Samuelson and the Non-Substitution Theorem: Some Methodological Remarks

With his revealed preference theory (RPT), Samuelson intended to offer “operational” foundations to neoclassical consumer theory by getting rid of unobservable or ill-conceived psychological arguments like, especially, introspection. According to Samuelson, RPT is operational inasmuch as utility functions are now based only on observable elements, namely consumed bundles of goods. In this article, we show that the same methodological process was implicitly applied by Samuelson to neoclassical production theory, and especially the production function. After defining and discussing Samuelson’s operationism, we offer a methodological interpretation of Samuelson’s “non-substitution theorem” (NST) as an operational theorem. We aim at showing that the same methodological process rules RPT and NST: while in RPT observable elements are bundles of goods consumed, in NST these elements are bundles of inputs consumed so as to measure technical coefficients; from observable choices by consumers and producers, one derives the corresponding behavioral or technological function, respectively the utility function and the production function. Therefore, both functions are operational concepts that offer operational foundations to both standard microeconomic analysis of consumption through indifference curves (deduced from the utility function), and to analysis of production through isoquants (deduced from the production function). Although Samuelson’s application of his operational-methodology-to-consumer theory has been studied at length, its application to production theory has been neglected.