Background
Paul Anthony Paul A. Samuelson, the first American Nobel laureate in economics and the foremost academic economist of the 20th century, Randall Parker, specialist in the sphere of economic history, called him the Father of Modern Economics.
Samuelson proposed the theory of "revealed preference" of consumers. It made innovations in the understanding of the relationship between the theory of indexes and the theory of utility. While traditional utility theory was based on the principle of "utility maximization" as the leading motive of consumer behavior in the market. Samuelson showed the possibility of quantifying the maximization needs by comparing the cost of different baskets of alternative series in relative prices.
P. Samuelson reshaped academic thinking about nearly every economic subject, from what Marx could have meant by a labor theory of value to whether stock prices fluctuate randomly. P. Samuelson brought the discipline into the mainstream of economic thinking, showing how to derive strong theoretical predictions from simple mathematical assumptions.
Economic Theory
Mr. Samuelson developed the rudimentary mathematics of business cycles with a model, called the multiplier-accelerator, that captured the inherent tendency of market economies to fluctuate.
The model showed how markets magnify the impact of outside shocks and turn, say, an initial one dollar increase in foreign investment into a several dollar increase in total domestic income, to be followed by a decline.
Mr. Samuelson provided a mathematical structure to study the impact of trade on different groups of consumers and workers. In the Stolper-Samuelson theorem, he and a co-author showed that competition from imports of clothes and similar goods from underdeveloped countries, where producers rely on unskilled workers, could drive down the wages of low-paid workers in industrialized countries. They argued that free trade between countries should help to reduce the differences between the income from labor and capital in these countries. The theorem provided the intellectual scaffold for opponents of free trade. And late in his career, Mr. Samuelson set off an intellectual commotion by pointing out that the economy of a country like the United States could be hurt if productivity rose among the economies with which it traded.
Trade, as Samuelson mentioned, raises average living standards enough to allow the workers and consumers who benefit to compensate those who suffer, and still have some extra income left over. Protectionism would not help, but higher productivity would.
Mr. Samuelson also formulated a theory of public goods — that is, goods that can be provided effectively only through collective, or government, action. National defense is one such public good. It is nonexclusive; the Navy, for example, exists to protect every citizen. It also eliminates rivalry among its many consumers; that is, the amount of security that any one citizen derives from the Navy subtracts nothing from the amount of security that any other citizen derives. Public goods, he concluded, cannot be sold in private markets because individuals have no incentive to pay for them voluntarily. Instead they hope to get a free ride from the decisions of others to make the public goods available.
Samuelson was one of the co-author of the theory of "HOS". In the late XIX - early XX century, international trade was based on the neoclassical theory of production factors. This theory was developed by economists and mathematicians Heckscher, Ohlin and P. Samuelson. The authors of the model" HOS "skillfully combined the ideas of classical and neoclassical international trade, which allowed them to move away from the narrow abstraction of Smith and Ricardo, the economic analysis of only two countries and two goods, and explore more of them. This approach helped them to combine the analysis of the international division of labor and specialization of the production of those goods and services for which they have the manufacturing and natural resources in the largest quantities. The economic policy of a country should be formed taking into account characteristics of the country and of the world market and should be aimed at highly competitive products.
Samuelson’s “correspondence principle” shows the theoretical link between the behavior of individuals and the aggregate stability of the entire economic system. Information about individual responses, Mr. Samuelson’s theorem holds, shapes predictions about overall economic stability.
He analyzed the evolution of economies with a mathematical model, called an overlapping generations model, that scholars have since used to study, for example, the functioning over time of the Social Security system and the management of public debt.
He also helped develop linear programming, a mathematical tool used by corporations and central planners in socialist countries to calculate how to produce pre-set levels of various goods and services at the least cost.
He developed what he called the Neoclassical Synthesis. The basis of the process is a compound of the neoclassical synthesis of Keynesian theory of "effective demand" and the neoclassical theory of production and distribution. The neoclassical economists in the late 19th century showed how forces of supply and demand generate equilibrium in the market for apples, shoes and all other consumer goods and services. The standard analysis had held that market economies, left to their own devices, gravitated naturally toward full employment. "Neoclassical synthesis", the basic postulate of which says: the economy in good condition may be left to its own, and only in periods of decline she needs treatment in the form of government incentives for the prescription of Keynes and advanced by Samuelson.
He had the distinction of three types of economic systems: stationary, causal and historical, while recognizing that no one model can not cover all the possible factors that cause changes in the conditions of economic equilibrium, including non-economic factors. The stationary system variables do not change their value over time, the economic system in the causal behavior of the variables depends on the initial, predefined conditions and the elapsed time (due to internal variables), the historical model of the economy the factors that cause changes in the variables lie outside the system ( are non-economic in nature).
At the heart of economic theory Samuelson were two main hypotheses: the concept of economic maximum and conditions of economic equilibrium.
P. Samuelson wrote one of the most widely used college textbooks in the history of American education. The book, “Economics,” first published in 1948, was the nation’s best-selling textbook for nearly 30 years. Translated into 20 languages, it was selling 50,000 copies a year a half century after it first appeared. His textbook taught college students how to think about economics. His technical work - especially his discipline-shattering Ph.D. thesis, immodestly titled “The Foundations of Economic Analysis” - taught professional economists how to ply their trade.
Friedman’s policy insights may have been more radical and significant; Arrow’s genius may have produced more beautiful gems of economic theory. But it was Samuelson who gave economists our toolbox - the mathematical methods that define our field - and the magnitude of that gift made him an indispensible economist.
