Samuelson was the Julia Child of economics, somehow teaching you the basics and giving you the feeling of becoming an insider in a complex culture all at the same time. I loved the Foundations. Like so many others in my cohort, I internalized its view that if I couldn’t formulate a problem in economic theory mathematically, I didn’t know what I was doing. I came to the position that mathematical analysis is not one of many ways of doing economic theory: It is the only way. Economic theory is mathematical analysis. Everything else is just pictures and talk.
-Robert Lucas, University of Chicago Professor and Nobel Prize Winner
Paul Samuelson was the FIRST American to win the Nobel Prize in Economics in 1970. He was born in 1915 and went to the University of Chicago for undergraduate studies and Harvard University for his Masters and Ph.D. He started teaching at MIT and worked there his entire career. When Samuelson first came to MIT there was no graduate program in economics, but he is one of the main reasons MIT got one in the 1960s and battles for he #1 graduate program each year. Samuelson, as Lucas hinted at, is essentially the person responsible for marrying economics with mathematics.
After World War II, Samuelson was the main figurehead that wanted to apply economic theories to real-world problems by using math. He is famous in international trade theory with the factor-price equalization where he showed, mathematically, of course, that prices of inputs (labor and capital) will equalize amongst nations with free trade. Then, there was also the Stolper-Samuelson theorem which stated that the prices of factors of production, (in economics there are 3: land, labor and capital), will rise in proportion to the price in output prices. So for example, if Nike t-shirts are made and the primary factor of production used to make them is labor than if Nike t-shirts rise in price to consumers ($10 to $12) the increase in output price is due to an increase in wages for workers. This assumes a few conditions, such as perfection competition. This theory along with factor-price equalization made waves within the international trade economics field and are the basis of many microeconomic theory classes.
However, his research extends beyond international trade into welfare analysis, price theory and financial economics, all of which I could elaborate pages and pages on (he has written 338 papers). Here is a highlight on some other notable topics you may be familiar with that are standard teachings in economic theory:
- Revealed preference- by observing a consumer’s purchasing behavior you can determine their preferences for items or moreover, consumers maximize their happiness so by choosing one option out of the set, it must be the preferred option (developing this theory was a component of his dissertation)
- Cost-push inflation- rising costs on the supply side of economics (by raw materials usually) will cause supply to decrease which could raise many prices and causes inflation
- Efficient-market theory (he helped develop the theory before Fama eventually made it famous)- Asset prices vary randomly around an optimal path discerned mathematically
But, despite his numerous theoretical contributions, he is equally known for disliking the University of Chicago free-market thought. Instead, he believed in neoclassical synthesis, a slight off-shoot of Keynesian economics and neoclassical economics– government intervention is needed during economic instability, yet supply and demand models and prices do influence choice. Samuelson had a famous column in Newsweek for 15 years (1966-1981) that rebutted many of Friedman’s columns in Newsweek. Friedman was last week’s In Memoriam scholar.
In 1948, Samuelson’s arguably most famous written work, an undergraduate textbook, Economics, was published and is among the best-selling undergraduate textbooks ever. He also served as an adviser to President Kennedy. Samuelson died at the age of 94 in 2009 (he was actively publishing in the 2000s), but his influence on the profession will forever remain.
His video below is a tad long but it starts off by him explaining his reaction when he was notified of winning the Nobel Prize and follows with a discussion about some of his work in financial economics.