No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Sixteen: Valuing the Future - Concepts in Capital & Finance 414 GREAT ECONOMISTS IN HISTORY PAUL A. SAMUELSON 1915-2009 Paul Samuelson, more than any other economist, made Keynesian theory dominate the economics profession. Samuelson’s Economics is the most popular economic textbook ever written, and took the field by storm by translating Keynesian macroeconomics with formalized mathematical treatment. How “great” was this great economist? Well, he was awarded the John Bates Clark medal for the best economist under forty years old, was the first American Nobel Laureate in economics in 1970, and was awarded the Albert Einstein Medal in 1971. Perhaps his most influential work was based on his doctoral dissertation; his “Foundations of Economic Analysis” provided the scientific rigor to transform the economics profession. Samuelson’s technical work spanned macroeconomics, to international trade, to public finance, and (why he is included in this chapter) corporate finance. Samuelson was at the forefront developing the efficient market hypothesis; he produced an influential paper that demonstrated that prices follow a random walk from their past data (weak form EMH). Samuelson thought EMH was fairly applicable for individual stocks, but was less enthusiastic about the efficiency of the overall market. In his macroeconomics, Samuelson popularized the “Keynesian Cross,” and was not only a driver of Keynesian economics, but a prime implementer of Sir John Hick’s “Neoclassical Synthesis.” Samuelson and Milton Friedman were contemporaries. Both were Chicago Ph.D.’s and both John Bates Clark and Nobel Prize winners, but they came with opposite perspectives to both their economics and political philosophy. A committed Keynesian, Samuelson saw market failure (especially in underutilizing labor) as something that government policy could and should address. Further, Samuelson treated economic data from the Soviet Union uncritically. He once wrote, “The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.” Indeed, he continually overestimated Soviet production capability. Nevertheless, while Friedman may have left more passionate followers, it was Samuelson who left the economics profession as his legacy. Photograph of Paul Samuelson 1