Sean O'Grady: The master of the dismal science – with equations

Economics students must age themselves in 'Samuelson years'

Just as normal chronological timescales have to be recalibrated for pets – eg "dog years" – so students of economics must age themselves in "Samuelson years": that is, which edition of Paul Samuelson's standard economics textbook they used, from the first in 1948, to the latest, the 18th version, of 2004.

Samuelson, the Nobel prize-winning American academic who has died at the age of 94, can lay claim to be the most influential teacher in the history of the dismal science. He is one of that select group whose prejudices infiltrated the minds of future decision-makers and commentators without them quite realising. Or, as Keynes famously put it, "practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist".

Given the longevity of Samuelson – he advised President Kennedy and collected his Nobel Prize as long ago as 1970 – many of his "slaves" became defunct rather earlier than he did.

Not quite defunct, my own vintage is the now worryingly remote 11th edition (1980) of Samuelson's Economics, published at a time when the great man was still able to make relevant remarks about communist countries and when incomes policy was still a realistic policy option for western democratic governments. (Actually, incomes policies seem to have enjoyed a bit of a revival, but only if applied to bankers, MPs and top civil servants.)

Thus it is that even today some of us harbour a secret soft spot for incomes policy as a rational alternative to mass unemployment, and retain a vestigial sympathy for the now discredited "cost-push" view of inflation. Slave that I am.

But, ubiquitous as it undoubtedly remains – translated into 40 languages with more than 4 million copies sold – I'm not sure that Samuelson's text did economics many favours, though this may be more the fault of his readers than Samuelson himself. For many who'd done little or no economics before university their first encounter with Samuelson could be a pretty disillusioning affair. Samuelson did present his subject with unflinching intellectual rigour, but it was, with few exceptions, not what most people were expecting.

Most of those plumping to study economics at A-level or degree level fell, and I suspect still fall, into three categories. First, there are those who were not much use at the established academic subjects taught to age 16 and therefore needed to find alternatives. For them, economics falls into the same category as politics, sociology and psychology: it's what you do when all else has failed.

Indeed, no other discipline suffers from the same chasm between the eager this-is-going-be-fun expectations of the students and the miserable, maths-infested, turgid reality. And that moment of reality arrives, more often than not, with the first flick through the pages of a copy of Samuelson fresh from the university bookshop. Its bewildering IS-LM graphs and equations full of Greek letters were the cue for many to switch back to doing geography, if it wasn't too late.

The second group were those, like me, who found themselves similarly disillusioned but who decided to go with the maths because it is supposed to be good for one, like All-Bran.

The third group, small but much the most dangerous, are the ones who opened their Samuelsons and thought "Great! Look at all that maths." These are people who grew up (if that's the right expression) to become mathematical economists – econometricians is the term – and who have been running the world economy these past few decades. They can be easily found in the IMF, the World Bank, the Bank of England, the Treasury and other places. For them the natural human urge to make sense of the world around them – what economics is really about, I would argue – is perverted into a religion where numbers can solve everything. Despite all evidence to the contrary.

But worse even than that, the mathematisation of economics fed through to finance and banking, and gave us the models that generated disastrous investment "strategies" and misunderstood risk. Notoriously, the chief financial officer of Goldman Sachs, David Viniar, said during the financial crisis in the autumn of 2008, that "we are seeing things that were 25 standard-deviation moves, several days in a row". Or, something that could happen only once every 13.7 billion or so years – roughly the estimated age of the universe.

In other words, the market meltdown couldn't happen, though it evidently did. I doubt that Paul Samuelson would have gone along with that nonsense, but the rise of mathematical economics has a great deal to answer for.

s.ogrady@independent.co.uk