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A blog on financial markets and their regulation
I found it surprising that most of the Samuelson obituaries do not
refer to the impact that he had on finance theory. Along with
Modigliani and Arrow, Samuelson was among the few mainstream
economists who had an enduring impact on finance theory.
Indeed it appears odd that while modern finance theory is often
regarded as the bastion of free market economics, it owes so much to
Samuelson who was the dominant left wing economist of his era. By
contrast, Samuelson’s great right wing rival, Milton Friedman,
contributed very little to modern finance theory apart from his famous
pronouncements on destabilizing speculation.
Samuelson more or less established the modern
“martingale” concept of market efficiency (as opposed to
the now largely discredited random walk model) in his landmark paper
entitled “Proof that Properly Anticipated Prices Fluctuate
Samuelson also had a strong influence on option pricing through
his doctoral student Robert Merton though Samuelson’s own work
in this area is completely obsolete.
Above all, I think the mathematical approaches that Samuelson brought to
economics were necessary prerequisites for modern financial economics