Tue Dec 15th, 2009 at 06:26:58 AM EST
Paul Samuelson, the Noble Prize winning economist whose ideas helped shape the foundations of modern economics, died after a brief illness at his home in Belmont, Massachusetts. He was 94.
In 1970, Samuelson was the first American to receive the Nobel Prize for economics. He was cited by the prize committee "for the scientific work through which he has developed static and dynamic economic theory and actively contributed to raising the level of analysis in economic science".
The New York Times reports the Massachusetts Institute of Technology announced that Samuelson had died on Sunday. At MIT, Samuelson helped build the school into "into one of the world's great centers of graduate education in economics." Students and colleagues of Samuelson included fellow Nobel laureates George Akerlof, Robert Engle, Lawrence Klein, Paul Krugman, Franco Modigliani, Robert Merton, Robert Solow, and Joseph Stiglitz.
"Paul Samuelson was both a path-breaking and prolific economic theorist and one of the greatest teachers that economics has ever known," said Federal Reserve chairman Ben Bernanke, a former student of Samuelson's told the Wall Street Journal. "I join with many other former students and colleagues of Paul's in mourning the passing of a titan of economics," he said.
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Samuelson's textbook, Economics, first published in 1948 has remained one of the principle instructional text for instructing economic principles courses. The 19th edition of the book was published earlier this year. According to the NY Times, Samuelson wrote the book so he could earn more money to support his young family of six, after his first wife, fellow economist Marion Crawford, gave birth to triplets.
He focused his book on the "poorly understood Keynesian revolution" and wanted the text "be compelling for students" and yet "sophisticated and complete".
The textbook introduced generations of students to the revolutionary ideas of John Maynard Keynes, the British economist who in the 1930s developed the theory that modern market economies could become trapped in depression and would then need a strong boost from government spending or tax cuts, in addition to lenient monetary policy, to get back on track. No student would ever again rest comfortable with the 19th-century nostrum that private markets would cure unemployment without need of government intervention.
Samueleson saw the power of that lay with economics in the 20th century. "I don't care who writes a nation's laws -- or crafts its advanced treatises -- if I can write its economics textbooks," he said.
He said he "sweated blood" writing his book, employing detailed charts, color graphics and humor. He wrote: "Economists are said to disagree too much but in ways that are too much alike: If eight sleep in the same bed, you can be sure that, like Eskimos, when they turn over, they'll all turn over together."
His textbook, co-written by William Nordhaus in recent years, has been translated into more than 40 languages and sold more than 4 million copies according to the Associated Press. "Publisher McGraw-Hill paid an unusual tribute in 1997 by reissuing the original 1948 edition, reproducing not just the original text but the illustrations and layout."
The NY Times writes Samuelson helped bring mathematic "discipline into the mainstream of economic thinking, showing how to derive strong theoretical predictions from simple mathematical assumptions" and "his relentless application of mathematical analysis gave rise to an astonishing number of groundbreaking theorems, resolving debates that had raged among theorists for decades, if not centuries."
His work with Wolfgang Stolper created the Stolper-Samuelson theorum which is a basic part of trade theory and describes the "impact of trade on different groups of consumers and workers" and how free trade could hurt workers in one nation if productivity in a trading partner rose. Together the two economists "showed that competition from imports of clothes and similar goods from underdeveloped countries, where producers rely on unskilled workers, could drive down the wages of low-paid workers in industrialized countries." Samuelson did not advocate protectionism, however, rather he advocated "open trade" and "higher productivity".
"Samuelson also formulated a theory of public goods -- that is, goods that can be provided effectively only through collective, or government, action." Samuelson concluded public goods "cannot be sold in private markets because individuals have no incentive to pay for them voluntarily. Instead they hope to get a free ride off the decisions of others to make the public goods available."
Born in Gary, Indiana in 1915, Samuelson entered the University of Chicago at age 16 and was "born as an economist", he said, after hearing his first college lecture on economics.
The University of Chicago developed the century's leading conservative economic theorists, under the later guidance of Milton Friedman. But Mr. Samuelson regarded the teaching at Chicago as "schizophrenic." This was at the height of the Depression, and courses about the business cycle naturally talked about unemployment, he said. But in economic-theory classes, joblessness was not mentioned.
"The niceties of existence were not a matter of concern," he recalled, "yet everything around was closed down most of the time. If you lived in a middle-class community in Chicago, children and adults came daily to the door saying, `We are starving, how about a potato?' I speak from poignant memory."
Study economics at Chicago during the Great Depression, Samuelson told the Wall Street Jornal that "he became keenly aware... of the differences between what was being taught in the classroom and 'what I heard out the windows and I heard from the street.'"
As am undergraduate, Samuelson met Friedman, a graduate student, at the university in 1933. "Samuelson said the two had almost always disagreed with each other but had remained friends."
Unlike the liberal Mr. Samuelson, the conservative Mr. Friedman opposed active government participation in most areas of the economy except national defense and law enforcement. He thought private enterprise and competition could do better and that government controls posed risks to individual freedoms.
Both men were fluid speakers as well as writers, and they debated often in public forums, in testimony before congressional committees, in op-ed articles and in columns each of them wrote for Newsweek magazine. But Professor Samuelson said he always had fear in his heart when he prepared for combat with Professor Friedman, a formidably engaging debater.
"If you looked at a transcript afterward, it might seem clear that you had won the debate on points," he said. "But somehow, with members of the audience, you always seemed to come off as elite, and Milton seemed to have won the day."
Samuelson said the second half of the 20th century had reduced his hope that a purely Keynesian approach would be the economic salvation for nations. When governments become too big and controls too much of a nation's wealth, they become wasteful and blind to the needs of its citizens. However, he still believed the Keynesian approach was a must to prevent economic trouble. "Neither government alone nor the markets alone, he said, could serve the public welfare without help from the other."
Despite his celebrated accomplishments, Mr. Samuelson preached and practiced humility. The M.I.T. economics department became famous for collegiality, in no small part because no one else could play prima donna if Mr. Samuelson refused the role, and, of course, he did. Economists, he told his students, as Churchill said of political colleagues, "have much to be humble about."
Samuelson is survived by his second wife, Risha Eckaus, six children, and 15 grandchildren. A private funeral is planned along with a public memorial service at MIT.