Foundations of Economic Analysis, by Paul A. Samuelson

Prof. Dr. Moustafa El-abdallah Al Kafry
2023 / 1 / 19

Foundations of Economic Analysis
First edition (1947)

Foundations of Economic Analysis is a book by Paul A. Samuelson published in 1947 (Enlarged ed., 1983) by Harvard University Press. It is based on Samuelson’s 1941 doctoral dissertation at Harvard University. The book sought to demonstrate a common mathematical structure underlying multiple branches of economics from two basic principles: maximizing behavior of agents (such as of utility by consumers and profits by firms) and stability of equilibrium as to economic systems (such as markets´-or-economies). Among other contributions, it advanced the theory of index numbers and generalized welfare economics. It is especially known for definitively stating and formalizing qualitative and quantitative versions of the “comparative statics” method for calculating how a change in any parameter (say, a change in tax rates) affects an economic system. One of its key insights about comparative statics, called the correspondence principle, states that stability of equilibrium implies testable predictions about how the equilibrium changes when parameters are changed.

Topical outline
Methods and analysis
Enlarged edition
See also

The front page quotes the motto of J. Willard Gibbs: “Mathematics is a language.” The book begins with this statement:
The existence of analogies between central features of various theories implies the existence of a general theory which underlies the particular theories and unifies them with respect to those central features. This fundamental principle of generalization by abstraction was enunciated by the eminent American mathematician E. H. Moore more than thirty years ago. It is the purpose of the pages that follow to work out its implications for theoretical and applied economics.
Its other stated purpose (p. 3) is to show how operationally meaningful theorems can be described with a small number of analogous methods. Thus, “a general theory of economic theories” (1983, p. xxvi).

Topical outline
The body of the book is 353 pages. Topics and applications covered (all in terms of theory) include the following.

Part I
equilibrium systems (such as for a market´-or-economy)
maximizing behavior (such as to profits by a firm and utility by a consumer) in the calculus
sales-tax increase on equilibrium for a firm
comparative statics (changes in prices and quantities and other equilibrium variables when underlying conditions change)
cost and production
consumer’s behavior
transformations, elasticities, composite commodities, index numbers, and rationing
cardinal utility, constancy of the marginal utility of income, and consumer’s surplus
welfare economics

Part II
stability of equilibrium systems, dynamics (disturbances in equilibrium), and comparative statics
the Keynesian system
linear and nonlinear systems
Malthusian and optimum population
the business cycles
endogenous models
mixed exogenous-endogenous theories
mixed systems of a linear-stochastic type
conclusions (on neoclassical theory from Walras to hints of the future in comparative dynamics, the comparative-statics counterpart of dynamic systems)

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