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

See all articles by D. Wade Hands

D. Wade Hands

University of Puget Sound - Department of Economics

Date Written: January 18, 2014

Abstract

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

Hands, D. Wade, The Individual and the Market: Paul Samuelson on (Homothetic) Santa Claus Economics (January 18, 2014). The European Journal of the History of Economic Thought, 23, 2016, 425-452. Available at SSRN: https://ssrn.com/abstract=2287261 or http://dx.doi.org/10.2139/ssrn.2287261

D. Wade Hands (Contact Author)

University of Puget Sound - Department of Economics ( email )

Tacoma, WA 98416

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