The Chosen World

This blog explores the history of science and technology in society. Its theme is the creation and development of our modern, "chosen world"-- a world in which many of nature's givens have been replaced by human choices. Freedom from nature isn't free, however: any technology that wins us significant independence from nature binds us more closely to our fellow men and women. The story of the chosen world, then, is the story of social and technical invention.

Tuesday, December 15, 2009

On Paul Samuelson

Prefatory Remarks:  Before I launch into the paper below, I should first say a word about Paul Samuelson for those who may be unfamiliar with the history of modern economics.  Samuelson, who just passed away yesterday, was a pioneer in the development of mathematical economics from the late 1930s to the 21st Century. For such work, he was awarded the Nobel Prize in Economics in 1970.  His text book--about which I write below--first came out in 1948. This textbook’s success was unprecedented, and it helped to transform the modern textbook industry. Samuelson was also widely known for his weekly column on matters economic in Newsweek, and his face was well known on Capitol Hill—and frequently seen on television—until the 1980s.

“Full Employment in a Free Society”
Science and Democratic Values in Paul Samuelson’s Economics
Talk Delivered at the Humanities and Technology Association Meeting, 1995
by Hunter Heyck

In this paper, I explore the connections between Paul Samuelson’s conceptions of modern science and modern democracy, as seen in his famous text of 1948, Economics:  An Introductory Analysis.  I believe that these connections are vital not only for understanding this important text and its prolific author, but also for understanding the hopes and fears of a generation of liberal intellectuals that revered science but worried about the future of democracy in a world made ever more complex, interdependent, and fast-changing by science.  Samuelson, like such elder statesmen of science as James Conant, Karl Popper, Bentley Glass, and Jacob Bronowski, shared both this faith in science and this concern about democracy’s future.  He too strove to reconcile science and democracy.  He sought to do so not only through the substantive contributions of his science, but also by redefining the proper role of the scientific expert--in his case, the economist--in a modern society, and by attempting through his textbook and his popular writings to educate the citizenry and so make the people fit to govern themselves.   

The links between Samuelson’s economics and his politics are obvious enough:  he states quite baldly that “a wage and price policy for full employment [is] America’s greatest problem and challenge,” because “the political health of a democracy is tied up in a crucial way with the successful maintenance of stable high employment and living opportunities." 

What is less obvious on the surface, but perhaps most telling in the end, is how his philosophy of science is everywhere intertwined with both his economics and his politics.  In order to show this, I first examine what Samuelson’s text taught its readers about the proper role of government. I then move to its depiction of the proper roles of the expert and the lay citizen.  In each case, I explore the links between Samuelson’s science, his economics, and his politics.  I argue that Samuelson’s defense of the role of theory in science, his understanding of the economy as an organized, equilibrating system, and his recognition of the limits of economic knowledge were closely linked to his understanding of the role of the expert in a democratic society and the government in a capitalist economy.

To us today, it may seem that the postwar period from 1945 to 1970 was the “American Century,” the high-water mark of American prosperity, prestige, and power. To the careful observer in 1948, however, such a future seemed far from certain. Though the much-feared postwar depression had not materialized, the early postwar years were times of great labor strife at home and rising collectivism and authoritarianism abroad. As Samuelson put it in his textbook:

 "After World War I, democratic governments were set up all over Europe.  By 1927 the future of the capitalistic way of life appeared serene and assured. After World War II, the outlook is radically changed.  . . . Only the United States remains as an island of capitalism in our increasingly totalitarian and collectivized world.  Even here, the scene is drastically changed in the direction of strengthened powers of government over economic activities.  The capitalistic way of life is on trial."

The outcome of that trial, as Samuelson saw it, everywhere hinged on the answer to one great question:   can there be “full employment in a free society”? Samuelson’s answer, like that of Britain’s William Beveridge, was a heartfelt yes.  But full employment would not come easily nor automatically; its achievement would require some changes and some sacrifices.  The most important of these changes, he believed, was a change in how we as a nation understood the role of the government in the economy.  We will have to accept the necessity of counter-cyclical fiscal policy, he argued, and we will have to be willing to grant the federal government the ability (through taxes, spending, and regulation) to intervene in order to stabilize prices, interest rates, employment levels, and more.

Samuelson acknowledged that granting the federal government such authority would entail the sacrifice of some (minor) economic freedoms, but he held that such sacrifices were necessary to preserve our most important political freedoms.  In this vein, he wrote that "It is one thing to tell a corporation what it may charge for electric power and quite another thing to tell a man what he can say, what he can believe, how he must worship.”

Returning to this point time after time, he emphasized that: “the degree of government centralization is a trait that ranges from a laissez-faire society through a collectivist communist regime.  But a survey of history shows that this classification must not be confused with the degree of political freedom and democratic civil liberties” the society enjoys.

This distinction between economic and political liberties was an important one for Samuelson--and quite a controversial one as well, for Friedrich von Hayek, Henry Simons, Aaron Director, and other conservative economists (to say nothing of business leaders such as those of the National Association of Manufacturers) firmly believed that political liberty cannot exist without near-total economic freedom.  As a result, Samuelson’s text, though a best-seller, was a very controversial best-seller.

Samuelson’s argument on behalf of an activist government and Keynesian fiscal policy was based not only upon the distinction between economic and political liberties, but also upon a certain set of ideas about the structure and function of the economic system.  Perhaps the most important of these ideas for his understanding of the proper role of government was the idea of a national economy.  Though the idea of a national economy, measured by national income and products accounts, seems only natural to us today, it was not common property in the late 1940s.  Samuelson knew that this idea would be new to his audience, so he devoted the first two-thirds of his text--over 400 pages!--to developing this idea and explaining its consequences.  In so doing, he made a strong case for seeing the national economy as something to be studied in itself, both because of its practical importance and because it operated according to a different set of rules than did firms or even whole industries.

This new “macroeconomic” view of the economy, and the Keynesian policies that followed from it, were both based upon Samuelson’s understanding of the economy as a complex organized system constantly tending towards an equilibrium state. Comparing the economic system to a heating system, he described the government as a kind of thermostat or mechanical governor that set the level (of unemployment, say) at which equilibrium should be reached, and that intervened, when necessary, to stabilize fluctuations about this equilibrium point.

This understanding of the economy as an organized system, I believe, was perhaps the primary difference between the “new economics” of the Keynesians and the old neoclassical economics.  The extreme political individualism, for example, of conservative neoclassicals like von Hayek, Simons, and Director was mirrored by their atomistic economic analyses and relentless emphasis upon the achievement of perfect competition between independent economic actors.

To understand the economy in terms of organized systems, on the other hand, meant that the important thing about the system’s components was less their intrinsic nature (or autonomy), but their relationship to each other--and to the system as a whole. One of the most striking ways in which this difference in philosophical predilection played out was in the opposing attitudes towards “perfect” and monopolistic competition of Samuelson and the conservative neoclassicals.  The neoclassicals understood perfect competition to be the general case, and any divergence from it to be an aberration, a cancer to be excised.   Samuelson, in contrast, was much more prepared to understand and accept the ability of one economic actor to influence another.  As a result, he viewed monopolistic competition, defined as existing when an economic actor has a strong influence upon its environment, as the general case.  Perfect competition was the aberration, only to be seen in the modern world in “sick” industries.

Another important aspect of Samuelson’s systems view was that the whole--the system--was not merely the sum of its parts.  That is, systems have “emergent” properties that only appear as a result of the complex interactions of their components.  Samuelson uses this concept of emergent properties to carve out a place for macroeconomics as a specialty distinct from (and in many ways, superior to) neoclassical microeconomics.  He writes:  

"The first lesson in economics is:  things are often not what they seem.  Some examples chosen at random may illustrate this . . . If all farmers work hard and nature cooperates in producing a bumper crop, total farm income falls. . . . One man by great ingenuity in hunting a job or by a willingness to work for less may thereby solve his own unemployment problem, but all cannot solve their problems in this way. . . . What is prudent behavior for an individual or a single business firm may at times by folly for a nation or a state. . . . many of the above paradoxes hinge around one single confusion or fallacy, called by logicians the ‘fallacy of composition.’  What is true for each is not necessarily true for all . . . In an introductory survey, the economist is interested in the workings of the economy as a whole rather than in the viewpoint of any one group or unit.”

In addition to proving the need for macroeconomics, the examples he chooses to illustrate the fallacy of composition are also chosen to advance his brief for an activist federal government.  The old arguments about the necessity of maintaining a balanced budget in the face of an economic downturn, for example, Samuelson believes are based upon a faulty analogy between the household and the nation.  The nation is an entity on an entirely different scale than the household and so its economy operates according to different rules.  In his view, when one comes to a proper understanding of those rules, then one is of necessity led to embrace counter-cyclical (that is, Keynesian) fiscal policy, for the solution to mass unemployment is national policy, not individual skills or desire.  

It is interesting to note that, in the end, for Samuelson the federal government serves a practical function in the economy that is strikingly similar to the intellectual function of macroeconomics:  they both emerge from the systems they govern, integrating them and giving meaning to their components.  It is thus no surprise that the rise of the one has been inextricably intertwined with the rise of the other.

III.  [The role of the expert]  
Samuelson’s understanding of the economy as an organized system also had important implications for his views on the proper roles of experts and lay citizens in the governance of that economy.  First, Samuelson understood the economic system to be a complex system, amenable in large measure to scientific analysis, but nevertheless far too intricate ever to be fully predictable.  As a result, it was impossible to construct a perfectly impersonal set of rules to dictate the proper response to every possible economic situation.  Thus, in Samuelson’s view, despite the value of certain specific stabilizing mechanisms like unemployment insurance, automatic government was not possible, nor desirable.  What was needed was the combination of skills, knowledge, and experienced judgment that characterized the economic expert at his best, for, as he writes elsewhere, “political economy is much too important to be left to non-economists.”

But what, exactly, was it that the economic expert had to contribute; what made his counsel so necessary?  Could not experience and common sense be the sound guides to economic policy that they are for daily life?  Samuelson did not think so.  “Common-sense economics,” he wrote, “may indeed be all that anyone must use in the end.  But it takes the most uncommon sense and wisdom to know just which part of the filing case full of muddled notions that men call common sense is relevant to a particular problem.”

The “uncommon sense and wisdom” Samuelson writes of are peculiarly the products of advanced training in the science of economics, for such advanced training gives the economic expert the vital gift of a theoretical framework in which to make sense of the vast sea of data all around us.  In Samuelson’s view, it is only in the context of such a theoretical framework that common sense truly exists.  

Perhaps the most important quality the economic expert gains as a product of the re-education of his common sense is his ability to see the ‘big picture,’ for it is this ability that enables him to rise above narrow factional interest. This is an important point for Samuelson, because it leads him to conclude that the esteemed objectivity and neutrality of the scientific expert is not due to the impersonal nature of physical science, but to the characteristic outlook of the scientifically trained in any field.  Hence, the economist can be as objective as the physicist.

Perhaps the most striking example of Samuelson’s belief in the ability of the expert economist to rise above partisan feeling lies in his chapter on labor and unions--both hot topics due to the surge in strikes after the war and to the Taft-Hartley act of 1946.  In this chapter, Samuelson gives us a number of typical cases intended to help the student understand the history and viewpoints of various participants in the labor struggles of the day. These include an AFL carpenter, a CIO industrial unionist, a Labor Lawyer, a Philanthropic Capitalist, a Republican Congressman, and an Expert Economist, all in the capital letters that identify archetypes. 

Alone among those listed, the Expert Economist enjoys the confidence of both labor and management.  He alone has sufficient objectivity to know that “management is not a heartless octopus with a bottomless purse, and labor leaders are not malevolent spawn of the devil who have bewitched and enslaved the American worker.” He is sanguine about the future, because “he knows that many of the excesses of the labor struggle will die out, once unions no longer need to battle for their very existence.” And he is optimistic about the potential for wages, productivity and profits all to rise together, though he is worried about the potential harm that irrational political responses to the labor struggle may bring.  

The Expert Economist, in short, is portrayed as the soul of rational tolerance because his science teaches him to see all sides as necessary components of a larger system, a system governed by a universal set of rules that the expert alone can interpret.  It is telling that Samuelson concludes this section with the observation that “it goes without saying that his [the expert’s] viewpoint is condemned alike by the typical conservative farmer and the small-town editor, and by the left-wing agitator,” that is, by the parochial and the partisan, neither of whom has a use for the lessons of interdependence and rational tolerance that Samuelson sees science as teaching.

Samuelson’s text clearly aims to persuade its audience that, because of his ability to remain objective, and because of the theoretical framework that gives him understanding of the economic system, the economic expert has a vital role to play in modern society.  Samuelson expands upon this point throughout the text, making the case for an increased presence for economists in business, government, and the larger society.  Whether it be as economic consultant to a Fortune 500 company, a member of the newly created President’s Council of Economic Advisers, or as an educator of public opinion, the economist has much to offer.

It is important to note, however, that Samuelson’s vision is not one of econ-ocracy.  Economists, in his view, are ideally suited to be advisers to and executors of the public’s will, not to be the one’s setting the nation’s political agenda.  Drawing upon arguments about the limits of scientific knowledge, he makes a sharp distinction between means, which can be chosen scientifically, and ends, which exist in the realm of individual conscience and to which science does not apply.  This distinction between ends and means helps support his distinction between economic and political freedoms that I mentioned earlier, for Samuelson tended to identify economics with means and politics with ends.  To him, the expert economist is ideally suited to the objective arbiter of means, while “Ethical questions each citizen must decide for himself, and an expert is entitled to only one vote along with everyone else.”

In a democracy, however, Samuelson believes that the public effectively decides the means as well as the ends of society.  Hence, he sees a great need for civic education in economic principles and reasoning.  Only if their common sense is re-educated will the people be able to choose the means appropriate to the pursuit of their most valued ends.  Recognizing that, “it may indeed be more important to write a people's songs and textbooks than to write her laws,” (though he had a hand in those as well) Samuelson thus undertook to write a textbook for an introductory economics class, and, later, to write a well-known weekly column in Newsweek, both unusual things for an ambitious young academic star to do. [His colleagues at MIT were fond of joking that finding Samuelson always was easy--all you had to do was follow the TV cameras.]

IV.  [The role and education of the public]
We have seen that Samuelson ascribes to the lay citizen the responsibility of determining the broad ends of society and that he argues that the public needs to be able to give an informed consent as to the means of achieving those ends.  And we have seen that, in his view, in order for the citizenry to fulfill this role adequately, it must acquire a new set of skills and knowledge and a new, “rational” outlook.  Let us now look at the nature of that “rational outlook.”  This rational outlook centered around the appreciation of interdependence, for from such an appreciation of interdependence, Samuelson believed, would follow the objectivity and tolerance characteristic of the scientific expert.

In advancing this view of “good” science leading to an awareness of interdependence and thence to rational tolerance and a more enlightened self-interest, Samuelson’s text was very like a number of other well-known works of the early postwar years by such esteemed leaders of science as James B. Conant, Bentley Glass, Jacob Bronowski, Karl Popper, and I.B. Cohen. Such works (which later inspired the curriculum reform efforts of the National Science Foundation in the late 1950s and 60s) explicitly sought to teach a literate, but inexpert, citizenry the virtues of a scientific worldview.

And, like Samuelson, these liberal scientists pictured a world characterized by interdependence, drawing from that picture the lesson that the scientific outlook was what enabled one to rise above ideology, partisanship, and selfishness. Samuelson thus added his voice to a prominent chorus when he sang of the enlightened rationality and progressive nature of science.  Similarly, he was not alone in asking for the public’s appreciation for those experts who could penetrate (as he did) the complex shell of life and discern in their theories the simple truths that held it all together.

These are noble dreams, it would seem, yet there is something of a contradiction within them. Samuelson, like these other liberal leaders of science, argued for the neutrality of science as to ends, but then reveled in the benign influence over one’s choice of ends that the scientific outlook brought.  Science may be good, but it is hardly neutral, if it can re-educate common sense and re-order our values to the extent that it leads us to pursue a policy of full employment.  In addition, in this text as elsewhere, Samuelson makes clear that he knows perfectly well that “just as the facts never tell their own story, ‘clients’ do not know their own mind and do need a midwife to help deliver them of the questions they ought to be asking.”

Such views would seem to undercut Samuelson’s claims regarding the objective neutrality of experts regarding social ends and to reveal the inability of the public to give an informed consent as to the means of achieving them. Indeed, it is exactly upon these grounds that experts of all stripes later come to be attacked. Their claim of objectivity comes to be seen by some as a mere mask for interest, and their accountability to an informed public a mirage.  But the time for such critiques of the status of experts had not yet come in 1948.  It simply did not occur to Samuelson (nor to most of his audience, I expect) to think of science in the service of interest as anything but bad science; nor would he have agreed, had he been asked, that scientific experts were an interest group just like any other.  In short, Samuelson, like the others of his generation, operated on the unquestioned assumption that what they termed a rational outlook was an inherently good thing and that civic education, if it could produce such an outlook, would be a powerful tool for social progress.  

Such attitudes reached their apogee in the Kennedy era and the first heady days of the Great Society, before the “best and the brightest” led us into war and doubt.  (Here I should note that this connection is more than mere zeitgeist:  Samuelson was an adviser to Kennedy both as Senator and President and testified dozens of times before Congress.  In addition, many of the economic and social policy initiatives of that era were the direct products of economists like Walter Heller and James Tobin who shared Samuelson’s outlook on science, economics, and society.)

V.  [Conclusion]
In conclusion, I should like to say a word about the legacy of Samuelsonian economics and its characteristic systems thinking.  Perhaps the most interesting thing about the history of economic thought since the 1960s has been the undercutting of the assumptions that underlay Samuelson’s text.  He assumed that the conversion to his Keynesian, systems view of the economy was a permanent, revolutionary transformation in economics, only to discover in the rise of Milton Friedman and the monetarists the resurgence of the atomistic individualism of Simons, Hayek, and Director.  He assumed that from an appreciation of the interdependence of the parts of the economic system, one would logically acquire a healthy tolerance for others and embrace an activist, meliorist federal government.  Yet a later generation of neoconservative social scientists derived from interdependence the Law of Unintended Consequences and the inherent futility of government action. And, perhaps most unsettling to such a believer in the objective virtue of experts, the proliferation and continued specialization of economic experts has revealed many a partisan economist; indeed, economics today, far from rising above faction, often defines it. 

We who have tasted the fruit of the postmodern tree of power/knowledge are certainly wiser about the ways of experts than was Samuelson’s generation, but with wisdom has come a certain sadness, a certain loss of faith in the progressive faith not only of science and experts, but of reason and, indeed, democracy itself.  Samuelson’s text may have been naive in some ways and far from disinterested, but it did suit well a nation that was gearing up to make war on its most serious social problems.  I fear that today’s texts, for all their sophistication, are far too well suited to a nation that is resigned to them.