The Individual and the Market: Paul Samuelson on (Homothetic) Santa Claus Economics

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