------------ 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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