Grand Pursuit

by Sylvia Nasar

  Being trapped in the Midwest had unexpected benefits. Far from the backwater he feared, Chicago was a buzzing hive of intellectual and political activity and a meeting place for economists who wanted Washington to do more to fight the depression. A mix of fiscally conservative midwesterners and Burkean liberals of Central European extraction, the Chicago faculty was alarmed and frustrated by Washington’s ineffectual response to the crisis and eager to advise a more activist approach.

  Samuelson learned from his freshman tutor that “the world’s leading economist,” John Maynard Keynes, had spent the previous summer lecturing at the university.15 His first economics professor was Aaron Director, “a very dry, confident, reactionary economist” and the future brother-in-law of Milton Friedman, who had “quite a big impact” on him. Director’s first lecture, on Thomas Malthus’s theory of population, got him hooked on economics, he later said. Another professor was Jacob Viner, a Canadian of Romanian extraction with a terrifying reputation as the toughest grader at Chicago. After Roosevelt’s inauguration, he became one of Treasury Secretary Henry Morgenthau’s closest outside advisors, staffing the Treasury, the Federal Reserve, and the New Deal agencies with dozens of his students. A close friend of Schumpeter and Hayek, Viner became one of the most vocal and influential American critics of Keynes’s General Theory of Employment, Interest, and Money. He agreed with Keynes on policy and on the need for deficit spending to fight the depression. However, he held that Keynes’s theory was not “general” at all but valid only in the short run, and fell apart if applied to longer time frames.

  During Samuelson’s first month at Chicago, the university hosted a conference at which Irving Fisher, the most famous and simultaneously most notorious American economist, and a bevy of other monetary experts debated how the Hoover administration should fight the depression. Director and Viner both signed Fisher’s telegram urging the president to launch an aggressive stimulus plan.

  When Samuelson decided three years later that he would make a better economist than mathematician and won a scholarship to graduate school, he chose Harvard over Chicago. The presence of Edward Chamberlin, who had recently published the groundbreaking The Theory of Monopolistic Competition, was an attraction, but getting away from home and the fantasy of the “peaceful green village” were far bigger lures. Arriving in Cambridge in the third year of the Roosevelt recovery, Samuelson quickly discovered that Harvard’s senior faculty, while politically to the left of Chicago’s, was intellectually far more conservative.

  A Canadian graduate student who had been attending Keynes’s lectures in Cambridge arrived at Harvard during Samuelson’s first semester in the fall of 1936. Robert Bryce gave a paper summarizing the ideas in Keynes’s as yet unpublished General Theory. He emphasized public spending to combat unemployment without fully explaining the underlying theory, leaving Samuelson, who did not regard fiscal activism as a new or uniquely “Keynesian” idea, somewhat puzzled over what the fuss was about. But since the economy was clearly rebounding, he took it for granted that the New Deal was responsible, and he took it on faith that Keynes had a new, rigorous, internally consistent theory explaining how it could be so. “In the end I asked myself why do I refuse a paradigm that enables me to understand the Roosevelt upturn from 1933 ’til 1937?”16

  When Nicholas Kaldor, a Marxo-Keynesian and economic advisor to the Labour Party, visited in 1936, he attended what he thought to be a brilliant talk by a faculty star. “Congratulations, Professor Chamberlin,” he prefaced his question to the speaker. The “Professor” turned out to be Samuelson, a first-year graduate student. Samuelson took a class from the mathematician Edwin Bidwell Wilson, Willard Gibbs’s last disciple at Yale. He and Schumpeter, who had instantly taken up Samuelson as a protégé, comprised half the students. He took another course with the brilliant Russian émigré and future Nobel laureate Wassily Leontief. Recalled the Japanese economist Tsuru Shigeto, Samuelson’s best friend in graduate school, “Leontief, as is well known, was not very eloquent, and he would make a frequent use of a blackboard, drawing a couple of lines which crossed with each other and would start saying: ‘You see at this point of intersection. . . .’ Thereupon Paul would intervene: ‘Yes, that is the point of. . . .’ But he cannot finish the sentence, for Leontief would immediately exclaim in approval ‘That’s right. You see what I mean.’ He and Paul both knew each other, but neither of them would reveal it, and the rest of the class had to remain mystified.”17

  The following year, Samuelson became the first economist to be elected to the Society of Fellows, a remarkable Harvard institution inspired by the English university’s tradition of high table. It demanded that young scholars from different disciplines suspend work toward their degrees for three years to . . . think. He suddenly found himself in the company of Willard Van Orman Quine, the logician; George Birkhoff, the inventor of lattice theory; Stanislaw Ulam, originator of the Teller-Ulam design for thermonuclear weapons; and other extraordinary mathematical minds.

  A heady atmosphere and intellectual thrills were no substitute for a family. Within a year, Samuelson had married a fellow graduate student from Wisconsin, Marion Crawford. By the time the prohibition against finishing his PhD expired in May 1940 on his twenty-fifth birthday, Marion had also finished her PhD, and the young couple had had their first baby.

  Like so many young men who came of age in the Great Depression, Samuelson was in a hurry. He horrified his European friends by listening to Beethoven’s Ninth Symphony out of order so that he could minimize time wasted in flipping over his seventy-eights. Hoping for a tenure track offer from Harvard, he plunged into his dissertation. Marion did the typing. When he handed it in, it bore the title Foundations of Economic Analysis. Foundations was inspired partly by Schumpeter’s 1931 lament about the crisis in economic theory and bore a family resemblance to Irving Fisher’s dissertation. It was an ambitious attack on contemporary economic theory, using “simple arithmetic and logic” to show how much of the theory could be boiled down to simpler, more fundamental propositions. “I felt I was hacking my way through a jungle with a penknife,” Samuelson said later. “It was a tangle of contradictions, overlaps, confusions.”18

  Foundations accomplished what Bertrand Russell’s Principia Mathematica and John von Neumann’s Mathematical Foundations of Quantum Mechanics sought to achieve—and what, in 1890, Marshall’s Principles of Economics had achieved. Herbert Stein, a University of Chicago–trained New Dealer, offered the most intuitive explanation of Samuelson’s achievement by comparing it to the pre-Fisher, pre-Keynes economics: if people were out of work, you gave them jobs. If people were out of work, you fiddled with something in one corner of the system—say, the money supply or tax rates—on the assumption that it would affect something at the far end of the system: employment. This was the practical implication of the new “economics of the whole,” or macroeconomics. This is what was new about Fisher’s and Keynes’s economics.19

  The emphasis on links between different parts of the economy and on indirect and secondary effects also explains why the new macroeconomics relied on mathematics. You cannot analyze an integrated system without math. The debate over whether its use to analyze economic problems is a good or bad thing crops up from time to time—as does the debate over the use of computers to prove mathematical theorems. Economists, like engineers, nuclear physicists, and composers, are problem solvers. If they are working on a problem that the old tools aren’t quite suited to, they try the new ones. True, the older generation rarely sees the point and often finds it impossible to master new techniques, but to Samuelson’s generation that came of age during the Great Depression and World War II, Willard Gibb’s point that mathematics is a language seemed perfectly natural. The fear that using mathematics would cause other languages to wither turned out to be overblown. John von Neumann, one of several mathematicians who had a major impact on economics, could translate from German into English in real time and quote verbatim from Dickens. Samuelson’
s verbal virtuosity was even more pronounced.

  It was probably no accident that Foundations was a product of the 1930s, an extraordinarily innovative decade. Samuelson, who took his generals at the end of his first year at Harvard, used the three years of his tenure as a Junior Fellow, the academic years 1937 to 1940, to produce the core of Foundations of Economic Analysis. Foundations “had no definite moment of conception,” he recalled. “Gradually over the period 1936 to 1941, it got itself evolved.”20 When Samuelson defended his dissertation, Schumpeter is said to have turned to Leontief to ask, “Well . . . have we passed?” But like so many ideas and inventions of that pregnant era, Foundations was kept off the market by World War II. Unlike von Neumann’s and Oskar Morgenstern’s Theory of Games and Economic Behavior, Samuelson’s doctoral dissertation had no influential champions or wealthy patrons. Indeed, Harold Burbank, the chairman of the Harvard Economics Department, was so hostile to it—whether because of an aversion to mathematics or Jews is hard to say—that he had the printing plates destroyed and insisted that Samuelson be offered only a temporary lectureship. When Foundations finally appeared in print in late 1947, it was all the more warmly received because the war had made the use of new tools and techniques seem natural. Samuelson won the John Bates Clark Medal, the equivalent of the Fields Medal for the best mathematician under age forty. Schumpeter proclaimed Foundations a masterpiece and wrote to his former student, “If I read in it in the evening the excitement interferes with my night’s rest.”21

  • • •

  Americans’ fears about the postwar economy were rooted in the belief that the war, not the New Deal, was responsible for the economic recovery. Whereas the British were mostly concerned with preventing an outburst of inflation while rewarding the population for its enormous sacrifices, the worry for most Americans was that unemployment would return when Washington slashed military spending and millions of GIs were demobbed.

  The National Resources Planning Board, a precursor to the President’s Council of Economic Advisors, was charged with planning the economic transition to peace. Everett Hagen, Samuelson’s coauthor on the NRPB report, was responsible for producing the administration’s consensus forecast. By mid-1944, a sharp split had developed among Washington’s economic experts. The New Dealers tended to be optimistic about postwar prospects. Keynesians tended to be pessimistic. Samuelson admitted that a restocking boom was likely at the end of the war, as business built up depleted inventories and replaced worn-out equipment and consumers took similar steps. But he thought that it would be short lived, overwhelmed by the huge military cuts.

  Demobilization occurred even faster than Samuelson expected, but the crisis he predicted did not materialize. After a steep but brief recession in 1947, the economy rebounded rapidly. The onset of the Cold War caused the Truman administration to spend hundreds of millions on America’s nuclear arsenal, even as spending on conventional ground forces plunged. But what Samuelson had failed to foresee was the magnitude of pent-up demand by consumers, starved for houses, cars, appliances, and other appurtenances of middle-class life and with plenty of savings in the bank. His embarrassingly wrong prediction slowed the spread of Keynesianism in academe, he always believed. Being disastrously wrong early in one’s career was in some ways a salutary experience for someone who hated making mistakes and rarely did. It left Samuelson more skeptical of economic forecasts and more circumspect in the claims he made for policies he favored or opposed.

  • • •

  Demobilization became a bonanza for American colleges, MIT and its embryo economics department included. The only economic bill of rights that Congress passed in the wake of FDR’s 1944 exhortation was the GI Bill. But that measure had a large and lasting effect on the postwar economy. In Britain, the Labour government would construct a cradle-to-grave welfare state to compensate the British people for their wartime sacrifices. The GI Bill was the American counterpart. The only serious opposition, David Kennedy points out, came from Samuelson’s and Friedman’s alma mater, the University of Chicago, and its famous president, Robert Hutchins, who warned, “Colleges and universities will find themselves converted into educational hobo jungles.”22 MIT, which had no graduate program in economics, took a more pragmatic position.

  The GI Bill was passed in June 1944, just before demobilization began. Samuelson was begging to be released from his obligations at the Radiation Lab, which he found tedious, to take up new projects. He considered but rejected an offer to ghostwrite a history of the Manhattan Project. Meanwhile, as GIs began streaming into Cambridge, his teaching load increased exponentially. In April 1945, Ralph Freeman, his department chairman, proposed that he write an economics textbook for engineers. “MIT is anxious to have me return to undertake a necessary project that I alone can do,” he wrote to the army, which still claimed his time, adding that “the day is approaching when it will no longer be in the national interest to convert a good economist into a mediocre mathematician.”23

  All new MIT students were required to take economics, another sign of changing times. The trouble was, as Freeman confided to Samuelson, for whom it could hardly have been news, “They all hate it.” On the day after Japan attacked Pearl Harbor, only one professor had been in his office at the Harvard Economics Department when Basil Dandison, a McGraw-Hill textbook salesman, stopped by. Dandison mentioned to the professor that his company was looking for someone to write an economics textbook and was told about a bright young star who had lately defected to the engineering college at the far end of Cambridge. By the time Japan surrendered, Dandison and the MIT hotshot had struck a deal. “I thought it would do very well,” Dandison recalled. The author shrewdly refused an advance and insisted instead on a then unheard-of 15 percent royalty.24

  Samuelson thought he could knock off the textbook during the summer, provided that the Rad Lab would let him go. But in 1945 he agreed to serve as one of three ghostwriters for Vannevar Bush, an MIT engineer and founder of Raytheon, who headed up a postwar planning group and had been commissioned by FDR to produce a report on research and development, Science: The Endless Frontier.25 Economics: An Introductory Analysis wasn’t finished until April 1948, although MIT engineering students got previews in mimeographed form.

  • • •

  In God and Man at Yale: The Superstitions of “Academic Freedom,” the publishing sensation of 1951, its twenty-five-year-old author, William F. Buckley Jr., leveled a dramatic accusation at his alma mater. “The net influence of Yale economics,” he charged, was “thoroughly collectivist,” the antithesis of the entrepreneurial values espoused by the university’s alumni. As evidence, he cited the textbooks assigned in Economics 10, the introductory course taken on average by one-third of the Yale class.26 One of the offending texts was Samuelson’s Economics: An Introductory Analysis. Charging Samuelson with glorifying government and disparaging competition and individual initiative, Buckley was irritated by his “typical glibness . . . and soap opera appeal.”27 He was particularly incensed by the author’s suggestion that great fortunes and inheritances were suspect.

  The blasphemies in Economics were numerous and the bows to traditional wisdom few.28 Instead of Adam Smith’s Invisible Hand, Samuelson invoked the image of a “machine without an effective steering wheel” to describe the private economy.29 Instead of treating government as a necessary evil, Samuelson called it a modern necessity “where complex economic conditions of life necessitate social coordination and planning,”30 adding, for emphasis, “No longer is modern man able to believe ‘that government governs best which governs least.’ ”31 The monetary discipline imposed by the pre–World War I gold standard is breezily dismissed as making “each country a slave rather than the master of its own economic destiny.”32 Samuelson treats budget balancing as a similarly outmoded obsession, assuring students that there is “no technical, financial reason why a nation fanatically addicted to deficit spending should not pursue such a policy for the rest of our lives and even beyond.
”33

  Economics was the work of a young man speaking directly to other young men:

  TAKE A GOOD LOOK AT THE MAN ON YOUR RIGHT, AND THE MAN ON YOUR LEFT . . .

  [T]he first problem of modern economics: the causes of . . . depression; and other of prosperity, full employment and high standards of living. But no less important is the fact—clearly to be read from the history of the 20th century—that the political health of a democracy is tied up in a crucial way with the successful maintenance of stable high employment and living opportunities. It is not too much to say that the widespread creation of dictatorship and the resulting WWII stemmed in no small measure from the world’s failure to meet this basic economic problem adequately.34

  Capturing the Zeitgeist of big government and bottom-up democracy, Samuelson announced portentously, “The capitalistic way of life is on trial.”35 The book’s organization reflected a new set of priorities. Samuelson starts by explaining how the national income is produced, distributed, and spent, and how the government’s decisions to tax and spend affect the private economy. These are topics “important for understanding the postwar economic world” as well as “topics people find most interesting.” Reversing the usual order, he placed the macroeconomy first, with traditional topics such as the theory of the firm and consumer choice left to the book’s second half. Cognizant of the new interest in investing created by wartime saving and purchases of government bonds, and of the need to keep the engineers awake, Samuelson included a chapter on personal finance and the stock market.