------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (April 2007)

Paul A. Samuelson and William Barnett, editors, _Inside the 
Economist's Mind: Conversations with Eminent Economists_. Malden, MA: 
Blackwell Publishing, 2006. xxxvi + 419 pp. $30 (paperback), ISBN: 
1-4051-5917-0.

Reviewed for EH.NET by Michael Szenberg, Pace University and Lall 
Ramrattan, University of California, Berkeley Extension.


The editors place the knowledge to be gained from this book in a 
reflective perspective. They raise mirrors reflecting the ideas of 
eminent economists presented in the volume, and these mirrors, like 
those of the Hubble Space Telescope, focus them in sizable bits for 
the digestion of the readers. The scope of the materials, from 
Keynesians to Real Business Cycle (RBC) through Rational Expectation 
(RE) theory reveals the editors' preference for foundational material 
to build on and for learning from the sources. The interviews are 
meticulously balanced for along with the ideas of Franco Modigliani 
we get the ideas of Milton Friedman. Wassily Leontief's input-output 
analysis is juxtaposed with Robert Aumann's game theory 
contributions. The ideas of Robert Lucas and Thomas Sargent on RE are 
balanced with the ideas of James Tobin's "Yale school of 
macroeconomics" and Christopher Sims' statistical work on RBC. Martin 
Feldstein who advocates practical tax policies is balanced by Paul 
Volcker, who advocates non-borrowed reserve monetary policies. David 
Cass on sunspot equilibrium, Janos Kornai on the critique of 
socialism, Robert Shiller on finance, and Jacques Dreze on the 
evolution of economic thought spotlight deep insights into their 
respective fields. Reflecting on the scope of the book, we find rays 
of spontaneous thought from minds that breathe and dream of economics.

The editors take a generalist approach to the subject, bringing 
particular concepts in economics under one umbrella of thought. This 
idea is explicit in statements such as that "This book adds up to 
more than the sum of its parts" (p. xiii), and "We economists do 
primarily work for the peers' esteem, which figures in our own 
self-esteem" (p. ix). One way to surface the generalist approach is 
to present the subject matter from many angles. The free-wheeling 
interviews for the volume bear evidence of this way of thinking. We 
are told that "the leaders of the field can openly reveal any matters 
that they may wish to share with the profession, whether personal, 
religious, or political" (p. xii). The generalist approach is also 
exemplified by the inclusion of contributors who do not hesitate to 
use mathematics as a language, and to represent thoughts that are 
backed up by analogies from the physical sciences. Some of the main 
examples in the book include Wassily Leontief, who invented the 
input-output analysis, which "played an important role in the 
clarification of general equilibrium theory" (p. 15); the analogy of 
such a method with production processes is obvious. In the same vein, 
Robert E. Lucas, Jr. is well-known for his mathematical treatment of 
business cycle theory through his RE hypothesis. Janos Kornai is a 
pioneer of mathematical programming and anti-equilibrium. Franco 
Modigliani built mathematical models of Keynesian economics. Milton 
Friedman, the distinguished leader of the monetarist school, was a 
trained mathematician. Paul Samuelson needs no introduction as a 
mathematical economist. His _Foundations of Economic Analysis_ (1947) 
is the exemplar of the generalist viewpoint, where similarities among 
the various areas of economics are generalized. He wrote: "I once 
claimed to be the last generalist in economics" (Samuelson 1986, 800).

One outstanding feature of the interviews in this collection is their 
representation of methodological operationalism. Consistently, 
operational theories support a concept with a set of processes as 
evidenced by Samuelson who derived "operationally meaningful 
theorems" in economics (Samuelson 1947, p. 3). Operationalism makes a 
theory useful, and even layers it with truth-values, namely, the 
ideas that a theory must explain or predict reality. Franco 
Modigliani's Keynesian model was found highly operational when the 
Federal Reserve Board implemented it as the first generation of the 
FRB-MIT-Penn-SSRC Model (MPS), which operated during 1969-1995.

The operational aspect of Paul Volcker's nonborrowed reserve policy 
figured highly in the early design of that model. The financial 
sector of the MPS was the largest, being built up by strata of 
financial equations reflecting unborrowed reserve requirements, 
discount rates, and the nominal money supply. As the interviewer puts 
it, Paul Volcker embraced "'practical monetarism' operationally" (p. 
178). The response from a change in unborrowed reserves to GNP works 
through lags and is subject to some delayed effects. Those adaptive 
lagged structures were overhauled in 1995 into the current Federal 
Reserve Board U. S. model in order to reflect new expectation 
elements.

Wassily Leontief's Input-Output model is another good example of an 
operational model. Tables of data of required inputs for production 
were used in planning and economic base multiplier analysis, even 
though the data input is of an exhaustive nature. Efforts are being 
made to build large-scale econometric models to represent Robert 
Lucas' RE hypothesis. Already, Thomas Sargent (1979, p. 20) has 
demonstrated the operational feasibility of smaller RE econometric 
models.

The editors do not appraise the ideas expressed in the volume as to 
their applicability for the twenty-first century. A lack of such an 
assessment of the contributions could be forgiven if the ideas were 
only theoretical. But our review implies that the ideas covered in 
this volume have some ability to predict and have been validated thus 
far in their confrontation with reality. For instance, a recent 
appraisal of Samuelson's ideas (Szenberg et al., 2006) envisages a 
high likelihood of survival in the twenty-first century. Having 
recently reviewed the works of Franco Modigliani (see Szenberg and 
Ramrattan, 2007), we can say that his ideas represent a progressive 
research program. Milton Friedman's ideas about the Chicago View also 
have progressive tendencies, particularly since the RE hypothesis has 
given it new life. We have seen more applications of input-output 
analysis in the post-Keynesian direction, a still budding research 
program, and anti-equilibrium has been developing in the direction of 
non-Walrasian equilibrium.

The fruits of erudition in this book are to be recommended. Besides 
the foundation that the editors have laid for future generations, the 
general reader can learn of the creative process in economics by 
reading through these interviews. This can be accomplished by 
absorbing the stories the economists tell of how they meandered out 
of the economic thought they have inherited in order to discover new 
ideas. If one is looking for answers to how economists discover great 
thoughts, this book is a place to start looking. For instance, 
Wassily Leontief dispels the notion that his input-output analysis 
grew out of Marx's schema. Although, he was educated in Marxism in 
Russia, his motivation came more from Quesnay's Economic Table, and 
from classical demand and supply motivations. He wrote to "register 
the facts in a systematic way ... I read systematically all 
economists beginning with the seventeenth century. I just read and 
read, so I had a pretty good background in the history of economic 
thought, and my feeling is that I understand the state of the 
science" (p. 16). In another instance, Robert Lucas tells how moving 
from a positive to a normative perspective helped him to develop the 
RE hypothesis: "How _should_ people use the information available to 
them to form expectation? But these _should_??? always be an 
economist's first question. My Dad was wrong to think that socialism 
would deliver milk efficiently, but he was right to think about how 
milk _should_ be delivered" (p. 60, italics original). In a third 
instance, Franco Modigliani tells how he discovered the MM 
hypothesis. He had studied the Keynesian investment concept as a 
graduate student, "which explained investment in terms of the 
interest rate, seen as the cost of capital, the cost of funds 
invested. I was then under the influence of the views of the 
corporate finance specialists that the cost of funds depended upon 
the way in which the firm was financed ... I gradually became 
convinced of the hypothesis that market value should be independent 
of the structure of financing" (p. 97). In yet another instance, Paul 
Samuelson explained the influence of Frank Knight and Jacob Viner on 
his formative mind. He recalled texts circulated by Knight of how 
Say's Law and market clearing failed during a rare depression. He 
also explained that "the 1930s graphics of trade theory by Lerner, 
Leontief, me, and Meade was in its essence already in a 1931 LSE 
[London School of Economics] Viner lecture." He then set out to "lift 
the level of mathematical techniques during the second third of the 
twentieth century" (p. 184).

The readers will find this a source book for comprehensive thought on 
the deep matter of economics. No one interested in the modern economy 
should fail to read it, though, our recommendation is not to read it 
at one sitting.

References:

Paul A. Samuelson, 1986. _Collected Scientific Papers of Paul A. 
Samuelson, Volume 5_. Kate Crowley, editor, Cambridge, MA: MIT Press.

Thomas J. Sargent, 1979. _Macroeconomic Theory_. New York: Academic Press.

Michael Szenberg and Lall Ramrattan, 2007. _Franco Modigliani: A Mind 
That Never Rests: An Intellectual Biography_. New York: Palgrave 
Macmillan.

Michael Szenberg, Lall Ramrattan and Aron A. Gottesman, editors, 
2006. _Samuelsonian Economics and the Twenty-First Century_. New 
York: Oxford University Press.


Lall Ramrattan is an Instructor with the University of California, 
Berkeley Extension. Michael Szenberg is Chair and Distinguished 
Professor of Economics in the Lubin School of Business at Pace 
University.

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