The Rivals: Paul Samuelson and Milton Friedman arrive at the University of Chicago – in 1932
Friedman arrived that autumn from New Jersey as a graduate student. A pair of Columbia University graduate students, Arthur Burns and Homer Jones, had been among his teachers at Rutgers University; they had urged him to defer his plan to become an actuary in favor of economics.
.. Milton Friedman and I became known as two poles, early on, but we managed to stay on civil and fairly friendly terms…. He is as bright a guy as you would ever meet. But I don’t think he realizes the tremendous number of mistakes he has made in his life. I don’t think anybody has read every item of Milton Friedman’s work in the world but me…. Sometimes I say he’s got such a high IQ that he’s got no protection against himself. He looks at his work and is satisfied with it. However, I think that it is a tragedy when somebody really takes the wrong train in life.
.. Samuelson arrived at Harvard in September 1935, expecting, he later said, a tidy little New England town. Instead he found a grimy industrial city with an old university at the leafy end of town.
.. Samuelson would talk to him for an hour after every lecture; it was in Wilson’s class that Samuelson had perhaps his single greatest epiphany, he recalled: the recognition that the truth of a mathematical tool was independent of the context in which it was employed. In this case it was the mathematics underlying a principle devised a century before by French chemist Henry LeChatelier to describe changes in pressure, volume and temperature of an ideal gas which could just as easily be adapted to calculate changes in elasticities of demand in a system of factor prices. The mathematical insight arrived in an instant. It would take a decade to reason through its implications.
.. Samuelson would recall: “He would say, ‘You never in economics kill a theory by fact; you kill a theory by a better theory.’”
.. pay attention instead to what consumers do with their money. The doctrine of “revealed preference” gave economists something to measure. Samuelson was “operationalizing” economics, defining a previously fuzzy concept in such a way that meaningful theorizing about it could be undertaken with a view to eventual testing.
.. Friedman found himself on the losing side of a department divided into two warring camps – quantitative up-and-comers vs. well-entrenched institutionalists. Friedman’s appointment suffered from a certain amount of straightforward anti-Semitism as well. When the department failed to approve the administration’s offer of a professorship, Friedman withdrew and returned east, to a job in the Treasury Department. Embarrassment and bitterness over the affair plagued the Wisconsin department for many years.
.. he timing of the invasion of Europe hinged on estimates of gross national product by Kuznets and his student Robert Nathan and their new National Income and Product Accounts ..
.. Friedman was assigned to build a Keynesian model of how much to raise taxes to pay for war. He helped create the income tax withholding system – an institution whose durability he came to regret in later years.
.. Friedman financed his drive to the Twin Cities by selling his furniture to the next family to rent his apartment
.. He came across stenographic copy of testimony he had given to a Congressional Committee as a Treasury official, explaining why an income tax would be better than a sales tax in preventing inflation. The war was six months old. “If inflation is to be prevented, it must be neutralized by measures that restrict consumer spending. Taxation is the most important of these measures; unless it is used quickly and severely, the other measures alone will be unable to prevent inflation.”
.. At every point, Friedman was dogged by suspicions elsewhere that his methods didn’t fully measure up to modern standards. The jokes multiplied: “Milton knows how to spell banana but he doesn’t know when to stop.”
.. Experience in controversies such as these brings out the impossibility of learning anything from facts till they are examined and interpreted by reason; and teaches that the most reckless and treacherous of all theorists is he who professes to let facts and figures speak for themselves, who keeps in the background the part he has played, perhaps unconsciously, in selecting and grouping them, and in suggesting the argument post hoc ergo propter hoc.