Paul Samuelson: Nobel Prize-winner widely regarded as the most important economist of the 20th century

(AP)

At precisely eight in the morning of 2 January, 1932, a brilliant first-year student, aged just 16, wandered into a lecture on Thomas Malthus at the University of Chicago – and in his own words, "was born again as an economist." Thus began the career of Paul Samuelson, arguably the most important, and certainly the most widely read, academic economist of the 20th century.

That career stretched across three-quarters of a century. Along the way Samuelson would be an adviser to presidents, a winner of the Nobel Prize for economics, and the author of the textbook that is the basis of economics courses at colleges around the globe. He was also largely responsible for the emergence of the Massachusetts Institute of Technology, where he spent his professional life, as one of the world's premier centres of economic learning.

"If you did a time and motion study of what any modern economist does at work, you would find that an enormous proportion traces back to Paul Samuelson," said Robert Solow, Samuelson's fellow MIT professor and close friend for 60 years. For his peers, Samuelson was little less than the father of modern economics.

In the broadest terms, he was a Keynesian, convinced by what he had seen as he grew up in Depression-era Chicago, when children would come to the Samuelson house begging for a single potato to keep them from starving. An economy could not always be left to the markets alone, Samuelson believed. At times an activist government had to step in to reduce unemployment, even at the price of heavy borrowing and deficits.

Thus Samuelson formulated what became known as the "Neo-Classical Synthesis," which agreed with the classical economists of the 19th century that supply and demand should be the guiding principles of economic management – but only in normal times. But when things went sour, then the government had to get involved. In later years Samuelson sometimes seemed to be less of a devotee. But he was instrumental in the acceptance of Keynesianism as economic orthodoxy, and its employment at the end of his life to mitigate the worst economic downturn since the one in which his career was launched in the 1930s.

Samuelson's contributions to economic thinking were enormous. His work helped highlight the difference between ordinary goods, produced, bought and sold according to market principles, and "public goods" that only the state could provide. Most important, he brought mathematics squarely into mainstream economic theory, using the discipline for theoretical forecasts of how an economy would behave, and to the study of the business cycle.

He also turned to mathematics to examine the relationship between the individual consumer and the overall economic system, and to understand movements in share prices. Indeed, that latter work led indirectly to the crisis of 2008-2009. "It was people like me, at MIT and Chicago, who created all these wonderful derivatives," Samuelson remarked last year, adding with his trademark pithiness that hapless corporate CEOs "didn't even know who they were in the bathtub with."

Like most academic economists he believed in free trade, but not blindly so. In 2004 he challenged the conventional wisdom that globalisation would be an unmitigated boon to ordinary Americans. Cheap foreign goods might drive down wages of low-paid workers in the US, and this loss of purchasing power was not always made good by lower prices at Wal-Mart. There had to be temporary protection for losers, Samuelson insisted; "every good cause is worth some inefficiency."

In that sense, Samuelson was forever shaped by the memory of how prevailing economic theory had no answer to the Depression, and how it barely mentioned make-or-break human problems like joblessness and hunger. Classical economists, he once said, were like "highly trained athletes who never ran a race."

The son of Jewish immigrants from Poland, Samuelson moved in the 1920s to Chicago, where he attended high school and college. After graduating from the University of Chicago – later to become the hub of the conservative monetarist school led by Milton Friedman, whom Samuelson met as a student in 1933 – he went to Harvard, where he took a master's degree in 1936 and a Ph.D in 1941. His doctoral thesis, completed when he was 25, was an academic sensation, and in 1947 was published as a book, The Foundations of Economic Analysis, in which Samuelson first set out the mathematical underpinnings of economic theory.

But Harvard and Paul Samuelson were never a good fit. As at Chicago, he did not hesitate from criticising his professors, above all for their disconnect from real life. His background was no help, either. The Harvard of those years was not inclined to people who were over-clever, Jewish or Keynesian, and Samuelson was all three. In 1941 he made the short journey across Cambridge, Massachusetts from Harvard to MIT, which had offered him an assistant professorship.

Within seven years there followed the textbook now known to students around the world. Legend has it that Economics: An Introductory Analysis was prompted by the need to boost his income when his wife Marion, whom he had met at Harvard, produced six children in short order, the last three triplets.

"I knew it was a good book, but I never realised its staying power," Samuelson said years later of a work based on his post-war lectures at MIT and now in its 19th edition, which has sold over 4m copies translated into 40 languages. One of the most widely used undergraduate textbooks on any subject, it is a rare work on the "dismal science" in which rigorous scholarship and erudition were matched by relevance and wit. Economics helped seal the triumph of Keynesianism. It also made its author a very rich man.

By 1960, Samuelson was one of the most sought-after economists in America. John Kennedy enlisted him as a campaign adviser and tried to instal him in the White House, but without success. Samuelson deeply admired the young president but told him he could take no position in which he was barred from saying or writing what he believed. Instead, he urged Keynesian-style tax cuts which were finally introduced by Kennedy's successor Lyndon Johnson in 1964, and widely credited with the economic upsurge that followed.

In 1970 the seal was set on Samuelson's international eminence when he became the first American, and only the second person, to win the new Nobel Prize for Economics first offered the previous year. The citation noted, almost matter-of-factly, that the recipient had "simply rewritten considerable parts of economic theory."

Samuelson was active almost until his death, teaching, writing papers and for many years producing columns for Newsweek magazine, in tandem with Friedman, a personal friend but by then his sworn intellectual foe. As a rule, Samuelson was supremely assured, but he confessed to being unnerved by Friedman's debating skills when they confronted each other before an audience. "You always seemed to come off as elitist," he reflected, "and Milton seemed to have won the day."

To the end, he remained a Keynesian, but a somewhat disillusioned one, believing that as the 20th century progressed, governments tended to become overlarge and under- efficient, failing to meet the human needs that "we do-gooders extol." His legacy is assured, nowhere more visible than in the MIT economics school that Samuelson did so much in building. Its luminaries include a host of subsequent Nobel Prize- winners; among them Solow, Robert Merton, Paul Krugman, Franco Modigliani and Joseph Stiglitz. His reputation, too, is unassailable. None other than Ben Bernanke keeps in his office a signed copy of the textbook by a man the current Federal Reserve chairman this week called "a titan of economics".

Rupert Cornwell

Paul Anthony Samuelson, economist. Born Gary, Indiana 15 May 1915; married 1938 Marion Crawford (died 1978, four sons, two daughters), 1981 Risha Clay; Nobel Prize for economics, 1970; died Belmont, Massachusetts 13 December 2009.