Paul Samuelson

"It is some relief to move from the exalted realm of philosophical ethics to the mundane realm of scientific methodology. However, I rather shy away from discussions of Methodology with a capital M. To paraphrase Shaw: Those who can do science; those who can’t prattle about its methodology."

"A scientist earns the only mortality worth having. Of the good scholar we say: Rex numquam moritur."

"I will not waste ink on face-saving tautologies. When the governess of infants caught in a burning building reenters it unobserved in a hopeless mission of rescue, casuists may argue; "She did it only to get the good feeling of doing it. Because otherwise she wouldn't have done it." Such argumentation (in Wolfgang Pauli's scathing phrase) is not even wrong. It is just boring, irrelevant, and in the technical sense of old-fashioned logical positivism "meaningless.""

"Orthodox biologists are like orthodox economists. When confronted by tensions between their paradigms and reality, they work to explain away the aberrations."

"Darwin's evolution is indeed mere sound and fury, signifying nothing normative, rather than denoting a process of meaningful Spencerian triumph. Natural selection is not an empty tautology about survival of those who survive. It is a lawful process subject to shrewd predictions and testable refutations. But in general it does not act to maximize any scalar magnitude. Many of its subprocesses do eschew submaximal configurations, and some may approximate efficiency criteria, but the resultant of them all is only positivistic!"

"Social Darwinism is a perverted borrowing from what can be validly established for biology. When I contemplate strong claims by a Richard Posner that law has evolved historically a la Pareto, or arguments that a Coase Theorem ensures that deadweight loss is at its feasible minimum, I fear that von Neumann and Morgenstern are spinning in their graves and Charles Darwin is wondering why he left his barnacles, pigeons, and earthworms. An unsupported claim by an economist- Darwinist does not acquire validity from a cited analogy with evolution. Truth must find its own legs to stand on."

"Error is a virus that tends to spread. As I have already hinted, the categories of circulating capital and of the wage fund tended and still tend to get confounded together."

"To the student of economic history the preponderant truth is that technical change has since 1750 tended to raise market clearing real wage rates. This property of the Age After Newton is hard to understand and explicate if you believe that sterile congealed-dead-labor is embodied in machines almost infinitely substitutable for live labor; equally confusing to you will be the truth that inventions which are labor saving may at the same time be wage raising! The doctrines of equated rates of surplus value moved Marxians backward from square one in the understanding of the laws of motion of the capitalistic system or the system of the Mixed Economy."

"Economics, even classical economics, is not a finished business. There are still issues relevant to the present debate that have not been definitively explored."

"The Coase-Samuelson generation were brought up witnessing the great debate between von Mises and Lerner-Lange concerning the feasibility of socialist rational pricing to produce Utopia. (That was a reprise of earlier Pareto-Barone-Wieser-Taylor debates.) Many contemporaries believed Lerner-Lange triumphed in the debate. I came to believe that Friedrich Hayek was the true victor. Under static conditions where all is known or knowable (to whom?), whatever optimal states laissez-faire might occasion, so could some computer solution or some algorithms of play the game of competition also achieve. But in the real world all is changing, even in the time it takes me to write this sentence. Hayek has been persuasive — not in Whig ideology or in declaring that moderate reform of laissez-faire leads inevitably down the road to totalitarian socialism but — in arguing that experience suggests that only with heavy dependence on market pricing mechanisms can there be realized quasi-efficient and quasi-progressive organization of societies involving humans as Darwinian history has bequeathed them. If a reader does not find the Hayek dynamic arguments persuasive, I will not here argue the matter further."

"The vogue of vulgar and vague Coaseism, one hypothesizes, is strongest among libertarians and other devotees of laissez-faire who believe to find in it ammunition against regulation and voters' activism. Whether this hypothesis is close to or wide off the mark is of no importance. What does matter is how much deadweight-loss obtains in real life."

"What sex is to the biology classroom, stocks and investment riskiness is to the sophomore economics lecture hall."

"I tell no secret when I repeat that fame and reputation are much a matter of luck and chance."

"The pre-1800 pattern of commercial panics had to be a case of NON MACRO-EFFICIENCY of markets. We’ve come a long way, baby, in two hundred years toward micro efficiency of markets: Black-Scholes option pricing, indexing of portfolio diversification, and so forth. But there is no persuasive evidence, either from economic history or avant garde theorizing, that MACRO MARKET INEFFICIENCY is trending toward extinction: The future can well witness the oldest business cycle mechanism, the South Sea Bubble, and that kind of thing. We have no theory of the putative duration of a bubble. It can always go as long again as it has already gone. You cannot make money on correcting macro inefficiencies in the price level of the stock market."

"Most of mainstream economics is not "big-picture economics." Our journals and textbooks are full of the grimy details about inventory cycles or the deadweight losses incident to taxes and regulation. Besides, most big pictures are wrong."

"Years ago Arthur Koestler edited The God That Failed, whose chapters report the disillusionment of one true believer after another in the promise of Marxian prophecies under the impact of contemporary actuality. It would be boring sawing of saw dust to elaborate on that god that failed. More relevant to the present moment of global economic chaos is an antipodal-polar archetype. I am speaking about the god of pure libertarian capitalism."

"Years ago, I wrote aphoristically: “Inside a classical economist, you discern a neoclassical economist trying to get in.” My archetypical tableaux flesh out this heuristic perception. And, in my considered opinion, these explications cast cogent doubts on that view popular in the 1950s and early 1960s that “going back to the classics” somehow offered a different and better alternative to the post-neoclassical mainstream paradigms."

"An economy’s inventory of produced inputs is both complex and simple. Maintaining and improving upon congeries of productive inputs is an indispensable part of economic progress. All such time-phased processes will not evolve automatically: cave-people rose and fell in material well-being; eons passed without much cumulative change; great diversity of performance characterized geographically separated societies. Attempts to generalize simple family’s or related-families’ habit formation to large-group polities—à la utopian experimental cults or in the Lenin-Stalin and Mao pattern have not hitherto succeeded in organizing production with approximate Pareto-Optimality efficiency features. Gradual evolution toward near laissez-faire market mechanism responding to individual’s self-interest, history suggests and advanced economic theory second guesses, will incur areas of market failure and will generate and perpetuate considerable degrees of economic and political inequalities. Just as there is no asymptotic communist utopia, neither is an asymptotic laissez-faire utopia."

"Economics never was a dismal science. It should be a realistic science."

"You must realize how bad, temporarily, capitalism had become in public opinion. I remember seeing a poll of small town attitudes in local newspapers. They asked questions like "should we nationalize the banking system?" More than half of those editors, about the most conservative group in the world, were in favor of nationalizing the banking system. Father Coughlin, the Detroit demagogue who turned anti-Semitic, complained about "fountain pen money, the perpetrator of great wealth, the money changers in the temple." It was kind of a crude expansionism. Huey Long and "every man a millionaire," or whatever it was. So I would say that Keynes thought of himself as saving the system. And lots of the New Dealers ― original New Dealers, Veblenites, technocrats ― did not like Keynesian economics. They said "that is using palliatives, it's not getting rid of the wicked capitalistic ethos." Keynes told Roosevelt when he came here in 1933 that he needed to spend so much more per month in deficit spending. He gave very precise figures with great self-confidence."

"Modigliani's theory was a powerful searchlight on what was happening... It is the best explanation of what has actually been happening in the great swing of American life since the 1950's."

"However, one last caution. What has happened in Japan for 12 long years warns that an affluent society like America’s might not be immune to a self de-energization of its optimism and free spending. Do not bet on worst case scenarios. But do not ignore them completely either."

"The proof of the pudding is in the eating. There was a widespread myth of the 1970s, a myth along Tom Kuhn’s (1962) Structure of Scientific Revolutions lines. The Keynesianism, which worked so well in Camelot and brought forth a long epoch of price-level stability with good Q growth and nearly full employment, gave way to a new and quite different macro view after 1966. A new paradigm, monistic monetarism, so the tale narrates, gave a better fit. And therefore King Keynes lost self esteem and public esteem. The King is dead. Long live King Milton! Contemplate the true facts. Examine 10 prominent best forecasting models 1950 to 1980: Wharton, Townsend–Greenspan, Michigan Model, St. Louis Reserve Bank, Citibank Economic Department under Walter Wriston’s choice of Lief Olson, et cetera. … M did matter as for almost everyone. But never did M alone matter systemically, as post-1950 Friedman monetarism professed."

"A later writer, such as Leijonhufvud, I knew to have it wrong, when he later argued the merits of Keynes’s subtle intuitions and downplayed the various (identical!) mathematical versions of The General Theory. The so-called 1937 Hicks or later Hicks–Hansen IS–LM diagram will do as an example for the debate."

"I would guess that most MIT Ph.D.’s since 1980 might deem themselves not to be “Keynesians.” But they, and modern economists everywhere, do use models like those of Samuelson, Modigliani, Solow, and Tobin. Professor Martin Feldstein, my Harvard neighbor, complained at the 350th Anniversary of Harvard that Keynesians had tried to poison his sophomore mind against saving. Tobin and I on the same panel took this amiss, since both of us since 1955 had been favoring a “neoclassical synthesis,” in which full employment with an austere fiscal budget would add to capital formation in preparation for a coming demographic turnaround."

"Often I’ve stated how I hate to be wrong. That has aborted many a tempting error, but not all of them. But I hate much more to stay wrong. Early on, I’ve learned to check back on earlier proclamations. One can learn much from one’s own errors and precious little from one’s triumphs. By September of 1945, it was becoming obvious that oversaving was not going to cause a deep and lasting post-war recession. So then and there, I cut my losses on that bad earlier estimate."

"My notion of a fruitful economic science would be that it can help us explain and understand the course of actual economic history. A scholar who seriously addresses commentary on contemporary monthly and yearly events is, in this view, practicing the study of history—history in its most contemporary time phasing."

"Instead of attenuating this paper’s theses, heterogeneity amplifies its importance. Contemplate a scenario where Schumpeter’s fruitful capitalist destruction harms a really sizeable fraction of the future U.S. population and, say, improves welfare of another group and does that so much as to justify a calculation that the winners could be made to transfer some of their gains and thereby leave no substantial U.S. group net losers from free trade. Should noneconomists accept this as cogent rebuttal if there is no evidence that compensating fiscal transfers have been made or will be made? Marie Antoinette said, “Let them eat cake.” But history records no transfer of sugar and flour to her peasant subjects. Even the sage Dr. Greenspan sometimes sounds Antoinette-ish. The economists’ literature of the 1930s—Hicks, Lerner, Kaldor, Scitovsky and others, to say nothing of earlier writings by J.S. Mill, Edgeworth, Pareto and Viner—perpetrates something of a shell game in ethical debates about the conflict between efficiency and greater inequality. Policy aside and ethical judgments aside, mainstream trade economists have insufficiently noticed the drastic change in mean U.S. incomes and in inequalities among different U.S. classes. As in any other society, perhaps a third of Americans are not highly educated and not energetic enough to qualify for skilled professional jobs. If mass immigration into the United States of similar workers to them had been permitted to actually take place, mainstream economists could not avoid predicting a substantial drop in wages of this native group while the new immigrants were earning a substantial rise over what their old-country real wages had been."

"An evolving discipline–whether it be history or economics or astrophysics or immunology–is ever dynamically changing. Two steps forward and X steps back, so to speak. Periodically, the scholarly group registers more or less self-confidence, self-esteem, and complacency. We careerists are happiest when recent past achievements have seemed to be successful, but when still there are completable tasks dimly visible ahead."

"Here is my advice. When in doubt, give my new efforts a hearing. Many feel a calling to break new ground; in the end, few will end upfinding their efforts chosen. But the yea-sayer does do less harm than the naysayer, in that the Darwinian process of adverse testing will in time (most likely?) separate the useful from the useless, the trivial from the profound."

"I had a great admiration for Pigou. I thought that, in many ways, he was not only a faithful follower of Alfred Marshall, but he was also a more fertile developer of the Marshallian tradition than Marshall himself. … Whitehead said to me:“Don’t you think that Pigou was an overrated economist? Wasn’t Foxwell a better man?” Since I am an honest man, I said to Whitehead:“No, I think Pigou was a much more important economist than Foxwell.”"

"I think Marshall was a great economist, but he was a potentially much greater economist than he actually was. It was not that he was lazy, but his health was not good, and he worked in miniature."

"Arrow’s general impossibility theorem does not disprove the existence of the Bergsonian social welfare function, neither does it disprove the existence of the Benthamite hedonistic function."

"I return to economics and to economists, and to the question of why the profession’s directions have evolved in the manners evident from this book. A major conservative economist once explained that a source of his antipathy to government traced back to the defeat of his southern ancestors by a larger north economy. Here is a similar factoid. Joan Robinson once wrote that her opposition to having the U.K. enter the European Market was due to the fact that she “had more friends in [Nehru’s] India than on the continent.”"

"We economists love to quote Keynes’s final lines in his 1936 General Theory—for the reason that they cater so well to our vanity and self-importance. But to admit the truth, madmen in authority can self generate their own frenzies without needing help from either defunct or avant-garde economists. What establishment economists brew up is as often what the Prince and the Public are already wanting to imbibe. We guys don’t stay in the best club by proffering the views of some past academic crank or academic sage."

"My final words are cut short by this audience’s well-fed drowsiness. I will leave as a question for later discussion: Will hedge funds make our golden years more golden, or will the new concoctions of option engineers, instead of reducing risks by spreading them optimally (in fact, by making possible about 100 to 1 over leveraging), result in microeconomic losses for pension funds and, maybe someday, even threaten the macro system with lethal financial implosions?"

"What then is it that, since 2007, has caused Wall Street capitalism's own suicide? At the bottom of this worst financial mess in a century is this: Milton Friedman-Friedrich Hayek libertarian laissez-faire capitalism, permitted to run wild without regulation. This is the root source of today's travails. Both of these men are dead, but their poisoned legacies live on."

"Scholars still debate whether Columbus brought syphilis to the New World or vice versa. But it cannot be doubted that the 2008 world meltdown carries on its label the words Made in America."

"Well, I will say this. And this is the main thing to remember. 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'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. And I think the recent period has illustrated that. The governor of the Bank of England seems to have forgotten or not known that there was no bank insurance in England, so when Northern Rock got a run, he was surprised. Well, he shouldn't have been. But history doesn't tell its own story. You've got to bring to it all the statistical testings that are possible. And we have a lot more information now than we used to."

"When I once called myself a “Sunday painter” dabbling in stochastic finance, that was not meant to belittle finance theory as a branch of serious economic theory. Such a peculiar view was expressed again and again by the late Milton Friedman, a dizzy view that I still find incomprehensible."

"From the beginning I could not believe that the “efficient market” hypothesis was dependent on a pure Brownian motion white noise or any truly random random walk. Place a minuscule colloidal molecule on a horizontal table that covers unlimited acres. Bombard it from every direction with thousands of minute atoms; and then if you wait long enough that original molecule can have traveled a billion miles in one direction. That’s truly a random Bachelier-Einstein walk, but not my notion of economic fluctuations."

"Moral: To understand economics you need to know not only fundamentals but also its nuances. Darwin is in the nuances. When someone preaches “Economics in one lesson,” I advise: Go back for the second lesson."

"Moral: free markets do not stabilize themselves. Zero regulating is vastly suboptimal to rational regulating. Libertarianism is its own worst enemy!"

"Markets are not perfect, which is true even for rationally regulated markets. Nevertheless, over the last thousand years every attempt to organize sizeable societies without important dependence on markets has generated its own failure ..."

"Paul Samuelson is omnipresent in American and even world economics; like Joyce's Humphrey Chimpeden Earwicker or Melville's Confidence Man,. he appears at every turn of history and in every disguise."

"Paul’s work combined breadth and intensity. On the one hand, his structures were grounded in a very wide knowledge of the nature of mathematical systems used to describe natural phenomena. On the other, he studied individual questions in economics, sometimes at a very detailed level."

"As an intellectual and economist, there were two Samuelsons. There was the mathematical savant who had learned his trade at the feet of Viner, Leontief, Schumpeter and, above all, Wilson. This work had raised him above most of his contemporaries, enabling him to speak with the authority of one of the leading economists of his generation. However, his more popular work was not just a distillation of his abstract theories; it rested not on complex mathematical arguments but involved careful data analysis and familiarity with the way that economic institutions worked. This was the Samuelson, mentored by Hansen during the Second World War, who wrote Economics and whose views were sought by the press and government."

"I got to know Paul Samuelson well during 2001-02 when I was a visiting professor at MIT. I would pause every now and then at his office to chit-chat about things. He was into his grey years by then and seemed a bit lonely. His interests were voracious — from the intricacies of science to the lives of people and he liked to chat. My last proper conversation with him was on May 15, 2002. I was photocopying something at MIT, when he stopped and said that it was his birthday that day. The Harvard Club would open a special champagne for him and he asked me if my wife and I would come to the Harvard Club. For an economist, that’s the equivalent of Einstein asking a physicist to dinner. I, of course, said yes, expecting lots of people there. It turned out to be a dinner with Samuelson, his charming wife Richa and the two of us. It was one of the most memorable evenings of my life. We — truth be told, mainly he —talked about art, history and, of course, economics."

"For virtually my entire career in finance—now more than 61 years—two of the greatest economists of the past century have played a major role in my understanding of the financial markets. One is John Maynard Keynes, the legendary British theorist and author. The other is Paul Samuelson, the prolific generator of ideas and the first American to win (in 1970) the Nobel Memorial Prize in the Economic Sciences."