Seven Figures in the History of Swedish Economic Thought

Knut Wicksell, Eli Heckscher, Bertil Ohlin, Torsten Gårdlund, Sven Rydenfelt, Staffan Burenstam Linder and Jaime Behar

M. Lundahl

• Publisher: Palgrave Macmillan
• Year: 2015
• Print ISBN: 9781349671106, 9781137293084
• eBook ISBN: 9781137293091
• Topic: Philosophy
• Subtopic: Econometrics

Who are the greatest economic thinkers of Sweden? Seventeen essays on seven Swedish economists aim to answer this question, exploring the contributions of Knut Wicksell, Eli Heckscher, Bertil Ohlin, Torsten Gårdlund, Sven Rydenfelt, Staffan Burenstam Linder and Jaime Behar. Swedish academic economists have by and large withdrawn from the public debate but this book celebrates Swedish Economic Thought from Knut Wicksell to the present.

1

Introduction: Unknown Writings

The main theme of this book is publications by Swedish economists that for some reason have been more or less forgotten. The main reason for this oblivion is probably that present-day economists are not particularly interested in the history of economic doctrines.¹ It has nothing to do with the persons. Of course all of them are not equally well known today, but none of them is really ‘forgotten’. Knut Wicksell is our greatest economist, all categories, and all economics students learn about the Heckscher-Ohlin theorem. Eli Heckscher and Bertil Ohlin are known by most people in the profession. It is worse with Staffan Burenstam Linder. International economists know what the ‘Linder thesis’ is, and, just a few years ago, his book about the scarcity of time was published in a new Swedish edition, but to Swedes he is more well known as a politician (exactly like Bertil Ohlin). Torsten Gårdlund is presumably just a name for today’s economists. He is known as a biographer, for his book about Knut Wicksell, and in Sweden also for his book about Marcus Wallenberg, Sr, the ‘district judge’. Some people have even read them, but that is usually the end of the story. Sven Rydenfelt is not known outside Sweden other than among the members of the Mont Pelerin Society, and in Sweden he is known mainly for his many newspaper articles. Jaime Behar, finally, is known mainly among Latin Americanists.

Actually it is even worse. Not too many people have read Heckscher and Ohlin in the original, with the possible exception of a few of Heckscher’s economic-historic writings, and most of Wicksell’s works are not read either. The purpose of this book, which has a number of chapters on the history of economic doctrines and biography, is to stimulate the reading of authors whose original writings are unjustly forgotten except by professional historians of economic doctrines. Some of their basic ideas have been handed down to later generations, but then in a condensed, and partly distorted form – in textbook varieties – while the original works gather dust in antiquarian bookstores and libraries. Indeed, everything is not palatable for modern readers. The way Swedish was written at the end of the nineteenth century and the beginning of the twentieth differs considerably from contemporary Swedish. Sentences are long, with inserted subordinate clauses and reservations. The German influence is often clearly visible. But that is only part of the explanation. Staffan Burenstam Linder’s Swedish is of course perfectly modern, and Torsten Gårdlund is the best stylist the discipline of economics ever had in Sweden. He is the only one who, for good reasons, may be called literary.

The reason why so many of the works of the seven economists in this book have fallen into oblivion has to be sought elsewhere. In the mid-2010s, economic writing in Sweden almost exclusively aims at publications in the very best professional journals, and then the premium is on mathematical modeling, econometrics and experiments. Present-day economists do not believe in what is not formalized. We think that it is in this form that the fifth essence of economics is contained. Already Wicksell made use of mathematics, and it is his formalized works that are occasionally read. His pamphlets and non-mathematical articles are more seldom brought down from the shelves.

Personally I think that this is a pity. Wicksell has a lot to offer to a modern reader even when he chooses not to use mathematical language, and the same is true for the other six economists in this book. Because of this, I have chosen to gather the 16 essays and reviews that together constitute Seven Figures in the History of Swedish Economic Thought. No economists work in a vacuum, independent of their predecessors, but my Swedish colleagues often seem to have forgotten this elementary truth. If to some extent I can stimulate my younger colleagues (and for that matter also the older ones) to read more of the works of the seven economists dealt with here, I will be happy.

The demographic rabble-rouser: Knut Wicksell

Knut Wicksell is our first great Swedish economist, still the greatest. His reputation as an economic theorist still surpasses that of any other Swede. He is practically the only one whose work has become the subject of a unified doctrinal treatment (Uhr, 1962).² Wicksell is praised by his latter-day colleagues for virtually everything that he wrote, and he still stimulates the historians of economic doctrines to new examinations of his ideas. He stands out as untouchable in all respects except one: his treatment of the population problem and related questions. Carl Uhr devotes a single page of 337 in his book to Wicksell’s population analysis and does not mention it at all in the chapter that summarizes his contributions to economic theory. Later authors have tended to regard his analysis as stereotyped and too influenced by Malthus’ pessimistic view of life. Virtually the only recognition that his writings on population have received has been based on his use of the concept of optimum population, the population size that maximizes income per capita.

There are several, very different, reasons why Wicksell’s writings on population are passed by in silence. Most of them were not strictly ‘scientific’. Often they were more or less obscure pamphlets directed to a broad audience, pamphlets which, like the lecture tours that Wicksell devoted considerable time to, in order to ‘educate’ the Swedish people, tended to lead to scandals, police intervention and angry protests from the established society, the bigot Swedish society of the late-nineteenth and early-twentieth century that was completely unwilling to discuss information on sexual matters. Wicksell was far too early with his discourse on celibacy or prostitution, active birth control, emigration, war and abortion.

His cause was not made easier by the fact that he advanced his views with almost religious conviction. Wicksell had been profoundly religious in his youth, but thereafter he had deserted his faith. His intensity was, however, transferred to his social preaching, and nowhere is this more evident than in his works on poverty and population. His gospel tended to appear in all kinds of circumstances, including those that did not call for any sermons at all. Both his students and his colleagues got their fair share of Wicksell’s neo-Malthusian faith, a faith that had been strong in the economics profession until the mid-nineteenth century but which had thereafter gradually been pushed into the background. Not least in Sweden it met with distrust, also among economists. Wicksell was alone, the voice of one crying in the Oscarian wilderness, and he was regarded as slightly fanatical.

The second chapter of the book shows why. It deals with Wicksell’s appearance in front of a temperance lodge in Uppsala in 1880 speaking on ‘The Most Common Causes of Drunkenness and How to Remove Them’. In his speech, he advocated birth control as the way to lower population growth and reduced poverty. The reaction to his heretic message was violent, in virtually all circles except the most radical. Naturally, religious people were upset and painted a picture of Wicksell as a defender of savage lusts, but they were not alone. Wicksell was attacked by the Upsala Medical Association, a local philosopher, the county governor of Uppsala, a professor of theology, the leading Swedish economist at the time, David Davidson, a soon-to-be minister in the Swedish government, and a host of other critics. In addition, his speech rendered him an admonition from the Lower University Council in Uppsala.

The 1880 speech set the course of Wicksell’s future career. He published it as the first of a long series of pamphlets on population and related issues, and the critique by Davidson made him turn from mathematics to economics. The population issue remained with Wicksell for the rest of his life as the most important social issue for him. The last publication that he prepared before his death was on population.

The next two chapters (chapters 3 and 4) refute the conventional view of Wicksell’s analysis of the population problem. This analysis is as original as anything else that he wrote. The originality does not reside in the views that he advanced. Whether Sweden, or Europe as a whole, was overpopulated during Wicksell’s lifetime is debatable, but in the present context this is of secondary importance. The reputation of great economic thinkers is usually not founded on their ability to deliver correct forecasts. It is the way in which Wicksell presented his views that is original, but this does not become obvious until you put all the works where Wicksell analyzes the population problem and related issues next to each other. What matters is the totality. The individual pamphlets deal with isolated problems, and without integrating these problems into a coherent whole, it is impossible to see the originality of Wicksell’s approach.

Wicksell began his analysis during the 1880s and 1890s, not long after Léon Walras had put forward his ideas about an équilibre générale, a general equilibrium where in principle all the variables in the economic system affect and interact with each other. Wicksell implicitly worked in terms of a general equilibrium system where both foreign trade and factor mobility across national borders were incorporated, together with population growth, commodity production, factor accumulation and technological progress. In his analysis, he anticipated an approach that was not formalized until 1971, separately, by Ronald Jones (1971) and Paul Samuelson (1971). This approach is today known as the specific factors approach to international trade, where only labor is mobile between different production sectors while the other factors are specific to the sectors where they are employed. In Chapter 3, Wicksell’s assumptions, analysis and conclusions are sketched in an informal way, and in Chapter 4, a mathematical general equilibrium model which can be used to check and confirm the accuracy of Wicksell’s propositions is presented. The result is stunning: Wicksell is completely consistent in his analysis, 70–80 years before any formal model existed.

The belligerent Janus face: Eli Heckscher

Chapters 5–8 are devoted to another early giant among Swedish economists: Eli F. Heckscher. He may be regarded as a scientific Janus face. During his half-century long scientific career, the workaholic Heckscher made important contributions both in economic theory and in economic history. His name is forever linked to one of the most important and well-known theorems that the theory of international trade can boast: the Heckscher-Ohlin theorem, which states that countries export goods which make intensive use of production factors that are abundant domestically and import goods which build on scarce factors. Countries with abundant labor export labor-intensive goods while countries with plenty of capital export goods whose production requires relatively much capital.

The other side of the Janus face of Eli Heckscher is that of the economic historian. Heckscher began his scientific career as an historian, with a licentiat thesis,³ in 1903, about the most important mercantilist law in Sweden, the Navigation Act of 1724, which was designed to guarantee that Swedish ships were favored when goods were transported in and out of our country, and he continued it with his doctoral dissertation, in 1907, about the importance of the railroad for the development of the Swedish municipalities.

Seven years later, in 1914, it was clear to Heckscher that his great task in life was to write the economic history of Sweden from the end of the Middle Ages up to his own time. This lifetime task occupied most of his time during the 1930s and 1940s. He did not make it to the end. The yoke he had put on his shoulder was so heavy that it finally crushed him, literally speaking. The two volumes about the eighteenth century were published in 1949. Some three years later, at the end of 1952, Eli Heckscher died, physically shattered but still intellectually vital. His economic-historic production is overwhelming. In addition to the four fat volumes on the economic history of Sweden (Heckscher, 1935a, 1936, 1949a, 1949b) and a host of articles, he published internationally renowned works such as The Continental System and Mercantilism (Heckscher, 1918, 1931; English versions: Heckscher, 1922, 1935b).

Heckscher went through three phases during his life as a scientist. We have already noted that he began his career as an historian. During the 1910s and 1920s, he was, however, primarily an economist. In 1909, he got a chair in economics and statistics at the Stockholm School of Economics, which was founded the same year. His teaching duties there, together with the experience of Sweden during World War I, made him focus his writing on the Swedish economy, and it was also during the period up to the mid-1920s that he published his contributions to economic theory. At the same time, however, he could not let go of economic history. Much of what became The Continental System was written during the same period. From 1929, when he got a personal chair in economic history, Heckscher again became mainly an economic historian and remained so until his death in 1952 – without losing his interest in current economic issues.

The scientific Janus face of Eli Heckscher popped up, time after time, during his entire life. It is hardly surprising that, all the time, he was wrestling with the question of how the two disciplines should be related to each other. He consistently argued that historical aspects must be given more room in economics, an attitude that is perhaps not so surprising, since Heckscher was active during the time when the German historical school was at its peak, even though he did not embrace it himself; on the contrary, he was a neoclassical economist. Nevertheless, he stressed the importance of history. At the same time – and here he was a pioneer, not just in Sweden but also internationally – he was completely convinced that it was not possible to write high-caliber economic history without resorting to economic theory. Heckscher was an early precursor of the cliometric school that was created in the United States in the 1950s but which with few exceptions (mainly Lund) had difficulties becoming accepted in his home country.

Chapter 5 deals with Eli Heckscher as a theorist. He made only a handful of theoretical contributions. Of these, two are dealt with here: the ones in international economics. Most well known is the article from 1919, the first building block in the theoretical complex that contains the Heckscher-Ohlin theorem, the factor price equalization theorem, the Stolper-Samuelson theorem and the Rybczynski theorem. Today, all these theorems are presented in the textbooks in the two-by-two-by-two setting: two countries, two goods and two production factors, but this was not the framework that Heckscher used in his article, an article that by the way deals more with factor price equalization than with factor-based trade. He used three or more production factors and two or more goods, a framework which is not so easy to handle and which led him to a few mistaken statements. Nevertheless, Heckscher shines like a beacon in the night of international economics. He launched the tradition that dominated the field of foreign trade during more than half a century, even though few people read his original contribution.

Heckscher’s second theoretical contribution in international economics is a great deal less well known. (It was genuinely forgotten during 60–70 years.) It consists of a criticism of Gustav Cassel’s purchasing power parity theory for exchange rate determination, where the price levels of the countries play the decisive role (Heckscher, 1916; Cassel, 1916). Heckscher established that Cassel’s theory does not take into consideration that it is possible to transport gold (under the gold standard) and commodities (under the paper standard) from one country to another and that this puts limits on exchange-rate fluctuations that are narrower than what Cassel contended.

Chapter 6 examines Heckscher’s views on the desirability of interaction between economic theory and economic history – a theme which he began to investigate at the beginning of the twentieth century and which he never dropped thereafter. The two fields were complementary, and you cannot work in one without simultaneously using inputs from the other. Explanations of events and processes in economic history had to proceed within a framework that states what is economically possible, and economists would not be able to...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures
• Preface
• 1. Introduction: Unknown Writings
• 2. The Reaction to Knut Wicksell’s First Cause Célèbre: The Chief Cause of Social Misfortunes
• 3. Population Growth and Diminishing Returns: Knut Wicksell on the Causes of Poverty
• 4. Knut Wicksell on Population and Poverty: A General Equilibrium Approach
• 5. Foreign Trade and Exchange Rates: The Theoretical Contribution of Eli Heckscher to International Economics
• 6. The Janus Face of Eli Heckscher: Theory, History and Method
• 7. The Beginning of Economic History
• 8. Eli Heckscher and the Colleagues: The Role of Personality for Economic History
• 9. The Economist Bertil Ohlin: Do His Ideas Still Stand Up?
• 10. Torsten Gårdlund: Littérateur and Economist
• 11. Torsten Gårdlund: A Portrait
• 12. Against the Current: Sven Rydenfelt (1911–2005)
• 13. Sven Rydenfelt: The Awkward Polemic
• 14. To Be an Independent Thinker: An Intellectual Portrait of Staffan Burenstam Linder
• 15. Visions and Action
• 16. Jaime Behar (1938–2010)
• 17. A Tradition Lost? The Swedish Economists in the Public Debate
• Index