Before you read on: what kind of book made Paul Samuelson famous?
Samuelson's Economics, first published in 1948, taught generations of beginners. The other two describe books by Friedman (with Anna Schwartz) and Hayek.
- Lived
- Born 15 May 1915 in Gary, Indiana; died 13 December 2009 in Belmont, Massachusetts
- Nationality
- American
- Work
- Studied at Chicago and Harvard (PhD 1941). Taught at the Massachusetts Institute of Technology (MIT) from 1940. Adviser to Presidents Kennedy and Johnson. Nobel prize in economics, 1970, the first American to win it
- Key works
- Protection and Real Wages (1941, with Wolfgang Stolper), Foundations of Economic Analysis (1947), the textbook Economics (1948), The Pure Theory of Public Expenditure (1954), and Analytical Aspects of Anti-Inflation Policy (1960, with Robert Solow)
- School
- Keynesian; a leading figure in the neoclassical synthesis
What Samuelson was reacting to
Samuelson found his calling in economics at Chicago at the height of the Great Depression.
Samuelson insisted that mathematics was essential to economics. In Foundations of Economic Analysis he showed that a great deal of economic behaviour can be treated as someone doing the best they can within a limit, such as a household with a fixed budget or a firm with given costs.
Samuelson's key ideas
Can you name Samuelson's four key ideas?
Working out what consumers prefer from the choices they actually make. Samuelson set it out in 1938 and used it to judge whether a consumer is better off after prices change.
Can you think of an example?
A shopper could afford either of two baskets of groceries and picks the first. Her choice reveals that she prefers it.
Samuelson's blend of Keynesian ideas about the whole economy with the neoclassical theory of individual markets. Governments use fiscal policy (taxes and spending) and monetary policy (interest rates and the money supply) to reach full employment, and markets then work well, apart from problems such as public goods and pollution.
Can you think of an example?
In a slump the government cuts taxes and the central bank cuts interest rates. Once jobs return, prices guide what gets made.
Goods that one person can use without leaving less for anyone else, and that are hard to keep non-payers from using. Samuelson's 1954 paper was the first attempt at a rigorous definition. Because people can enjoy them without paying, markets tend to supply too little.
Can you think of an example?
National defence, the standard example. Protecting one citizen from attack protects the neighbours too, so few would pay for it voluntarily.
Samuelson and Wolfgang Stolper showed in 1941 how trade policy changes the real income of each factor of production, such as labour or capital. A rise in a good's price raises the real reward of the factor used most heavily to make it, and lowers the reward of the other.
Can you think of an example?
A tariff raises the price of clothing, which takes a lot of labour to make. The theorem predicts that workers gain in real terms and capital owners lose.