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The Keynesian Revolution Paul A. Samuelson (1915-2009)
The Keynesian Revolution
Paul Anthony Samuelson (1915 - 2009)
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 111 / 148
The Keynesian Revolution Paul A. Samuelson (1915-2009)
Vital Dates
◮ Born May/15/1915 in Gary, Indiana, as the son of the pharmacist
Frank S. and his wife Ella Lipton, both Jewish immigrants from
Poland
◮ Bachelor of Arts from the University of Chicago in 1935 and
Master of Arts in 1936
◮ Ph.D. in Economics in 1941 from Harvard with a thesis on utility
measurement (David A. Wells price for best dissertation)
◮ Lived in an economists’ family: Robert Summers as brother,
brother-in-law Kenneth Arrow (see below) and nephew Larry
Summers
◮ Died Dec/13/2009 in Belmont, Massachusetts
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 112 / 148
The Keynesian Revolution Paul A. Samuelson (1915-2009)
Academic Career
◮ Assistant Professor at MIT (Massachusetts Institute of
Technology, Cambridge, MA) in 1940
◮ Full Professor of Economics in 1947
◮ 1966: Institute Professor at MIT (considered as most prestiguous
title at MIT)
◮ Advisor to US presidents John F. Kennedy and Lyndon B. Johnson
◮ Consultant to the US Treasury, the Bureau of the Budget and the
CEA
◮ Weekly column in Newsweek – alternating with the Monetarist
Milton Friedman (see below)
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 113 / 148
The Keynesian Revolution Paul A. Samuelson (1915-2009)
Major publications
◮ Foundations of Economic Analysis. Cambridge: Harvard
University Press 1947
◮ Economics: An Introductory Analysis. New York: MacGraw-Hill
1948 (until 2009: 19 eds., translated into 40 languages, over 4
Mill. copies sold)
◮ Very large number of journal articles etc., collected in: Collected
Scientific Papers, 7 volumes. Cambridge, MA, 1966-2011
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 114 / 148
The Keynesian Revolution Paul A. Samuelson (1915-2009)
Elements of Samuelson’s Work
S. contributed to nearly all relevant fields in modern economic theory
(and laid the foundations for many of them). Examples:
◮ Business cycle theory: multiplier-accelerator (equilibrium) model
with lagged consumption and investment acceleration as the
source of cyclical movements of a simple macro-economy
◮ Choice acts: development of the theory of revealed preferences
(how can individual preferences be derived from observing actual
choices made by the individuals). Culminated in establishing the
‘strong’ and ‘weak’ axiom of revealed preferences, later refined by
John Hicks and others
◮ International Trade Theory: So-called Stolper-Samuelson
theorem. In the context of the Heckscher-Ohlin standard
neoclassical pure trade model: changes in the relative price of a
good with a dominance of a particular factor of production imply a
relative change in the price of this factor.
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 115 / 148
The Neoclassical Synthesis and the New Classical Economics
The Neoclassical Synthesis and the New Classical
Economics
This section deals with three basically distinct, but conceptually similar
fields:
◮ Performing regiorous mathematical analyses of generalizations of
neoclassical microeconomics
◮ Approaches in order to combine neoclassical elements with
Keynesian economics
◮ Re-introducing classical/neoclassical equilibrium elements into
macroeconomics
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 120 / 148
The Neoclassical Synthesis and the New Classical Economics Arrow (1921-2017)
The Neoclassical Synthesis and the New Classical
Economics
Kenneth Arrow (1921-2017)
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 121 / 148
The Neoclassical Synthesis and the New Classical Economics Arrow (1921-2017)
Vita and Academic Career
◮ Born Aug/23/1921 in New York into a family of Romanian
emigramts
◮ Studies of mathematics (and later also economics) at Columbia U.
MA in mathematics in 1941
◮ After his military service (as a weather officer) return to Columbia
in 1946 and later to the U. of Chicago. Ph.D. in Economics from
Columbia in 1951
◮ Prof. of Economics at Stanford since the mid-1950s (with an
intermediate position at Harvard between 1968 – 1972)
◮ In the 1960s: Member of the Council of Economic Advisors
◮ John Bates Clark Medal in 1957; Nobel Prize in Economics in
1972 (together with John Hicks)
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 122 / 148
The Neoclassical Synthesis and the New Classical Economics Arrow (1921-2017)
Major Academic Fields
◮ Impossibility Theorem: It is impossible to encounter social
preferences which (simultaneously) fulfill all five properties
◮ non-dictatorship◮ individual sovereignty◮ unanimity◮ independence of irrelevant alternatives◮ uniqueness of group ranking
◮ General Equilibrium Theory
◮ Fundamental Theorems of Welfare Economics
◮ Uncertainty Issues
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 123 / 148
The Neoclassical Synthesis and the New Classical Economics Friedman (1912-2006)
The Neoclassical Synthesis and the New Classical
Economics
Milton Friedman (1912-2006)
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 124 / 148
The Neoclassical Synthesis and the New Classical Economics Friedman (1912-2006)
Vital Dates
◮ Born Jul/31/1912 in Brooklyn, NY, as the son of an immigrant
family from Carpathian Ruthenia / Ukraine
◮ College years at Rutgers University; major in economics and
mathematics
◮ M.A. in economics from the University of Chicago in 1933
◮ Various appointments as lecturer and research assistant at
Columbia University, NYC, and the University of Chicago; 1935 -
1943: assistant for the National Resource Committee, the NBER,
and the Treasury Dept.
◮ Ph.D. in economics from Columbia in 1946
◮ 1946: move back to Chicago; full professor of economics: 1948
◮ 1976: Nobel prize in economics (for his consumption studies)
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 125 / 148
The Neoclassical Synthesis and the New Classical Economics Friedman (1912-2006)
Major Works
◮ Essays in Positive Economics. Chicago: Univ. of Chicago Press
1953
◮ A Theory of the Consumption Function. Princeton: Princeton
University Press 1957
◮ A Monetary History of the United States, 1867-1960 (with Anna J.
Schwartz). Princeton: Princeton University Press 1963
◮ The Optimum Quantity of Money, and Other Essays. Chicago:
Aldine 1969
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 126 / 148
The Neoclassical Synthesis and the New Classical Economics Friedman (1912-2006)
Major Contributions
◮ Consumption Theory
Household consumption depends mainly on permanent income
(in addition to temporary consumption depending on temporary
income):
y = yp + yt, c = cp + ct and cp = k(·) · yp
with yp as a statistical measure of permanent income derived from
a typical lifetime income, yt as a temporary component, cp and ct
as the associated consumption levels, and k(·) as a function with
interest rates, a wealth/income ratio and household preferences
as arguments
◮ Phillips curve
Importance of inflationary price expectations in the location of the
u, π-curve (π: inflation; u: unemployment rate). Long-run Phillips
curve as a vertical line
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 127 / 148
The Neoclassical Synthesis and the New Classical Economics Friedman (1912-2006)
Major Contributions (cont.)
◮ Critique of Keynesian Economic Policies
◮ Lag problem
(recognition lag, legal lag, execution lag etc.)
◮ Ineffectiveness of discretionary policies when expected
◮ Monetary Policy
◮ In sharp contrast to Keynes, F. stressed the importance of moneyfor stabilizing an economy in case of high inflation and high
unemployment: “Money matters!”
◮ Rules for monetary activities
◮ Steady growth of the money stock (M1, M2, etc., not only central
bank money (!))
◮ Cardinal utility theory (v. Neumann-Morgenstern utility): Possibility
of S-shaped expected utility function in order to allow for risky
(gambling) behavior of individuals at certain occasions
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 128 / 148
The Neoclassical Synthesis and the New Classical Economics Friedman (1912-2006)
Public Activities
◮ Various activities as economic policy advisor for
◮ the Eisenhower, Nixon, Ford and Reagan administrations
◮ the Pinochet administration in Chile after the military coup against
Salvador Allende
◮ the administrations in Iceland, Estonia, Hongkong (before the
independency)
◮ Regular column in Newsweek from1966 to 1984; ten part TV series
on economic policy
◮ Advocat for a variety of so-called ‘liberal claims’. Examples:
◮ Abolition of industrial regulation
◮ No farm price supports
◮ No minimum wages
◮ But: claim for free drug availability, strict antitrust policy, indexation
of wages, negative income tax for the poor
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 129 / 148
Evolutionary Economics
Evolutionary Economics
Basic idea:
Is it possible to transpose the ideas of (biological) evolution (as
proposed by Charles Darwin) to economics?
Major topics
◮ Application of Darwinian ideas to questions of economic
development
◮ How does new knowledge (e.g. about technical progress)
emerge?
◮ Research in innovation activities in personal, subjective contexts
(entrepreneurship) and network phenomena
◮ Business cycle research
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 141 / 148
Evolutionary Economics Schumpeter (1883-1950)
Evolutionary Economics
Joseph Alois Schumpeter (1883-1950)
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 142 / 148
Evolutionary Economics Schumpeter (1883-1950)
Vita and Education
◮ Born Feb/8/1883 Triesch (now Czech rep.)
◮ Law student in Vienna; 1908 doctorate in law
◮ attended lectures by Bohm-Bawerk, who later acted first as a
supporter and eventually as an opponent
◮ visits to Berlin/London/Cambridge universities
◮ marriage with G.L. Seaver, early divorce. 2nd marriage with an
early death of his spouse; 3rd marriage with Elizabeth Boody in
1926 (who was responsible for the posthumous publication of his
History
◮ Died on Jan/8/1950 from a stroke in Taconic/Connecticut.
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 143 / 148
Evolutionary Economics Schumpeter (1883-1950)
Academic Career
◮ Move to Egypt (Kairo); habilitation 1908 in Kairo
◮ “Privatdozent” Wien; 1909: Franz-Joseph Universitat Czernowitz
(today Ukraine)
◮ 1911: Karl-Franzens-Universiat Graz
◮ 1913/14: 6 months visit to Columbia University, NYC
◮ 1919-1932: activities in the political field and in business sectors.
1919 Austrian Minister of Finance (“Staatssekretar fur Finanzen”
in the Renner II administration, in duty for seven months only) and
president of a private bank (tremendous losses after speculation
failures)
◮ 1932: Full Professor of Economics at Harvard University
◮ 1940/41: President Econometric Society
◮ 1948: President American Economic Association
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 144 / 148
Evolutionary Economics Schumpeter (1883-1950)
Major Contributions
◮ Theorie der wirtschaftlichen Entwicklung. Leipzig: Duncker &
Humblot 1912
◮ Capitalism, Socialism and Democracy. New York: Harper 1942.
◮ Business Cycles. 2 volumes, New York: McGraw-Hill 1939
◮ March into Socialism. American Economic Review, Papers and
Proceeding 15, p. 446-456, 1950
◮ History of Economic Analysis, (published posthumously, ed.
Elizabeth Boody Schumpeter), New York: Oxford University Press
1954.
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 145 / 148
Evolutionary Economics Schumpeter (1883-1950)
Major Contributions
◮ Entrepreneurship: the entrepreneur as the essential driving force
of economic evolution. Person who exploits (own or external)
important inventions for the purpose of turning them into
innovations and realizing profits from the emerging new products
(or production techniques). (Similarity with Marx’ views on the
dynamics of capitalist societies).
◮ Business Cycles (driving force)
Important role of the entrepreneur in the generation of cycles: in
depressions→ active role of the entrepreneur who is looking for
possible profit realizations in the form of performing innovations→‘creative destruction’ of old structures and establishment of new
products→ imitation by other suppliers→ ceasing of profit
opportunities→ downturn→ eventual repetition of the process by
new innovations due to entrepreneurial activities.
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 146 / 148
Evolutionary Economics Schumpeter (1883-1950)
Major contributions (cont.)
◮ Business Cycles (structure)
Superposition of cycles with different lengths:
1 Kontratieff-C. ≈ 6 Juglar-C. ≈ 18 Kitchin-C.
◮ History of Economic Thought
◮ Encyclopedic treatment of the subject in the History of EconomicAnalysis (1954). 1184 pages (!)
◮ Covers the history of thought from ancient times to Keynes
◮ Dwells into fields usually unnoticed by biographs and reviewers
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 147 / 148
Evolutionary Economics Nelson (1930-) and Winter (1935-)
Evolutionary Economics
Richard R. Nelson (1930-) Sidney Winter (1935-)
Hans-Walter Lorenz (FSU Jena) A Short History of Economic Thought Winter 2017/18 148 / 148
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