The Rivals (Samuelson and Friedman)

This is by David Warsh:

The Rivals, Economic Principals: When Keynes died, in April 1946, The Times of London gave him the best farewell since Nelson after Trafalgar: “To find an economist of comparable influence one would have to go back to Adam Smith.” A few years later, Alvin Hansen, of Harvard University, Keynes’ leading disciple in the United States, wrote , “It may be a little too early to claim that, along with Darwin’s Origin of Species and Marx’s Capital, The General Theory is one of the most significant book which have appeared in the last hundred years. … But… it continues to gain in importance.”

In fact, the influence of Keynes’ book, as opposed to the vision of “macroeconomics” at the heart of it, and the penumbra of fame surrounding it, already had begun its downward arc. Civilians continued to read the book, more for its often sparkling prose than for the clarity of its argument. Among economists, intermediaries and translators had emerged in various communities to explain the insights the great man had sought to convey. Speaking of the group in Cambridge, Massachusetts, Robert Solow put it this way, many years later: “We learned not as much from it – it was…almost unreadable – as from a number of explanatory articles that appeared on all our graduate school reading lists.”

Instead it was another book that ushered in an era of economics very different from the age before. Foundations of Economic Analysis, by Paul A. Samuelson, important parts of it written as much as ten years before, appeared in 1947. “Mathematics is a Language,” proclaimed its frontispiece; equations dominated nearly every page. “It might be still too early to tell how the discoveries of the 1930s would pan out,” Samuelson wrote delicately in the introduction, but their value could be ascertained only by expressing them in mathematical models whose properties could be thoroughly explored and tested. “The laborious literary working-over of essentially simple mathematical concepts such as is characteristic of much of modern economic theory is not only unrewarding from the standpoint of advancing the science, but involves as well mental gymnastics of a particularly depraved type.”

Foundations had won a prize as a dissertation, so Harvard University was required to publish it as a book. In Samuelson’s telling, the department chairman had to be forced to agree to printing a thousand copies, dragged his feet, and then permitted its laboriously hand-set plates to be melted down for other uses after 887 copies were run off. Thus Foundations couldn’t be revised in subsequent printings, until a humbled Harvard University Press republished an “enlarged edition” with a new introduction and a mathematical appendix in 1983. When Samuelson biographer Roger Backhouse went through the various archival records, he concluded that the delay could be explained by production difficulties and recycling of the lead type by postwar exigencies at Press.

It didn’t matter. With the profession, Samuelson soon would win the day.

The “new” economics that he represented – the earliest developments had commenced in the years after World War I – conquered the profession, high and low. The next year Samuelson published an introductory textbook, Economics, to inculcate the young. Macroeconomic theory was to be put to work to damp the business cycle and, especially, avoid the tragedy of another Great Depression. The new approach swiftly attracted a community away from alternative modes of inquiry, in the expectation that it would yield new solutions to the pressing problem of depression-prevention. Alfred Marshall’s Principles of Economics eventually would be swept completely off the table. Foundations was a paradigm in the Kuhnian sense.

At the very zenith of Samuelson’s success, another sort of book appeared, in 1962, A Monetary History of the United States, 1869-1960, by Milton Friedman and Anna Schwartz, published by the National Bureau of Economic Research. At first glance, the two books had nothing to do with one another. A Monetary History harkened back to approaches that had been displaced by Samuelsonian methods – “hypotheses” instead of theorems; charts instead of models, narrative, not econometric analytics. The volume did little to change the language that Samuelson had established. Indeed, economists at the University of Chicago, Friedman’s stronghold, were on the verge of adapting a new, still- higher mathematical style to the general equilibrium approach that Samuelson had pioneered.

Yet one interpretation of the relationship between the price system and the Daedalean wings that A Monetary History contained was sufficiently striking as to reopen a question thought to have been settled. A chapter of their book, “The Great Contraction,” contained an interpretation of the origins of the Great Depression that gradually came to overshadow the rest. As J. Daniel Hammond has written,

The “Great Contraction” marked a watershed in thinking about the greatest economic calamity in modern times. Until Friedman and Schwartz provoked the interest of economists by rehabilitating monetary history and theory, neither economic theorists nor economic historians devoted as much attention to the Depression as historians.

So you could say that some part of the basic agenda of the next fifty years was ordained by the rivalry that began in the hour that Samuelson and Friedman became aware of each other, perhaps in the autumn of 1932, when both turned up the recently-completed Social Science Research Building of the University of Chicago, at the bottom of the Great Depression. Excellent historians, with access to extensive archives, have been working on both men’s lives and work: Hammond, of Wake Forest University, has largely completed his project on Friedman; Backhouse, of the University of Birmingham, is finishing a volume on Samuelson’s early years. Neither author has yet come across a frank recollection by either man of those first few meetings. Let’s hope one or more second-hand accounts turn up in the papers of the many men and women who knew them then. When I asked Friedman about their relationship in 2005, he deferred to his wife, who, somewhat uncomfortably, mentioned a differential in privilege. I lacked the temerity to ask Samuelson directly the last couple of times we talked; he clearly didn’t enjoy discussing it.

Biography is no substitute for history, much less for theory and history of thought, and journalism is, at best, only a provisional substitute for biography. But one way of understanding what happened in economics in the twentieth century is to view it as an argument between Samuelson and Friedman that lasted nearly eighty years, until one aspect of it, at least, was resolved by the financial crisis of 2008. The departments of economics they founded in Cambridge and Chicago, headquarters in the long wars between the Keynesians and the monetarists, came to be the Athens and Sparta of their day. ...[continue reading]...

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