Paul Samuelson has been called the foremost academic economist of the 20th century. He also won the first American Nobel Prize in Economics. The 1970 Nobel Prize committee said that “more than any other contemporary economist, Samuelson has helped to raise the general analytical and methodological level in economic science,” crediting him with “transforming his discipline from one that ruminates about economic issues to one that solves problems,” as the New York Times reported. Samuelson is regarded as the founder of modern mathematical economics, and his most influential work—Foundations of Economic Analysis (1947)—described economics as a branch of applied mathematics and was pivotal in the development of general equilibrium theory.
Samuelson published a revered textbook in 1948, titled simply Economics, which began the mathematical revolution in economics. The book was a best seller, and a half-century later was still selling at the rate of 50,000 copies a year. Business Week, taking note of the textbook’s publication in Greek, Punjabi, Hebrew, Russian, Serbo-Croatian, and other languages, said that it had “gone a long way in giving the world a common economic language.” The book has sold more than four million copies in the past 60 years. Samuelson was a Keynesian and his book popularized the theories of John Maynard Keynes, the British economist who argued for government intervention to counteract economic downturn rather than allowing the laissez-faire of the private market to solve the problem. In the book, Samuelson claimed: “It is not too much to say that the widespread creation of dictatorships and the resulting World War II stemmed in no small measure from the world’s failure to meet this basic economic problem [the Great Depression] adequately,” reflecting Keynes’s ideas about the economic causes of war.
Samuelson’s views were the direct opposite of those of the conservative economist Milton Friedman who, though he initially had been a Keynesian, was ultimately against all government regulation. Friedman won the Nobel Prize in Economics in 1976. The two economists were friends, having first met at the University of Chicago when Samuelson was an undergraduate and Friedman a graduate student, and they frequently appeared and argued together in debates or in print. Essentially, the two of them essentially tell the history of 20th-century economics theory.
Samuelson developed his theories of economics by analogy to the science of thermodynamics, the study of how the transfer of heat affects physical bodies or how one system will change when interacting with another. His doctoral dissertation about the relation of classical thermodynamics to the equilibrium of economic systems was based on the methods of Yale physicist Willard Gibbs and Gibbs’s student Edwin Bidwell Wilson, who was Samuelson’s mentor at Harvard. His dissertation won the John Bates Clark Medal awarded by the American Economic Association to “the economist showing the most scholarly promise before the age of 40.” The prize would eventually help him win his Nobel, and his dissertation was frequently reprinted.
It laid the groundwork for his application of mathematical principles to solving the problems of economics. His most famous theory was the Stolper–Samuelson about the impact of trade, in which he and a coauthor demonstrated how imports from underdeveloped countries would reduce the wages of workers in industrialized nations, another application of Samuelson’s thermodynamics analogy. Using mathematical formulas he called his “correspondence principle,” Samuelson investigated the way stable economic systems can be thrown into disequilibrium by consumer behavior. The same correspondence principle could be used to predict future economic stability. He also created an “overlapping generations model” that is used by social scientists to study entitlement programs like Social Security. And, with others, he developed mathematical models for stock price movements that are used by Wall Street brokers to trade options and derivatives. Samuelson, describing himself as a “cafeteria Keynesian” who picked out just the parts he liked, also proposed a synthesis of Keynesian theory with laissez-faire ideas to sanction government intervention when high unemployment rates endangered stability, as in the Great Depression of the 1930s when Roosevelt’s New Deal to put people back to work rescued the economy.
Samuelson graduated from Harvard in 1941 and took the instructor position the university offered him. But when Massachusetts Institute of Technology invited him to join the faculty as an assistant professor, Samuelson took it. Six years later, he was a full professor and went on to establish MIT, where he would spend his entire academic career, as “a powerhouse of economics.” By the mid-1960s, MIT was winning most of the National Science Foundation fellowships in economics, which, Samuelson joked, even attracted the scrutiny of the U.S. Department of Justice’s antitrust division. In 2000, he wrote:
Two factors explain our success. One, MIT’s renaissance after World War II as a federally supported research resource. Two, the mathematical revolution in macro- and micro-economic theory and statistics: this was overdue and inevitable—MIT was the logical place for it to flourish.
A Samuelson Chair in Economics was later established at MIT in his honor. As a professor, Samuelson was particularly good at explaining complex theory in clear language and with wit and humor. Many of his comments were quite quotable. For example, in discussing lopsided gender issues, he summed up the issue by saying simply that “women are men without money.”
Samuelson, a lifelong Democrat, would become an adviser to presidents and world leaders as well as to the U.S. Treasury and the Federal Reserve. His prize pupil was the newly elected President John F. Kennedy, who got his first lesson from Samuelson sitting on a rock on the beach after a hot dogs-and-beans lunch at the Hyannis Port family compound. Kennedy absorbed the lesson and planned to follow his advice to cut taxes to ward off a recession but he was assassinated before he could do so. His successor, Lyndon B. Johnson, carried out the tax cut, which later was credited with setting up the economic boom in the Clinton years to come.
It was Samuelson’s contention that the biggest problem the United States faced was the threat of inflation, with the legitimate fear of inflation equally a problem. At a symposium in 1958, he said the history of the 20th century has been “pretty much a history of rising prices,” partially caused by the price creep of high employment where too much spending power pushes up prices and wages. He urged fiscal responsibility, putting a high priority on some government programs like urban renewal, education, health and welfare, public works and highway construction, and housing. Regarded as the economist’s economist, Samuelson’s views on economics were shaped by being born in the nation’s most desperate times. He was critical of economists like Federal Reserve chairman Ben Bernanke (born in 1953): “If you were born after 1950, you don’t have the feel of the Great Depression in your bones. Being a bright boy at MIT, it’s not really a substitute for that.”
Paul Anthony Samuelson was born on May 15, 1915, in Gary, Indiana. His parents were Frank Samuelson, a pharmacist, and Ella Lipton Samuelson, whom he described as “upwardly mobile Jewish immigrants from Poland who had prospered considerably in World War I, because Gary was a brand new steel town when my family went there.” Samuelson’s family includes prominent economist Lawrence Summers, his nephew, who was director of the U.S. National Economic Council for President Barack Obama. Samuelson’s family moved to Chicago when his father lost his money after the war. Samuelson went to high school in Hyde Park. He was already studying the stock market and helped his algebra teacher pick stocks. Samuelson left high school at 16 and enrolled at the University of Chicago, where he was regarded as something of a prodigy. He began taking courses in economics and first met Milton Friedman who was a graduate student there.
Samuelson said he became hooked on economics after he heard a college lecture on the 18th-century British economist, Thomas Malthus, whose work focused on the relationship of poverty to population growth. Samuelson received his BA from the University of Chicago in 1935 and went on to Harvard University where he earned an MA degree in 1936. He would spend the next four years studying economics, formulating his theories and writing a groundbreaking dissertation for his PhD. He was critical of his Harvard professors’ elitist approach to economics, claiming that they ignored the real economic problems of that time, the height of the Great Depression, when people could not find work and were standing in breadlines. He observed that economists “were like highly trained athletes who never ran a race.” He also took issue with Keynes’s idea of “equilibrium unemployment,” which proposed that some level of unemployment was necessary to maintain a stable economy, an idea that has since become a general economic rule of thumb. Watching President Franklin Roosevelt turn the Depression economy around between 1933 and 1937 with less than full employment, Samuelson began to accept the idea.
He met fellow student Marion Campbell at Harvard and they were married in 1938. They had six children, including triplet sons. Their birth doubled the number of children in the household, which was now sending 350 diapers a week to the laundry. Samuelson looked about for additional sources of income and decided to write a book. That book was Economics, which, along with good investing strategies, eventually helped make him a millionaire. Samuelson retired in 1985 but continued to be active in MIT’s economics department. At the dedication of the Samuelson Chair in Economics, Samuelson said he would be happy to go on “until the end of time... scribbling my articles on the third floor of the Sloan Building, in between playing tennis and drinking coffee at my other study in the Concord Avenue branch of Burger King.”
He was awarded the National Medal of Science, the United States’ top science award, in 1996, with a citation from President Bill Clinton for his “fundamental contributions to economic science, specifically general equilibrium theory and macroeconomics, and to economic education and policy over a period of 60 years.” Samuelson was the author of several more books, including Linear Programming and Economic Analysis, written in collaboration with Robert Dorfman and Robert Solow and sponsored by a grant from the Rand Corporation. He wrote a regular column for Newsweek magazine for two years and was the author of hundreds of articles in professional journals and magazines. Samuelson served as associate editor and a member of the advisory and editorial boards of several professional journals. The MIT Press has published The Collected Scientific Papers of Paul A. Samuelson in six volumes and is preparing an additional volume.
Samuelson was a member of the American Academy of Arts and Sciences, the British Academy, Phi Beta Kappa, the International Economic Association (president, 1965–1968 and lifetime honorary president), the National Academy of Sciences, where he served on the Finance Committee from 1977 until 2009, and the American Association for the Advancement of Science. Samuelson received 35 honorary degrees and gave lectures at more than 20 colleges, universities, and professional societies.
His wife Marion Samuelson died in 1978, and Samuelson later married Risha Clay. He died at 94 in Belmont, Massachusetts, on December 13, 2009.
Frost, Greg. “Nobel-Winning Economist Paul A. Samuelson Dies at 94.” MIT News, December 13, 2009. http://web.mit.edu/newsoffice/2009/obit-samuelson-1213.html .
“Paul A. Samuelson—Biography.” In Nobel Lectures, Economics 1969–1980. Ed. Assar Lindbeck. Singapore: World Scientific Publishing Company, 1992. http://www.nobelprize.org/nobel_prizes/economics/laureates/1970/samuelson-bio.html
Weinstein, Michael M. “Paul A. Samuelson, Economist, Dies at 94.” The New York Times, December 13, 2009. http://www.nytimes.com/2009/12/14/business/economy/14samuelson.html?pagewanted=all .