Inside the Economist's Mind: the History of Modern
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1 Inside the Economist’s Mind: The History of Modern Economic Thought, as Explained by Those Who Produced It Paul A. Samuelson and William A. Barnett (eds.) CONTENTS Foreword: Reflections on How Biographies of Individual Scholars Can Relate to a Science’s Biography Paul A. Samuelson Preface: An Overview of the Objectives and Contents of the Volume William A. Barnett History of Thought Introduction: Economists Talking with Economists, An Historian’s Perspective E. Roy Weintraub INTERVIEWS Chapter 1 An Interview with Wassily Leontief Interviewed by Duncan K. Foley Chapter 2 An Interview with David Cass Interviewed jointly by Steven E. Spear and Randall Wright Chapter 3 An Interview with Robert E. Lucas, Jr. Interviewed by Bennett T. McCallum Chapter 4 An Interview with Janos Kornai Interviewed by Olivier Blanchard Chapter 5 An Interview with Franco Modigliani Interviewed by William A. Barnett and Robert Solow Chapter 6 An Interview with Milton Friedman Interviewed by John B. Taylor Chapter 7 An Interview with Paul A. Samuelson Interviewed by William A. Barnett Chapter 8 An Interview with Paul A. Volcker Interviewed by Perry Mehrling 2 Chapter 9 An Interview with Martin Feldstein Interviewed by James M. Poterba Chapter 10 An Interview with Christopher A. Sims Interviewed by Lars Peter Hansen Chapter 11 An Interview with Robert J. Shiller Interviewed by John Y. Campbell Chapter 12 An Interview with Stanley Fischer Interviewed by Olivier Blanchard Chapter 13 From Uncertainty to Macroeconomics and Back: An Interview with Jacques Drèze Interviewed by Pierre Dehez and Omar Licandro Chapter 14 An Interview with Tom J. Sargent Interviewed by George W. Evans and Seppo Honkapohja Chapter 15 An Interview with Robert Aumann Interviewed by Sergiu Hart Chapter 16 Conversation with James Tobin and Robert Shiller on the “Yale Tradition” in Macroeconomics Conducted by David Colander 3 Book Dust Cover Blurb Paul A. Samuelson is Professor Emeritus of Economics and Institute Professor Emeritus at the Massachusetts Institute of Technology. Institute Professor is the highest rank awarded by MIT. In 1970 he became the first American to win the Nobel Prize in Economics. His landmark 1947 book, Foundations of Economic Analysis, based upon his Ph.D. dissertation at Harvard University, established him as “the economists’ economist” by raising the standards of the entire profession. Paul Samuelson's classic textbook, Economics, first published in 1948, is among the most successful textbooks ever published in the field. The book’s 16 editions have sold over four million copies and have been translated into 41 languages. As one of the profession’s most productive scholars for over a half century, he remains an intellectual force of towering stature. William A. Barnett is Oswald Distinguished Professor of Macroeconomics at the University of Kansas. He was previously at Washington University in St. Louis, the University of Texas at Austin, and the Federal Reserve Board in Washington, DC. He is Editor of the Elsevier monograph series International Symposia in Economic Theory and Econometrics, and Editor of the journal, Macroeconomic Dynamics, published by Cambridge University Press. He has published 17 books and over 130 articles in professional journals. The cover image is an acrylic on pannaux painting entitled "Overlapping Generations" by the famous Swedish economist Assar Lindbeck. The overlapping generations model is one of the economics professions’ most celebrated mathematical models, created by Maurice Allais and Paul Samuelson and later developed by David Cass, Peter Diamond, Menahem Yaari, and many others. Professor Lindbeck, at Stockholm University, is himself renowned in economics for his contributions to the theory and practice of economic policy, including the achievements and problems of the modern welfare state. 4 Foreword: Reflections on How Biographies of Individual Scholars Can Relate to a Science’s Biography by Paul A. Samuelson This book adds up to more than the sum of its parts. When W. Somerset Maugham opined that "to know one country you must know two countries," he was saying in a different way that 1+1 can exceed 2. Adam Smith and Allyn Young categorized this as "increasing returns to scale." When a discipline---economics, chemistry, or acupuncture---is in a dynamic stage of rapid growth, its up-front cyclists care little whether it was Newton or Leibniz who "invented" the calculus. The economics profession is in such a dynamic stage of rapid growth, as made clear by the interviews in this book. The book permits us to step back and view the whole of the field in a revealing context that otherwise is easily missed in the narrow focus of individual expert researchers. Twenty-first century's go-getters in economics go whole hours ignoring what more John Bates Clark did for marginal productivity theorizing, than Johann Ludwig von Thünen had not already done. This helps explain the historical fact that the role in the graduate curriculum once played by "History of Economic Thought" has eroded down to a narrow cadre of learned experts. An unearned snobbery ensues, as is well illustrated by Bernard Shaw's canard: “Those who can, do. Those who can't, teach." Good history of science deserves a non-zero weight in the university curriculum. The dynamic growth in individual subfields of the economics profession needs to be supplemented by overviews of the whole, not just as the sum of its normally separated parts. This book provides such a view of the whole of the modern field of economics and the connection of that whole with the life experiences of famous economists whose work was seminal to the field. Returning to the theme of how multiplicity of cases can be fruitful, let's test an alleged dictum of Socrates: "The unexamined life is not worth living." When I once read an excellent book about the principal philosophers, all the usual suspects were there: Spinoza, Kant, Hegel, Wittgenstein, Russell, .... My inductive finding was that Socrates had it completely wrong. An unhappier gaggle of misfits could hardly be imagined. Suicides abounded, melancholies persisted, celibacies and divorces competed for frequencies. A vulgar explanation would nominate as a common cause that the study of philosophy destroys the joy of life. Perhaps a better explanation would be that becoming an orphan early, or being born dyslexic, etc., predisposes one to choose philosophy over being a cheerful bartender. Acquiring an objective and insightful overview of the whole in any area of understanding is important, but less easily and enjoyably acquired than the skills of a bartender. 5 I return to economics and to economists and to the question of why the profession’s directions have evolved in the manners evident from this book. A major conservative economist once explained that a source of his antipathy to government traced back to the defeat of his southern ancestors by a larger north economy. Here is a similar factoid. Joan Robinson once wrote that her opposition to having the UK enter the European Market was due to the fact that she "had more friends in [Nehru's] India than on the continent." Yes, it is a banality that personal piffle can affect ideology. But can we take autobiographical judgments as most accurate judgments? The Robinson I knew could well have thought back in the 1960s that her kind of post-Fabian socialism would flourish better in India than on the continent. And, alas, she may have been right in so thinking. Published scientific research, by its very nature, is designed not to identify any personal motives of the authors. In understanding what is in this revealing book, need we be concerned with the personal motives for the directions taken by these eminent economists? If so, is this interviews-format the best way to gain insight into those motives? I conclude with an unworthy hypothesis regarding past and present directions of economic research. Sherlock Holmes said, "Cherchez la femme." When asked why he robbed banks, Willie Sutton replied, "That's where the money is." We economists do primarily work for our peers' esteem, which figures in our own self-esteem. When post- depression Roosevelt's New Deal provided exciting job opportunities, first the junior academic faculties moved leftward. To get back ahead of their followers, subsequently the senior academic faculties shoved ahead of them. As post-Reagan, post-Thatcher electorate turned rightward, follow the money pointed, alas, in only one direction. So to speak, we eat our own cooking. We economists love to quote Keynes’s final lines in his 1936 General Theory --- for the reason that they cater so well to our vanity and self-importance. But to admit the truth, madmen in authority can self-generate their own frenzies without needing help from either defunct or avant garde economists. What establishment economists brew up is as often what the Prince and the Public are already wanting to imbibe. We guys don’t stay in the best club by proffering the views of some past academic crank or academic sage. Indeed, this book adds up to more than the sum of its parts. It provides a rare overview of the economics profession in a manner that reveals the relevancy of the personal motives and experiences of some of its leading modern contributors. 6 Preface: An Overview of the Objectives and Contents of the Volume By William A. Barnett1 This collection of interviews contains unique insights into the thinking of some of the world’s most important economists, whose work contributed to the evolution of modern economic thought. What makes this collection so unusual is the source of these interviews. They first were published in a highly regarded, peer-reviewed, Cambridge University Press journal, Macroeconomic Dynamics, of which I am Editor. Publication in scientific peer-reviewed journals normally is subject to refereeing, which constrains authors to publish only what is deemed to be acceptable to the referees, associate editors, and editors of those journals.