The Individual and the Market: Paul Samuelson on (Homothetic) Santa Claus Economics
The European Journal of the History of Economic Thought, 23, 2016, 425-452
31 Pages Posted: 30 Jun 2013 Last revised: 5 Oct 2016
Date Written: January 18, 2014
Paul Samuelson often used the term "Santa Claus economics" for mathematical models with extremely strong and empirically unrealistic assumptions. Although Santa Claus models represented a broad class for Samuelson – some useful and some not – I will focus on one particular member of the Santa Claus family that he was very skeptical about: what he called homothetic general equilibrium models (where all agents have identical homothetic preferences). I will argue that Samuelson's concerns about the homothetic version of these models provide important insights into how he viewed the relationship between the individual and the market, a relationship that has implications for not only his demand and general equilibrium theorizing, but also his broader political-economic vision. His criticisms are also relevant to some ongoing debates within contemporary economic theory (both micro and macro).
Keywords: Paul Samuelson, General Equilibrium Theory, Representative Agent, Homothetic Preferences
JEL Classification: B2, B3, D1, D5, D6
Suggested Citation: Suggested Citation