The eleven principles of economics.

• Position: Kenneth G. Elzinga's presidential address evaluating Paul Samuelson's book entitled Economics - Transcript

1. Introduction

   In 1948, Americans in great numbers were reading Dwight D. Eisenhower's Crusade in Europe and Dale Carnegie's How to Stop Worrying and Start Living. Atop the best-seller list in fiction were two totally different reading experiences: The Big Fisherman by Lloyd Douglas and Norman Mailer's The Naked and the Dead. That year as well Kinsey's Sexual Behavior of the Human Male approached the top of the best-seller list.

   Also in 1948, unmentioned by Publishers Weekly, a textbook authored by a young economist at MIT was published at a suggested retail price of $4.50. The book, entitled Economics, came to outsell Eisenhower and Mailer on war, Carnegie on worrying, Douglas on the Apostle Peter, and even Kinsey on sex. The eleven principles of economics textbooks by Paul A. Samuelson encompass over three publishing decades, 9000 pages of printed text, and a combined weight of 35 pounds for a complete set.(1) The book has been translated into over 30 foreign languages.

   Samuelson's eleven principles are an imposing publishing accomplishment, all the more so against the backdrop of the author's other contributions to the discipline.(2) It is as if someone won Wimbledon and also was the game's most popular sportswriter--and then kept on winning Wimbledon and writing about tennis for over forty years.

2. The Birth of the Book

   When Samuelson arrived at MIT in October, 1940, the Department of Industrial Economics (difficult as this is to imagine today) was primarily a service department for engineering students required to take an economics course in their junior year. The course was less than popular. To correct this deficiency, Ralph Freeman, then chair of the department, asked Samuelson to prepare fresh material to enhance the student appeal of MIT's economics requirement. The dutiful young colleague, who was teaching three sections of the class, complied with Freeman's request.

   Samuelson decided not to make the material mathematical--recognizing MIT students would relish turning economics into puzzle solving. The book instead was written for the engineer who someday would be a knowledgeable and active citizen.

   Samuelson though the project would take no more than half a year to accomplish. This forecast proved to be overly optimistic. Three years later Samuelson finished a typewritten manuscript entitled MODERN ECONOMICS: An Introductory Analysis of National Income and Policy. This manuscript, in mimeo form, was assigned to students at MIT but soon became known outside Cambridge. The author already was a leading economist and the document was rumored to have incorporated the theories of John Maynard Keynes.

   Publishers large and small beat a path to Samuelson's office hoping to sign the book. But they did not compete on price. Like airlines under CAB regulation, each publisher offered identical royalty rates. Not one firm broke rank. Faced with uniform prices, Samuelson selected McGraw-Hill. One reason was sentimental. McGraw-Hill had published Joseph Schumpeter's two volume work on business cycles. Adding his former teacher's book it its list, notwithstanding the modest sales potential, endeared McGraw-Hill to Samuelson. Another reason was personal. Samuelson liked McGraw-Hill's local book rep for the Boston area.

3. The Distinctiveness of the First Edition

   There were three innovations in the first edition of Economics: new principles; new emphases; and new organization. The new principle were Keynesian. The new emphases were on macroeconomics and the problems of maintaining full employment. The new organization was to begin the text with macroeconomics.

   The is a fourth innovation for which the book merits notice, if not full credit. At the time Economics appeared, a short-term, regular cycle of revisions was almost unknown among textbooks. With two exceptions, Samuelson's book throughout the 1950s, 1960s, 1970s and 1980s was revised on a three year cycle.(3) This meant a text could incorporate recent events, data, and policy issues. By the mid-1970s, the three-year cycle had a second rationale: it lessened competition from the used-book market, a feature not overlooked by publisher and author alike.

   The impact of the Samuelson text was profound. It became standard-operating-procedure for principles of economics textbooks to contain Keynesian macroeconomic theories, to emphasize the economic problem of maintaining full employment and controlling the business cycle, and to treat macroeconomics ahead of microeconomics. Successful imitators also mimicked the three year revision cycle.

   The Keynesian Initiative

   Samuelson was not the first principles textbook to incorporate Keynesian teaching. Keynesian precepts first appeared in Lorie Tarshis's The Elements of Economics: An Introduction to the Theory of Price and Employment, published in 1947, one year before the first edition of Samuelson's book (Samuelson did not see the Tarshis book in the preparation of his own).

   The Tarshis text states clearly:

   . . . the most important subject to be discussed

   in this book: the theory of employment. This

   theory is in a sense the keystone of our whole analysis [40, 339].

   Tarshis praises The General Theory as "the most influential work . . . among English-speaking economists" [40, 346]. His text introduces students to a graphical portrayal of Marginal Propensity to Consume; it defines Y as being equalto C + I; it refers to the equality of Saving and Investment; it defines National Income as primarily a function of MPC and the level of Investment; it describes how the investment component of National Income is unstable; it introduces readers to the relationship between the Marginal Propensity to Consume and the multiplier; and, to complete the elementary Keynesian portfolio, the book describes the Accelerator Effect.

   Samuelson's first edition also defines "full employment" as "the central problem of modern economics;" only after this objective is met do other economic problems even merit attention [31, 15]. Samuelson's text, like Tarshis's, introduces students to a graphical portrayal of Marginal Propensity to Consume; it defines Y = C + I; it refers to the equality of Saving and Investment; it defines National Income as a function of MPC and the level of investment; it describes how the investment components of national income is "capricious and volatile" [31, 225]; it introduces readers to the relationship between the Marginal Propensity to Consume and the multiplier; and the book describes the Acceleration Principle.

   In 1947-48, this was pathbreaking stuff for a principles text. But if Tarshis got there first, it is legitimate to inquire: why is there not, instead, a "Tarshis legend: in textbook publishing? The brief answer is: Samuelson out-Keynesianized Tarshis.

   Samuelson's first edition uses more graphs to teach the new macroeconomic material. Tarshis completes the macroeconomic exposition using six graphs; Samuelson uses twelve. Both numbers seem sparse by today's textbook standards. But for a profession eager to learn and pass on the new theories of Keynes and his disciples, these graphs offered great pedagogical opportunities.

   Samuelson not only offered more graphs to those adopting his textbook, but he offered two that were not in The General Theory nor in the Tarshis text: the Keynesian cross and the Circular Flow. The circular flow diagram has its roots in Frank Knight's wheel of wealth, and Samuelson knew of its from his undergraduate days at the University of Chicago [27]. It became an important feature in the new text.(4)

   The Keynesian cross Samuelson invented.(5) Its absence in the Tarshis text left that book with all the Keynesian apparatus of MPC, MPS, and the Investment function, but no unifying diagram

   The Keynesian cross, or 45 degree line, became the standard format to teach the Keynesian system to principles students. From it students encountered an equilibrium intersection similar to what they would encounter in demand and supply analysis. But unlike the benign equilibria of the demand and supply for wheat and widgets, students learned that macroeconomic equilibria were unpalatable because they were short of full employment (they usually were drawn that way). Mastering the Keynesian cross became a student's rite of passage through the Samuelson text and most of its later rivals.

   New theories alone did not differentiate the macro half of Samuelson's Economics. Lloyd Mints, Samuelson's Money and Banking teacher at the University of Chicago, had taught him the mechanics of bank money expansion as developed by Iowa's Chester Phillips. Samuelson placed this material in his text to promote economics as a science. It was a hit in the classroom, at least with teachers, and aided the success of the book.(6)

   To further distinguish his textbook, Samuelson made microeconomic theory a side dish.(7) A student reading the first edition did not encounter microeconomic theory until page 447 of the book's 622 pages. Material on demand and supply and its applications, elasticity, the theory of consumer demand, the models of perfect and imperfect competition, the theory of the firm, and marginal productivity theory occupy only 90 pages, less than 15 percent of the book.(8)

   Placing macroeconomics first was a priority shared by many teachers of the time who had experienced the great depression. Samuelson was fortunate that when fears of depression lessened, fears of inflation increased, keeping macroeconomic issues prominent in the news. Starting today, Samuelson would reverse the macro-micro sequence of Economics. More instructors now prefer to teach microeconomics first [41, 146].

   There is still another factor that helped elevate Samuelson's text over Tarshis's. It came out a year later. The first-mover advantage described by some Industrial Organization economists worked in reverse. It did not pay to be the first kid on the block with the new Keynesian bicycle.

   Political Reaction To The First Edition

   The first...