The Poverty of Samuelson's Economics
One of the things that economics lost when it became a mathematical
There is in academic economic theory a growing unease, an unease that the entire approach of the field may be in error. This unease is reflected in the growing criticism of the prevailing method of "doing" academic economics -- the great emphasis placed on complex and difficult mathematical formulas to express economic activity.
Paul Samuelson is still perhaps the preeminent representative of the contemporary approach in academic economic theory. Is Samuelson's mathematical method of presenting economic theory of value, or should it be placed on the trash heap of history?
Samuelson is a brilliant mathematician, and his intellectual power (and good sense of humor) is not in dispute. The question is, has he added anything of value to the understanding of economic activity? History abounds with brilliant scholars whose work was considered significant and lasting during their time, but whom later generations consider to have employed fatally flawed methods of reasoning.
There is a difference between intelligence and relevance of intellectual academic output. The most brilliant individuals -- individuals whose intelligence far outstrips the rest of us -- can be completely wrong in their factual appraisals of the world. The attempt will be made here to argue that this is the case with the complex and difficult mathematical methodology Samuelson uses to present the simple truths of economics. In short, Samuelson is a great mathematician, but he knows little about economic activity. He does not understand how the market works.
In his primary work in economic theory, the 1948 Foundations of Economic Analysis, Samuelson writes that a "meaningful theorem" is a "hypothesis about empirical data which could conceivably be refuted, if only under ideal conditions."1 Fortunately, Samuelson has made many economic predictions over his career that are capable of refutation . With respect to larger, macroeconomic issues, his predictions have invariably been wrong. A few examples over the decades will suffice to demonstrate this proposition.
Early in his career, Samuelson predicted that after World War II there would be a worldwide depression, contrary to what actually happened. In the 1973 edition of his famous textbook Economics he predicted that though the Soviet Union then had a per capita income roughly half that of the United States, it would catch up to the United States in per capita income by 1990, and almost certainly would by 2015 because of its superior economic system. In 1981 he wrote in opposition to President-elect Ronald Reagan's proposals: "Swift decontrol of energy prices ... will certainly add to the inflation rates consumers will endure from 1981 to 1983,"2 again the opposite of what occurred.
Arnold Beichman, a research fellow at the Hoover Institution, and Austrian economist Mark Skousen, have collected from Economics many examples of Samuelson's miscomprehension of global macroeconomic activity and moral obtuseness with respect to Communism. In the 1976 10th edition of this work -- which is perhaps the best-selling economics text of all time -- Samuelson wrote that it was a "vulgar mistake to think that most people in Eastern Europe are miserable,"3 a shockingly naïve or callous statement. In the 11th edition, four years later, he removed "vulgar."4
As Beichman goes on to note, in the 1985 edition of Economics, "that entire passage had disappeared. Instead, he ... substituted a sentence asking whether Soviet political repression was 'worth the economic gains.' This non-question Samuelson ... identified as 'one of the most profound dilemmas of human society.' In the face of looming Soviet economic disaster the 1985 Samuelson text offered these paragraphs: "But it would be misleading to dwell on the shortcomings. Every economy has its contradictions. ... What counts is results, and there can be no doubt that the Soviet planning system has been a powerful engine for economic growth.' "5
In the 1989 13th edition of Economics -- as Soviet-style socialist command economies were in collapse around the globe, and as eastern Europe was aflame in revolution that would spread to the Soviet Union two years later -- Samuelson opined that "contrary to what many skeptics had earlier believed": "The Soviet economy is proof that ... a socialist command economy can function and even thrive."6 Skeptics indeed -- in 1989!
Skousen observes that while Samuelson:
Economic events require explanation. They can be described in words that portray the physical world of sensory data. The fundamental problem in Samuelson's approach -- and that of 20th century academic economic theory generally -- is that it assumes economic activity is susceptible to the sort of precision that exists in the physical sciences. But economics is not (or at least is not yet) a physical science. It relies heavily on what people think, both factually and normatively. What people think is, moreover, liable to change.
Paul Samuelson's mathematical ecoomic theory has not proved reliable in predicting economic activity either at a point in time or over time. Rather, he superimposes a mathematical superstructure, which is indeed necessarily correct, over human behavior, to which it is not, or is not much, applicable.
The attempt to apply complex and difficult mathematical methodology to economic activity was and is a mistake. Notwithstanding the prominence he achieved during the 20th century, the view here is that Paul Samuelson, and the mode of economic theory he represents, will hardly be remembered at all by future generations of economists, other than from a historical perspective. The mathematization of economic theory was a step in the wrong direction.
From a libertarian perspective, it is essential that the propositions of economics be presented in a manner in which they can be understood. If prices are decontrolled, will they then tend to rise or fall? If interest rates are lowered, will this increase or decrease economic activity? If the federal government runs a budget deficit, will this stimulate or retard economic activity? Is central planning effective or non-effective? Samuelson, and perhaps most contemporary economic theoreticians, have typically misunderstood the practical relations between cause and effect with respect to questions such as these.
The presentation of economic
activity in complex and difficult mathematical form has been misconceived.
This presentation obscures economic questions and allows economists to
hide behind blackboards of equations that, because no one (or almost no
one) understands them, including often many economists, say little.
Irrelevance is the poverty of Paul Samuelson's economics.
-- republished from the April 2003 issue of Liberty with the permission of the author
"Incredibly, as late as 1985, Paul Samuelson (MIT) and William D. Nordhaus (Yale) still declared, 'The planned Soviet economy since 1928 ... has outpaced the long-term growth of the major market economies.' " -- Dr. Mark Skousen, HERE
"Samuelson’s readers were told in 1961 (and shown in a graph) that the economy of the Soviet Union was growing, and would continue to grow, significantly faster than the American economy. Nine years later, readers were told the very same thing – even though, according to Samuelson’s own 1970 graph, the ratio of Soviet GNP to U.S. GNP in 1970 was the same as it was in 1961" -- Dr. Donald Boudreaux, HERE
"Good economists, and in fact just about every sensible human on the planet, know that human activity and happiness cannot be expressed as a mathematical equation." -- Jacob Halbrooks, here.
"Public Choice theory, if nothing else, has taught economists to consider the state as it is, not as it should be in a dream world: the state is a potential tyrant, not a benevolent God."-- Pierre Lemieux, here
"There is no error so monstrous that it fails to find defenders among the ablest men." -- Prof. John E. E. D. Acton
"I can claim in talking about modern economics I am talking about me."-- Paul Samuelson, humorous ass
"Mathematics brought rigor to Economics. Unfortunately, it also brought mortis."-- Kenneth Boulding
If it amuses you, you can find P.J. O'Rourke referring to Samuelson as a fellow goofball here.
Samuelson, economics textbooks and the economics of textbooks are made fun of here.
Many, many TOTALLY DIFFERENT ways to present economics can be found HERE.
See: The lies of (some) economists here.
<BACK to an excerpt
from Eat the Rich
My motivation for publishing this essay comes from an enduring resentment of Samuelson,
and the discouragement about studying economics (let alone the disordering of my mind)
which his textbook caused in the first Econ 101 course I took in college. I highly recommend
avoiding ANY college which uses a Samuelson text in its economics courses,
especially Econ 101.
|"In the opening remarks of Ludwig von Mises's first formal seminar in America, the revered teacher held up a copy of a book and announced: "to understand economics, this is the book you should read first." According to Mises’s student and friend George Koether, the book he was holding was An Introduction to Logic and Scientific Method by Morris Cohen and Ernest Nagel, first published in 1934 and now out of print. ..." -- Steven Yates, HERE|