Samuelson and Schumpeter

14 December 2009 at 11:24 am Peter G. Klein 12 comments

| Peter Klein |

Paul Samuelson, the enormously influential economic theorist, textbook writer, and teacher, died yesterday. The Times calls him “the foremost academic economist of the 20th century,” which may be true, depending what’s meant by “foremost.” He was certainly brilliant, talented, and creative. His Foundations of Economic Analysis (1949) changed forever the way economists think about their discipline (formerly a distinct, mostly verbal, logical science, economics became a branch of classical mechanics). His textbook Economics established a new style for introductory texts: lengthy, comprehensive, but ad hoc and unsystematic (Murray Rothbard called it a “vast potpourri . . . of bits and smidgens of technique and of data, none of them integrated into any sort of digestible or comprehensible whole”).

The blogosphere is beginning to spew out commentary, not all of it flattering (Krugman fawns, Ed Glaeser and Arnold Kling are more nuanced, Yuri Maltsev is gracious, Mario Rizzo is blunt). I don’t have much to add specifically for O&M readers, but I’m curious about one issue that may not get much play: the influence on Samuelson’s thought of Joseph Schumpeter, Samuelson’s dissertation supervisor at Harvard.

In many ways, they were opposites: Schumpeter the flamboyant, dramatic innovator, Samuelson the careful, rigorous systematizer; Schumpeter the defender of capitalism and critic of Keynes, Samuelson the interventionist and foremost American Keynesian; Schumpeter, someone I greatly admire, Samuelson. . . . well, you get the picture. Both were brilliant and egocentric (you all know the Schumpeter quip about wishing to become the greatest horseman, economist, and lover in Vienna, but achieving only two of the three; Samuelson once declared, “I can claim in talking about modern economics I am talking about me”).

Samuelson is mentioned in the Schumpeter biographies, including McCraw’s, mostly to illustrate Schumpeter’s enthusiasm for Samuelson’s brand of mathematical economics, which Schumpeter greatly admired even if he himself was not a practitioner. Samuelson has written a bit on his old teacher, mostly to praise Schumpeter’s brilliance (and celebrate his quirkiness, particularly in the classroom), but not much on Schumpeter’s specific theoretical contributions. (Here is Samuelson’s 1951 paper “Schumpeter as a Teacher and Economic Theorist,” which is a good read but not, ultimately, very informative; here is Samuelson’s critique of Schumpeter’s theory of equilibrium interest rates). Samuelson certainly didn’t give the entrepreneur a prominent place in his own system (here is a technical paper on innovation); what did he think of Schumpeter’s account of entrepreneurship and economic change?

Entry filed under: - Klein -, Entrepreneurship, History of Economic and Management Thought, Innovation, People.

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12 Comments Add your own

1. Hipster Doofus | 14 December 2009 at 12:41 pm

Great post!

PAS: “Reflections on the Schumpeter I knew well.” Nice words, but still not much on entrepreneurship, but still a seemingly strong support of JAS theories/contributions:

Google books – Page 5 (Free)
Journal of Evolutionary Economics – (Pay)
2. Rich Makadok | 14 December 2009 at 2:18 pm

Schumpeter predicted Obama 67 years ago…
http://www.econlib.org/library/Enc/bios/Schumpeter.html
3. euandus2 | 14 December 2009 at 2:36 pm

With time, I believe the mathematical “problem solving” orientation of twentieth-century economics will be viewed as piece-meal and insufficient, especially as we look at the viability of the market-mechanism itself in the wake of the financial crisis. Relatedly, Samuelson’s “mathematization” of economics treats the discipline as though it were a science–ignoring the inherent limits to prediction of a human system, whether social, political or economic. For more, pls see http://euandus3.wordpress.com/2009/12/14/paul-samuelson-the-20th-century-economist-has-passed/
4. Ram Mudambi | 14 December 2009 at 3:30 pm

The influence of Samuelson on economics is unquestioned. His use of mathematics – far from reducing the subject to a branch of classical mechanics, introduced rigor into the discipline, Without this, many of the advances of the late 20th century like information economics (Akerlof), the notion of selection and how to deal with it (Heckman) and many others would have been impossible.

True, the contributions of Schumpeter and Samuelson were very different. Schumpeter was more of a tool user (tools of earlier Austrians), Samuelson was more of a tool maker. But that does not make Samuelson’s contributions less significant.
5. Rafe Champion | 14 December 2009 at 7:07 pm

Samuelson had the good fortune to surf three waves that carried all before them, for a time. The waves were the General Theory of Keynes, the Big Government welfare state and Mathematics. To capture the mood of the Keynesian revolution he recycled a famous response to the French Revolution “Bliss was it in that dawn to be alive, But to be young was very heaven! …”.

It is likely that critical scholarship will be less kind. He may be remembered as the man who thought that the Soviet economy was robust and rapidly overhauling the US. The man who was relaxed and comfortable with Keynesian stimulation of the economy. The man who thought that von Mises was rubbish.

Paul Samuelson 1915-2009
6. Richard Ebeling | 14 December 2009 at 9:15 pm

The tragic figure in this comparison is, of course, Joseph Schumpeter.

Educated in the twilight of the first generation of the Austrian School giants — Bohm-Bawerk and Wieser — he absorbed much of their teaching, but rejected their conceptions of the economic process because of his early enthusiasm over the mathematical elegance of Walras’ interdependent system of general equilibrium.

But he could not escape from his Austrian roots, which dominated his conception of the entrepreneur (which he absorbed from Wieser to a great extent) or the idea of the market as a dynamic causal process constantly kept moving and changing due to innovation (even as he denied the relevancy of “causality” instead of “mutual determination” of equilibrium states).

In some of his remarks about Schumpeter, Samuelson had at times a tone of pity and contempt for the great thinker who praised the new era of mathematical economics but who just could not do any real math himself, in spite of how much he did his math homework.

Samuelson may have been the master (at his time) of the mathematical technique, but Schumpeter (for whatever failings critics may wish to find in him) was the true interdisciplinary scholar who knew not only virtually the entire history of economics, but was a widely read student of history and sociology.

Samuelson may have shined as the star of “new wave” of mathematical economics, but Schumpeter was the old world renaissance man of “vision” of the process of “creative destruction.” But how do you mathematically model the mental process of innovative entrepreneurship without reducing it to a mechanical form that drains it of its core element of unpredictable imagination?

But at a time in the history of economics when Scientism (the misplaced application of methods of the natural sciences to the problems of the social sciences, including economics) continues to hold sway over the minds of too many economists, Samuelson is praised as a great figure who helped to make economics a “real science,” while Schumpeter lingers as a shadowy figure at the edges of economic thinking who seemed to be saying something “interesting” but which remains “non-operational” because it seems mathematically intractable.

Richard Ebeling
7. David Gerard | 15 December 2009 at 10:37 am

Great post, Peter. Those two, indeed, seem orthogonal.

Very interesting, Richard.
8. David Hoopes | 15 December 2009 at 3:38 pm

I’m surprised Richard positions Schumpeter in the shadows. Perhaps because of my interest in technology, growth, and organizational change, or, because I’m not an economist, Shumpeter is always in the light.

Further, despite the recent popularity of Keynesian policy, I don’t think Keynes or Samuleson (does anyone talk about his academic work any more?) will long be considered helpful in the policy arena. Perhaps current events will prove me wrong. Yet, despite what the silly voices in the press say, I think it’s almost impossible that government intervention will stimulate the economy.

I think Schumpeter’s thinking much more will show how economies flourish . Entrepreneurs will innovate and create the new markets that will deliver the rising tide.

As Smith observed, in simple traditional societies, everyone was equal and everyone was poor. In modern societies, if people are left to their own inventiveness, there will be great inequality, but substantially less poverty.

Okay, I’m rambling.

Samuleson was wrong about macroeconomic policy and I think future events will emphasize how wrong he and others of his ilk are.

RIP
9. Peter Klein | 15 December 2009 at 5:16 pm

Ram, I don’t at all doubt the value of adverse selection models or Heckit regressions. But I think the connection of these things to Samuelson’s specific contributions is rather tenuous.
10. Hipster Doofus | 15 December 2009 at 8:29 pm

“Well, I’d say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that’s the raw material out of which any of your conjectures or testings will come.”

“Macroeconomics — even with all of our computers and with all of our information — is not an exact science and is incapable of being an exact science. It can be better or it can be worse, but there isn’t guaranteed predictability in these matters.”

“Well, I would say a mathematical searchlight –”

From: The Atlantic – June 09 – Interview with PSA
11. srp | 15 December 2009 at 11:29 pm

You should check out David Henderson’s piece in the WSJ today. It’s pretty nuanced.
12. Peter Klein | 15 December 2009 at 11:31 pm

Yes, I agree. It’s here:

http://online.wsj.com/article/SB20001424052748704869304574595823818190240.html