David Warsh: Why did Paul Samuelson end his momentous debate with Milton Friedman?

SOMERVILLE, Mass.

It was a transformative  national debate, on the level of Hamilton and Jefferson, or Lincoln and Douglas: Paul Samuelson (1915-2009) of the Massachusetts Institute of Technology, and Milton Friedman (1912-2006) of the University of Chicago, wrote dueling columns for Newsweek magazine from 1966 until May 1984. Then their arrangement ended abruptly, With no public explanation, Samuelson quit.

Why?

Friedman had become well known as a critic of government spending on basic research.  In Free to Choose, the 1980 book accompanying their highly successful television series, he and his economist wife, Rose, had argued that the National Science Foundation, the National Institutes of Health, and tax subsidies to higher education are undesirable and should be abolished.

Since Friedman was also an adviser to future President-elect Ronald Reagan, reporter Nicholas Wade, of Science magazine, called him up to ask what should be put in their place?

“Nothing,” Friedman replied. “The Treasury, the citizenry and the advancement of science would all be better off without the NSF and other research agencies.”

In his interview, Friedman enumerated to Wade the problems he felt that government caused. They boiled down to mediocrity, waste, abuse and a chilling effect on the academic community’s willingness to speak frankly and criticize programs. Harvard philosopher Willard Quine had made much the same argument in an essay in Daedalus in 1974.

Wade asked Friedman on whom should the burden of proof be placed?

“On those who wish to extract money from below-income taxpayer, or on those who argue the other way. I challenge you to find a single study justifying the amount of money now being spent on government support for research science.”

Abolition of government funding had been no proposal to advance in 1980, Friedman admitted, when Reagan was no more proven a candidate than had been Barry Goldwater, whom Friedman had also advised, in 1964.  But it was now 1981, and Reagan was at the newly elected president, riding a wave of excitement. When Friedman repeated his arguments in Newsweek in May, Paul Samuelson never wrote for the magazine again.

Some background: Samuelson had attended Harvard University on one of the first Social Science Research Council fellowship, leaving for MIT in 1940. In the late stage of World War II, the 29-year-old Samuelson had served, with John Edsall, the biochemist, and Robert Morison, head of biology for Rockefeller Foundation, on a subcommittee established to study post-war science policy for Vannevar Bush, World War II science czar.

When Bush’s report, Science, The Endless Frontier, was issued, in 1945, it contained the recommendations that the trio had favored: Pentagon funding for military technology; the National Institute of Health, for medicine; and National Science Foundation, for basic and applied science (including social sciences). Not until 1958, after the Soviet Union launched Sputnik , its first satellite, the year before, was the National Aeronautics and Space Administration was established.

Five years had been required to establish the NSF, owing to opposition in Congress, from populist senators who wanted funding to be distributed, equally among the states, county by county, pork-barrel fashion, rather than by a system of peer review. At the other end of end of the argument was Polaroid’s Edwin Land, who felt that government should favor entrepreneurial inventors, such as today Silicon Valley s titans (and, in those days, himself).

Fifteen years later, I asked Samuelson whether there had been any connection between one event and the other.  Had he suffered enough of his rival?  Not at all, Samuelson replied. He had been about quitting after a copy editor had changed a headline on a prior column in a way that displeased him.

Somehow, I didn’t believe him. I raised an eyebrow, and we continued the interview.

I thought of that when I took down from the shelf Better Living through Economics (Harvard, 2011 ), a book edited by John Siegfried, that I hadn’t found a way to write about when it was published.  The title was a play on a famous Dupont Co. advertising campaign, “Better living through chemistry.” Multiple chickens and multiple pots graced the book’s jacket, a reference to Herbert Hoover’s 1928 campaign promise, “a chicken in every pot.’’ Siegfried, a Vanderbilt University professor, had been for many years the widely respected secretary-treasurer of the American Economic Association.

The book contained a dozen case studies by leading economists who had been involved in policy reforms, followed by expert commentary on each.  Siegfried noted in an introduction that only one of the studies, the all-volunteer armed force, had been pursued by academic economists without external funding. Eventually Richard Nixon appointed a presidential commission to study transition from conscription to a market-based military; many economists were involved in its work. The plan they came up with was implemented in 1973.

In an overview of the essay, Charles Plott, of Caltech, noted that the contributions of economics had been accomplished “with only a tiny fraction of the level of research support given to other sciences.” Yet basic and applied research in economics, he asserted, had profound effects on American life.

The 12 essays included in Better Living through Economics described emissions trading; improved price indices; the effects of trade liberalization on growth in developing nations; welfare-to-work reform; a revolution in monetary economics; adoption of electro-magnetic spectrum auctions; air-transport deregulation; the application of deferred acceptance algorithms in school choice and medical education; new anti-trust measures; all-volunteer military forces, and policies to encourage retirement savings.

Regardless of whether you consider the effects of all these measures to have been net beneficial, you may agree that each was worth a try. Some clearly worked to provide better living. Perhaps others didn’t succeed as well.  After two or three American wars, for example, the returns on an all-volunteer-military force vs. conscription are not in.

One other test of government-sponsored basic research is worth thinking about, however – a natural experiment in which virtually all Americans took part.  This experiment was conducted without any of the protocols that Milton Friedman demanded as proof of the value of at least some, if not all, government spending on basic research. Certainly it can be argued about, long after the fact. But scale alone makes it important.

More on that experiment next week.

xxx

The reason that Samuelson gave for his decision to quit his long-standing column stemmed from the magazine’s decision to spike without telling him the column he had turned in, about John Kenneth Galbraith’s memoirs. Newsweek had reviewed the book “rather thoroughly” three weeks before, the editor explained.

Is it possible that Samuelson seized on the magazine’s slight as a fig leaf to conceal his irritation at Friedman’s proposal? The week before, the Chicagoan had called on the Reagan administration to sharply cut back on National Science Foundation’s grants to economists? Perhaps. In matters requiring diplomacy, the MIT professor was an artful dodger. But Samuelson turned 65 that year. He’d been dueling with Friedman in Newsweek since 1966.

Whatever the case, it was an abrupt way to end a momentous public  debate.

David Warsh, a veteran columnist and an economic historian, a proprietor of Somerville-based economicprincipals.com, where this column originated.

David Warsh: MIT: The 'Duffy's Tavern' of American economics

  SOMERVILLE, Mass.

As something of beat reporter, I have half a dozen good stories about economics at the Massachusetts Institute of Technology in various stages of preparation. So what to make of a recent book, #mit and the Transformation of American Economics (Duke, 2014).

I love it, naturally. Not only does it contribute fundamentally to our knowledge of how Paul Samuelson and Robert #solow at MIT more or less invented the field we call macroeconomics and came to dominate the field for a time, but it illuminates the difference between history and journalism.

Transformation is the hardbound annual supplement to the journal History of Political Economy, which is published quarterly by Duke University Press.  Each year a research conference assembles an array of scholars writing on a single broad topic; 18 months later, suitably edited, their papers appear in book form.  The topic of the conference to be held next month is “Economizing Mind, 1870-2015: When Economics and Psychology Met… or Didn’t.”

Each volume is in conception the creature of an organizing editor, in this case, E. Roy Weintraub, a Duke professor of economics who, one way or another has been on the trail of the MIT story for nearly  40 years.  He is the author of, among other books, How Economics Became a Mathematical Science, and last year, with Till Düppe, of Finding Equilibrium: Arrow, Debreu, McKenzie and the Problem of Scientific Credit (Princeton, 2015).

In an introduction, Weintraub lists six competing explanations that have been advanced to account for MIT's rise to the top of the economics profession:

The oldest narrative and most familiar invokes a Keynesian Revolution, swift transformation in which a mimeographed version of The General Theory of Employment Interst , carried to Harvard by Canadian graduate student Robert Bryce, converted first a circle of graduate students, then Harvard Prof.  Alvin Hansen, and finally wunderkind Paul Samuelson, who promptly decamped to the technological institute down the street. There is no better account of this version than  The Coming of Keynesiaism to America: Conversations with the Founders of Keynesian Economics (Edward Elgar, 1996), edited by David Colander, of Middlebury College,  and Harry Landreth, of Centre College.

A second narrative emerged in From Interwar Pluralism to Postwar Neoclassicism  a HOPE conference volume from 1998 edited by Mary Morgan, of the London School of Economics, and Malcolm Rutherford, of the University of Victoria.  The theories of demand, production and the firm had all been matters of contention in the 1930s, but by the mid-1950s, Weintraub writes, all were settled chapters in graduate and intermediate microeconomic textbooks.  How were they thus “stabilized?”  It couldn’t have been the highly literary Keynes. Instead it was the new importance that others attached to the role of models and measurement, a thesis elaborated by Morgan in The World in the Model: How Economists Work and Think(Cambridge, 2012) and further illuminated by Weintraub.

A third set of stories emphasizes the effects of World War II:  the United States; post-war hegemony overwhelmed various national traditions, especially in Britain and Vienna. Only the U.S. had the resources to educate, train and employ economists, so naturally the science came to be spoken with an American accent.  Roger Backhouse, of the University of Birmingham and the University of Rotterdam,  editor, with Philippe Fontaine, of The History of the Social Sciences since 1945, (Cambridge, 20120),  contributes an essay to the current volume, ”MIT and the Other Cambridge,” describing the 15-year battle known as the “capital controversy” through which the American Cambridge took control.

A fourth interpretation contends that the Cold War turned economics and game theory into a Procrustean bed for purposes of exercising social control.  None has gone further down this road than Philip Mirowski, of the University of Notre Dame, in Machine Dreams: Economics Becomes a Cyborg Science, (Cambridge, 2002), but Mirowski is not represented in the current volume. Instead essay on the history of operations research, by William Thomas, of History Associates, Rockville, Md., is said to refute Mirowski’s central claim.

Yet another version puts demand for economists; services at the heart of the story, first at MIT, where interest in the “new economics” was greatest, then at several other schools of business and engineering, especially Pittsburgh’s Carnegie Institute of Technology (today Carnegie Mellon University), as described in The Roots, Rituals and Rhetoric of Change: North American Business Schools After the Second World War (Stanford, 2011), by Mie Augier, of the Naval Post Graduate School,  and James March, of Stanford University. The role of the GI Bill of Rights in re-shaping U.S. higher education plays a central role here.

A sixth factor, advanced by Weintraub in the Transformation volume, argues that  the rise of MIT stemmed from its willingness to appoint Jewish economists to senior positions, starting with Samuelson himself.  Anti-Semitism was common in American universities on the eve of World War II, and while most of the best universities had one Jew or even two on their faculties of arts and sciences, to demonstrate that they were free of prejudice, none showed any willingness to appoint significant numbers until the flood of European émigrés after World War I  began to open their doors.

MIT was able to recruit its charter faculty – Maurice Adelmam, Max Millikan, Eugene Rostow, Paul Rosenstein-Rodin, Solow, Evsey Domar and Franco Modigliani were Jews – “not only because of Samuelson’s growing renown,” writes Weintraub, “…but because the department and university were remarkably open to the hiring of Jewish faculty at a time when such hiring was just beginning to be possible at Ivy Leaguer Universities,”.

Many essays stand out.  Backhouse nails down the details of Samuelson’s decision to sign on at MIT.  Harro Maas, of Utrecht University, describes the efforts of the University of Chicago to lure Samuelson in the later 1940s. Perry Mehrling, of Barnard College, contributes a perspicacious essay describing the difficulty the MIT tradition, with its emphasis on the general equilibrium of a system of prices, had in coming to grips with the role of money, which the tradition customarily has abstracted away. And Beatrice Cherrier, of the University of Caen, provides a lively overview of the history of the department to begin the volume.

At one point Cherrier quotes a 1967 letter Solow wrote to his colleague Franklin Fisher, who had reported from Israel the view there that the MIT department is too committed to orthodoxy that Samuelson and Solow had devised to be able to recognize promising future developments, especially in theory. Solow wrote,  “Peter Diamond and Peter Temin will help a lot. Miguel Sidrauski may develop very well…. The department has agreed to go for another econometrician, if we can find a young star. .. I think the prospects are good that we can remain the Duffy’s Tavern of economics, where the elite meet to eat.”  The reference is to a popular radio show of the 1940s, an adumbration of the sentimental  1980s television series Cheers.

Fisher was right; Solow was wrong (though Cherrier doesn’t say so). Leadership in theory was about to pass from MIT, though its preeminence in applied economics would soon become apparent. But Solow’s metaphor is especially well chosen, and not just because of the gemütlichkeit of the customary table upstairs at the MIT faculty club, where the economists met most days for lunch.

The broadcast of Duffy’s Tavern always began the same way: a rendition of “When Irish Eyes are Smiling'' interrupted by the ringing of a phone: "Hello, Duffy's Tavern, where the elite meet to eat. Archie the manager speakin'. Duffy ain't here—oh, hello, Duffy."

The centerpierce of Transformation is an appreciation of Solow by Verena Halsmayer, of the University of Vienna. In “From Exploratory Modeling to Technical Expertise: Solow’s Growth Model as a Multipurpose Design,” Halsmayer makes a serious attempt to rescue Solow – the manager of the MIT economics department for 30  years – from the shadow of the brilliant Samuelson and evaluate the younger man’s principal contribution, the Solow model of economic growth.

It was a farther-reaching development than is generally understood, she argues, nothing less than a replicable “design” for a specific way of doing economics. a relatively unencumbered means of combining theory with measurement so as to interrogate the real world with “high hopes of producing useful and practical knowledge for economic governance.” As his student George Akerlof once put it, Solow began the process of turning the word “model” into a verb.

Transformation is the latest draft of history, a promising start on what promises to be a very complicated process.  More will follow relatively quickly:  Michael Weinstein, an MIT PhD who for many years was a member of the editorial board of The New York Times, is completing a book-length essay on Samuelson.  Backhouse has begun a full-scale biography. Much more remains to be done including a proper biography of Solow.

Yet for all the value of careful history, it remains, by definition, a rear-view mirror  That is why we have journalism, too.

David Warsh, a longtime economic historian and financial journalist, is proprietor of economicprincipals.com.