Tuesday, 15 December 2009

Boettke on Samuelson

Over at the Austrian Economists blog Peter Boettke has a posting on Paul Samuelson. With regard to Samuelson two most famous books, Economics and Foundations of Economic Analysis, Boettke writes,
His Economics became the leading textbook for college freshman, and his Foundations became the leading text for first-year graduate students in economics.

When you scratch the surface of Economics you find Keynesianism at each turn of the page, when you scratch the surface of Foundations you find economics as social physics at each turn of the page. That Keynesian policies are best served by social physics was Samuelson's true legacy for the economic imagination of multiple generations of economics, policy commentators, and policy makers. The discipline of economics was transformed from a tool for understanding and social criticism and an instrument for intellectual enlightenment, to a tool for social engineering and an instrument for progressive politics.
More importantly Boettke argues that Samuelson helped push economics down the wrong road,
John Hicks once wrote that the story of economics in the 1930s was the battle between Hayek and Keynes. I think Hicks is right, and that this battle continues to this day as witnessed in our current policy debates. But I think there is a deeper debate that goes at the very project of economics as a scientific discipline. And that battle is the one between Samuelson and Mises, and the fateful choice was the late 1940s. Rather than following Mises's Human Action, the economics profession went the path of Samuelson's Foundations. Formalism was intereprted as synonymous with logical rigor, and in the subsequent decade positivistic testing was interpreting as synonymous with empirical analysis. By the 1960s, formalism and positivism transformed the science of economics so that the Misesian understanding of "theory" and "history" was actually completely dismissed as a relic of a pre-scientific age.

Since then a large part of the great efforts by economists have been directed at recapturing insights that Mises-Hayek possessed already by mid-century --- whether we are talking about cognitive limits of man, the role of property rights (and legal and political institutions in general and behavior related to them), and the microfoundations of all macroeconomic phenomena. New institutional Economics, New Classical Economics, New Economic History, Experimental and Behavioral Economics, etc. all deviate in significant ways from the scientific and policy project that Samuelson initiated in the late 1940s and which dominated economic thinking from that time until the 1980s. The Samuelsonian project had to be pecked away at for progress in economic understanding to take place. Yet the 'scientific' allure of the project still remains --- unfortunately even among many of those who pecked away at the Samuelsonian project. The pretense of knowledge (see Hayek's Nobel) and the claim to the mantle of science (see Rothbard's paper of that title) have a much stronger grip on the minds of economists and intellectuals than what might be reasonably expected in the wake of repeated failures.
I'm not sure how much the positivistic testing route was really due to Samuelson, Friedman may have more to answer for there. But Samuelson did have a great effect, or good or bad, on the approach that economists take to doing theory.

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