This a a wonderful book.It gives an excellent overview of the life and times of Paul Samuelson,starting from his days as an undergraduate majoring in economics at the University of Chicago.It does an admirable job in covering the importance of Samuelson's unmatched textbook,Economics,as well as the surrounding historical and political conditions and controversies that occurred during the writing of the book.However,Samuelson's consistent core position concerning the interface between macroeconomics,microeconomics and the economics of Keynes, as expressed by Keynes in the General Theory(1936),in general and,specifically, in section III of chapter 24,is not covered at all.
The reader,who finishs this book,will come away without grasping exactly what it was that Samuelson took away from his reading of the GT.It certainly was not Keynes's mathematical model of chapters 19,20, and 21.Samuelson had been convinced by the misleading claims of Richard Kahn,Joan Robinson and Austin Robinson that,while Keynes's new ideas and approach were fundamentally correct,he had made a technical mess of the formal,mathematical expression and exposition of his theory.Nevertheless,Samuelson did have a very deep understanding and appreciation for Keynes's approach,if not his technique. Samuelson viewed the study of economics and macroeconomics as the study of an economy as a whole.An economy is made up of a private sector and a public sector.There are micro-theoretical underpinnings to the decision making calculus in both sectors.Both sectors are vital to realizing the goal of economic growth and prosperity at full employment,non inflationary levels of gross domestic product.Both public goods and private goods are absolutely necessary.The concept of a completely private economy,operating under conditions of laissez faire,is a myth that was completely rejected by the founding fathers of the United States of America in 1787.The standard reference is The Federalist Papers ,written by Hamilton,Madison,and Jay.
The economic system,AS A WHOLE,can be made to function as if it were an ergodic system IF,AND ONLY IF, the following policies are followed.These policies will create a stable,full employment level of output.First,an activist and interventionist monetary and fiscal policy is implemented.Second,a progressive taxation system is implemented.Third, continuous government spending on investment on infrastructure projects,public goods,and public works is implemented.These three policies will counterbalance and negate the highly variable,unstable,volatile,insufficient,unpredictable private sector spending on investment in fixed ,durable capital goods(plants,factories,machinery,computer hardware and software,etc.)that occurs due to the uncertainty(D. Ellsberg's ambiguity)of the future in all capitalist economies.Fourth,money wages and prices are sticky.Sticky does not mean rigid or inflexible.Fifth,introduction of more interest,wage,and price flexibility,combined with policies 1,2 and 3,will result in attaining the goal of full employment.The expansion of government to include activist,interventionist monetary and fiscal policy,and increased public sector spending on public goods and infrastructure,necessary to counter the shortfalls in required private sector spending on investment ,will mean that"...if our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable,the classical theory comes into its own again from this point onwards."(Keynes,1936,p.378).Samuelson has digested this point.His detractors have not.
The authors of this book only discuss the strange and incomprehensible objections made by the authors of a two volume book called the Anti-Samuelson(1977)and libertarian anarchists believers in Laissez Faire,like Murray Rothbard and Mark Skousen ,who assume that there is no difference between consumption goods and investment goods or between fixed capital and circulating capital(inventories).Supposedly,investment is a completely stable,predictable function of the long run real rate of interest only.All of the empirical evidence shows that long run investment is not a stable,predictable or nonvolatile function of the real rate of interest.Another strange critic of Samuelson,not mentioned in this book, is Paul Davidson,one of the founders of the Post Keynesian School of economics.Davidson makes the unsupportable charge that Samuelson is not a Keynesian of any type.The reader of this review will discover that Davidson never cites or mentions Keynes's analysis in section III of chapter 24 of the GT whenever he criticizes Samuelson for not being a "true" Keynesian.In fact ,nowhere in the corpus of Davidson's published work ,going back to 1960 ,has Davidson ever dealt with this section of the GT except in dismissive one liners.Finally,none of the other schools of economic thought,such as rational expectations,monetarist,austrian,supply side,or real business cycles,have a clue to the fundamental problem of capitalism.Samuelson,following Keynes,realized that it is the shortfall in investment spending that is the crucial problem in introducing involuntary unemployment into a capitalist economy.Samuelson said it best:"When it comes to investment,the laissez faire system has no good thermostat".No good thermostat means that such an economic system is not self regulating or correcting.The Laissez Faire approach does not lead to full employment unless "we're lucky" .No economist has ever demonstrated theoretically or empirically that the laissez faire system has a good thermostat.
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