was not normal: Robert Summers would become an outstanding economist at the University of Pennsylvania; his wife, Anita Arrow Summers was a Wharton School professor. Anita's brother was Kenneth Arrow, a Nobel-Prize winning economist at Stanford and Harvard. Robert and Anita's son is Lawrence Summers, the Harvard economist who became president of the university and a Secretary of the Treasury. Samuelson would win the Nobel Prize in 1970, two years before Arrow. 12:44 PMhree family members would win the prestigious John Bates Clark Medal for outstanding economist under 40 (Samuelson, 1947; Arrow, 1957, and Larry Summers, 1993).

One can only imagine what conversations were like at family gatherings! One guesses that a common question was not, "Would you please pass the pancakes? Instead, one suspects it was,

If you were to pass the pancakes, and there were multiple delivery routes, each with a toll, what would be the optimal path for successful delivery and what toll structure would emerge?

When Paul was 18-months old his parents, Frank and Elia Samuelson, began sharing Harold and Paul with the Gordons, a titular "aunt" and "uncle" who owned a 100-acre dairy farm near Gary; Robert had not yet been born. Paul never knew the reason for this arrangement, though he suspected that his mother was career-oriented and his father had health problems. Though Paul "bitterly resented" being abruptly left at the farm, he never seemed to regret the result—he found an idyllic life at the Gordon farm. Still, one wonders if this psychological disruption was a reason that Paul leaned toward a field like economic theory with a focus on mathematical applications.

This arrangement lasted until the Samuelson family was reunited around the time of Robert's birth in 1922. In 1923, when Paul was age eight, the Samuelson family—all of them—moved from Gary to Chicago. Perhaps the most important phase of his life was at Chicago's Hyde Park High School, a public school that still exists. Hyde Park would now be called a "magnet school," pulling in especially talented students and giving them a college-preparatory education. [James Tobin, another Nobel-Prize-winning economist, received a similar opportunity at the Laboratory School sponsored by the University of Illinois-Champaign.]

In 1932 Samuelson matriculated at the University of Chicago. He had never considered any other university, and Chicago had the advantage of a reputation as less anti-semitic than many other universities (a theme that would emerge later in his career). Apparently there were few personal notes available to Backhouse so he relies heavily on Samuelson's class syllabi and notes to describe his intellectual path at Chicago. This section is essentially a long list of topics that Samuelson would have studied with commentary on their place in the canon.

At that time the Chicago curriculum was not structured like today's usual curriculum. Instead of a brief period (freshman year) of single semester-long courses intended to provide general background, after which a major is selected for the next three years, at Chicago there was a two-year sequence of general education courses in broad areas (Social Sciences, Natural Sciences, Physical Sciences, and so on) that would ultimately create a sort of Great Books program of general education. Following this a student would select one of these areas for specialization.

During the general education phase Samuelson's courses were far-ranging. In an economics course he read Gustav Cassel's The Theory of Social Economy, a tome that introduced him to the methods for solving systems of demand equations in a pure exchange economy to find the "equilibrium" prices; this nudged an interest in mathematics as a tool. His natural sciences courses taught him about the importance of dynamic equilibrium in species and instilled in him the notion of equilibrium as a natural state for analysis. His physical science courses covered astronomy, physics and chemistry, culminating in the mathematical tools used in those physical sciences; from chemistry he learned the Le Chatelier Principle that would be of use years later in calculating optimal paths of dynamic systems, like pancake delivery.

In his junior year Samuelson entered the Division of Social Sciences. He was not yet committed to economics, but he was committed to the broad questions of how societies form and function. In 1934 he took a freshman course in mathematics, titled Elementary Mathematical Analysis, that changed his life. At one point he developed a solution for a duopoly problem and took it to the instructor; the response was, "Oh! This could be done more easily using LaGrange multipliers." From then on he was hooked on a field that didn't exist and he would create: mathematical economics.

An important experience in his senior year was Jacob Viner's graduate-level course on economic theory. He was the only undergraduate in the course and stood heads taller than any other student, often correcting Viner's presentations and always pushing for more. Viner would be essential to his graduate training: he endorsed Samuelson's application for a prestigious scholarship from the SSRC in a letter stating that,

He is a sober, careful, and extremely able student equipped with mathematical technique, original and independent, without the belligerence and arrogance that so often marks young men with keen minds and the knowledge that they are superior in mental capacity to their classmates.

This was perhaps the first and last time a charge of non-arrogance was levied against the young Paul Samuelson.

Samuelson received his BA in 1935. He also received the SSRC scholarship but, though pleased by its support for a Ph. D. program, he was disappointed to learn that it required that he not continue his graduate work at Chicago. He chose Harvard and simply showed up in the spring of 1935 without applying for admission. He was admitted, but not before alienating the department chairman by injudicious comments about Harvard and by wangling his way out of courses he considered beneath him.

This would not be the smooth educational experience that Chicago had offered. Harvard was in the throes of change at the time. It's new president, James Bryant Conant, was dragging the school from a staid regional college catering to the sons of rich families and devoted to scholarship (the teaching of ideas already in the canon) to a more diverse mix of students and faculty devoted to research (the creation of new ideas). There was "dead wood" in the faculty and tension was high.

When Samuelson arrived at Harvard in 1935 the star of the department was Joseph Schumpeter, an Austrian ex-finance minister and among the earliest macroeconomists. Schumpeter's work was definitely not Keynesian—his view on business cycles was more historical and data-driven than Keynes's theoretical take. Schumpeter arrived at Harvard in 1932 and remained until his death in 1950. One of my professors, the economic historian Alexander Gerschenkron, spoke of Schumpeter as "The last man who knew everything." Schumpeter's Magnum Opus was Business Cycles, a work that might have been far more influential had it not been published in 1939, following Keynes's General Theory in 1936: Keynes had caught the interest of budding macroeconomists with his notion of "underemployment equilibrium."

In 1936 Samuelson passed the Oral General Examination a year earlier than normal; this allowed him to proceed for the Ph.D. Schumpter was one of his examiners, and on exiting the examination room is said to have turned to a colleague and asked, "Did we pass?"

In 1936 Samuelson received an offer he couldn't refuse—he was invited to join Harvard's Society of Fellows. This was a group of (at that time) 24 graduate students selected from all fields who would receive significant stipends ($80,000 in 2018) to do their own research for three years. Other than that they had no responsibilities other than to interact at one weekly dinner and one weekly lunch. No degree was conferred—the Society was formed so that the cream of the crop wouldn't have to go through the drudgery of a Ph.D. program: membership was sufficient accreditation or an academic career.

In 1938 Samuelson married Marion Crawford, a fellow student; they would remain married until her death in 1978. With her encouragement he resigned from the Society of Fellows to pursue the Ph. D. This was an era of uncertainty for him: it seemed unlikely that he would be offered a tenure-track position at Harvard: There was no slot for a "mathematical economist," and while he had the support of significant faculty like Schumpeter, Leontiev and Haberler, he was Jewish in a school that historically catered to Brahmin students and the chairman, Harold Burbank, was a notable anti-semite. A Ph.D. would broaden his horizons.

Samelson completed his dissertation in one year, submitting it in 1940. The project, still in print as Foundations of Economic Analysis, was published in 1941, the year he won the first John Bates Clark Medal. Also in 1940 Harvard offered him a, insulting one-year position as Instructor, a cut below an Assistant Professor and not on a tenure-track. He soon received an offer from MIT for a tenure-track Assistant Professorship and history was made—the best young economist in the country, soon to be the best old economist, left Harvard for an engineering school down the road with a weak social sciences curriculum and no graduate program in economics.

Fortunately, that risky choice was very successful: Harvard's resistance had done MIT a world of good. A budding star like Samuelson could attract other budding stars to MIT and together they would create one of the best graduate programs in the field, establish a sterling research record, and help position MIT as a major international university.

Samuelson's dissertation, completed in 1940 and published the next year, was a path-breaking tour de force melding of the history of economic thought and of modern mathematics. In it he reviewed the major contributions to economic theory since Adam Smith and showed that they could be restated using mathematical methods. The book was a tribute to the previous generations of economists who reasoned their way to conclusions without the aid of mathematics; it was also a clarion call to modern economists to immerse themselves in mathematical methods. It's impact was to change the field toward a science rather than an art, and economist flooded through the gates of mathematical economics.

The payoff has been substantial. As Samuelson had hoped, mathematical economics allowed the teasing out of economic relationships to subtle for a nonanalytical methods to reveal. One set of examples is the creation and pricing of derivative securities—options, swaps, credit default swaps, and so on.

[Personal Note: There have, however, been unfortunate downsides of mathematical economics. First, The use of economics as a tool of social debate about the Big Questions, in which all can enter whether economist or not, has been downgraded; today, economics has been so mathematized that the conversation is largely between economists. Second, and a consequence of the first, is that the separation of economics from social discourse has led to sometimes correct applications of economic ideas without adequate understanding of the consequences and without social control of the potential negative effects. An example here is that creation of derivative securities—itself a positive achievement—led to the development of instruments like Collateralized Mortgage Obligations that nobody understood, leading to the 2008 international financial collapse.]

[Richard Marney · Rating 4 out of 5]

The first volume of a well-written biography of an extraordinary intellect who helped shape modern economics as much as any one person. Whilst his introductory text book, which trained a generation of undergraduates, is perhaps best known, the Fundamentals of Economic Analysis represented the point of entry into Samuelson’s world for many of us later in our studies. We are still exploring!!!

[Ziad Daoud · Rating 3 out of 5]

This isn’t Jon Hilsenrath’s biography of Janet Yellen — it’s a ‎marathon through Paul Samuelson’s life. 758 pages cover ‎only half his story, down to his undergraduate courses. The ‎one surprise? His mentors saw him a narrow ‎mathematical economist – ironic given the breadth of his ‎contributions. Details abound, delight is scarce. ‎

[Yaakov K. · Rating 5 out of 5]

An interesting component in the postmortem of 20th century global architecture.