Paul A Samuelson & the Keynesians

The great economist Paul Samuelson died last Sunday 13 December 2009 at age 94. He brought mathematics to economic analysis along the line of Keynes. His textbook, "Economics" brought him wealth but it was his PhD thesis on 'The Foundations of Economic Analysis" which brought him fame and the Nobel prize.

There are many excellent orbituaries written on him around the world.

Below I will put in some thoughts on what I was taught about his theories, for the purposes of talking about economic analysis in the hope that it will not be taken as an attempt at a cheap shot at a giant at such a sad moment, which this is not. It is about ideas, not person.

Samuelson can be credited for bringing mathematics into analytical rigour in economic theorising. While many major implications can be brought out from the established framework (or paradigm), nonetheless, the danger, in the views of his opponents, was that it prevented people from thinking outside that established box. Here, Keynes' theory degenerated at the initial attempt by Hicks (with his ISLM model) through Alvin Hansen (Samuelson's teacher) to Samuelson into what is now called the Neoclassical Synthesis.

The Neoclassical Synthesis is an attempt to incorporate Keynes' ideas into a Neoclassical model, resulting in a Neoclassical model with Kynesian characteristics, principally in the form of the demand for money function which replaces the demand for loans equation. The rest remained essentially unchanged.

Disatisfaction by the "true" disciples of Keynes over the Neoclassical Synthesis rages in the form of the Capital Theory Controversy which attempts to show the tautology in the Neoclassical construction. If the profit rate is the return on capital, what is "capital" and how do you calculate it without the resorting to the return on capital which is the profit rate and the rate of interest, in equilibrium. Joan Robinson, followed GC Harcourt and then Paul Davidson won't let go.

The capital theory controversy still lingers in the minds of bored Keynesians, while the rest of the world happily ignores this logical inconsistency and runs the global economy down to ground with zero interest rates. Is there no such a thing as "profit" except the extraction of surplus value?