Knut Wicksell on the Causes of Poverty and its Remedy

Mats Lundahl

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781134287734
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Knut Wicksell is arguably the greatest Swedish social scientist of all time, and poverty was a theme that occupied him all his life. Indeed, it was probably Wicksell's interest in poverty that was the critical factor in drawing him away from his purely mathematical background towards a greater understanding of the social sciences as a whole.

In this outstanding volume, Mats Lundahl, one of the world's leading development economists, examines Wicksell's thinking in the area of poverty, and shows the importance of his contributions to this field.

1  Introduction

The causes of poverty are a theme that occupied Knut Wicksell for virtually all of his adult life. It was the theme for the speech and the publication that made him a well-known or, rather, notorious public figure in Sweden in 1880, and it was also the theme of two of his last publications: one published in 1925 (Wicksell, 1925), the other, posthumously, just after his death in 1926 (Wicksell, 1926a). It can hardly be doubted that his passion in this matter was one of the factors that made the student of mathematics take an interest in questions related to the social sciences and which pulled Wicksell away from the natural sciences into the study of economics.

The conventional wisdom

Arguably, Knut Wicksell is the greatest Swedish social scientist of all time. However, the subject of poverty and population is one of the few areas in which the conventional wisdom is that he failed to produce anything very original. The only credit usually given to Wicksell for his writings on these subjects is for his views of optimum population. Lionel Robbins (1927: note 118) believes him to be the first to have used the term, but concedes him a mere footnote, whereas Manuel Gottlieb (1945: 291–2) views him as the culmination of a celebrated tradition:

. . . the optimum population concept is one of the culminating points of a large body of tested thought and it was explicitly developed as an analytical tool by some of the path-breaking theorists who established the essential foundations of modern economics: Marshall, Sidgwick, Cannan and – above all – Knut Wicksell. Certainly labeling the theory as a mere rationalization for the cause of population stability or decline or as an ‘Anglo-Saxon Theory’ is not acceptable.

Joseph Spengler (1983) credits Wicksell with being ‘Father of the Optimum.’ J. D. Pitchford (1974: 87) mentions him along with Edwin Cannan and Julius Wolf as ‘independently originating the optimum population concept,’ and E. P. Hutchinson (1967: 391) calls him an ‘early exponent of the optimum population concept.’ Monica Fong (1976: 314) argues that ‘Wicksell's major contribution to population studies is . . . twofold: (i) the idea of an optimum population size – implicitly a stationary population – and (ii) the idea that this optimum may already have been exceeded.’ Mauro Boianovsky (2001: 130) claims that ‘the first appearance in print of the notion of “optimum population”’ was in Wicksell's Über Wert, Captal und Rente (English translation, 1954: 165–6) and that he introduced the concept as such in the first (Swedish) edition of his Lectures in Political Economy (Wicksell, 1901: 49).¹

Exactly how original Wicksell was in his area is open to some doubt, however. In an article written on the occasion of the centennial of the birth of Wicksell in 1951, Erik Lindahl stresses that ‘The population problem was for him primary,’ and points out that Wicksell worked with an optimum population concept based on ‘where the national product per head attained its maximum’ (Lindahl, 1958: 35) but that he did not pursue the concept of optimum population further than this. Joseph Schumpeter (1954: 582), in his monumental survey of the history of economic doctrines, gives Wicksell only limited credit for having ‘resuscitated’ the optimum population concept.

Wicksell's successor as professor of economics at the University of Lund, Emil Sommarin (1926–7: 29), simply points to his insistence on gaps that remained to be filled:

Exactly like . . . [Wicksell's] contributions to the population question have assumed scientific importance by demonstrating the lack of knowledge with respect to the regular connections between the elementary factors of the development of population, nativity, mortality and emigration, where a scientific theory is still lacking, he has brought up the necessity of computations of the probable development and distribution across the age groups etc. of the population during the next decades, without which political foresight must be deficient on important points.

The remainder of Wicksell's writings on population is generally considered not to belong to his most original pieces. Thus, writers on Wicksell either tend to pass them by altogether, give them a mere cursory treatment, or state more or less explicitly that they are doctrinaire and lacking in originality. Carl Uhr, in his centennial evaluation of the great Swedish economist, puts the optimum population concept at the heart of Wicksell's demographic writings (Uhr, 1951: 832–4) in his large monograph on Wicksell's contributions to economics; he devotes no more than some scattered remarks on a handful of pages to it (Uhr, 1962: 3, 59–60, 328–9), and in his shorter portrait of Wicksell (Uhr, 1991a) he does not even include it under ‘Wicksell's contribution to economics.’ Torsten Gårdlund (1996), Wicksell's biographer, uses considerable space to discuss his writings on population but passes no judgment on their quality. Bo Gustafsson (1961: 203), on the other hand, takes a negative stance and refers to his ‘uncritical acceptance of the Malthusian doctrine – that with him assumed the character of a socio-political panacea,’ what Gustafsson (1961: 226) considers to be one of ‘the prejudices of orthodox economic theory.’ This is the view that has become the accepted one:

Wicksell shares with some of his modern counterparts the tendency to relate population to all social problems. According to Wicksell, an end to population pressure would alleviate not only poverty, but also crime, emigration, social inequality, inequality between the sexes, the evils of colonialism, and the need to wage wars, including cold wars . . .

writes Monica Fong (1976: 314), and Rolf Henriksson (1991: 40) refers to Wicksell's ‘dogmatism’ as soon as it came to the population issue.

As late as 2002, in a full-length text in Swedish on the history of economic doctrines, Lars Pålsson Syll (2002: 241) offered the following summary judgment of Wicksell's writings on the population question:

Even though in retrospect Wicksell stands out as an extremely homogeneous and for most people sympathetic figure, his dogmatic clinging to the Malthusian ideas colored by Utilitarianism represents an element in his thinking that is difficult to swallow. Developments during the interwar period also rapidly made these ideas become obsolete and made them fall into oblivion. One factor that contributed to this was the comprehensive criticism that the Myrdals subjected Wicksell's population doctrine to. In Kris i befolkningsfrågan [Crisis in the Population Question – sic] (1934) the doctrine of optimum population is called a ‘speculative desk construction’, as calculating where this optimum would be appeared impossible. According to the Myrdals, at the root of the very idea was the vision that in the future technological progress would come to an end, whereas the 20th-century reality was different. The imagined scarcity of natural resources was a 19th-century monstrosity. As a matter of fact, technical progress had been so powerful that it ‘is on the verge of breaking the institutional framework of our society’.

Strange as it may seem, Wicksell's writings on poverty and population have not been well penetrated by the specialists on economic doctrine. The literature is full of misconceptions of all sorts. Thus, Monica Fong (1976: 311) claims that ‘his population writings are few in number.’ A look at the reference list of the present work should suffice to prove that the opposite is true (even discounting pieces unpublished until recently).² Also, Richard Goodwin (1979: 190), in a contribution presented at a symposium on Wicksell, for reasons that defeat comprehension, managed to get away with the following statement:

After a scientific training, ... [Wicksell] at one point read and got the Malthusian message: perceptively he realized that the issues posed required more serious economic analysis than they had received: accordingly he devoted the rest of his life to that task. Thus he soon came under the influence of the New Economics, marginalism, and felt it superior to Malthus and to classical economics generally. It may well have been this influence which gradually undermined and ultimately practically eradicated his commitment to neo-Malthusianism.³

Goodwin appears to have been confused by the fact that Wicksell chose to drop the first chapter, on population, from the later editions of his Lectures on Political Economy. What he must have been totally ignorant about is that the first chapter appeared as a separate booklet in 1910 and that it was with the second edition of this booklet, written completely in the neo-Malthusian spirit, that Wicksell was busy at the time of his death. ‘Although towards the end of his life economics had become his main interest, his old enthusiasm for the population problem never deserted him,’ writes Gårdlund (1996: 317). This also refutes Johannes Overbeek (1973: 205), who claims that a speech given by Wicksell in Amsterdam in 1910 ‘can be considered to be his “last word” on the subject.’ Erik Lindahl (1958: 29) has the correct story:

All through his life he maintained, with remarkable consistency, the view which he had formed during the 1880’s concerning the population problem and other social and religious questions. Nor did he cease propagating them. As late as 1924, for instance, he made a contribution to the population problem in which are found the same basic views as in his first sensational pamphlet. But now he no longer created any scandal, for in the meantime the popular viewpoint had shifted, and it could probably be shown that Wicksell's own persistent and sensational propaganda played a not unimportant role in this shift.

A different view

The only economist who seems to have understood what Wicksell actually did in the field of poverty and population was Johan Åkerman. Quite probably this has to do with the fact that Åkerman was more of a ‘broad’ social scientist than a ‘narrow,’ technical economist. He was looking for other qualities in Wicksell's writings than the vast majority of his colleagues. In the first issue of Econometrica, Åkerman (1933: 114) provides the following summary evaluation of Wicksell's contribution to the theory of population:

Wicksell is, perhaps, Malthus’ most remarkable successor. What Wicksell said several decades ago regarding the necessity of restricting the increase of population – drawing on himself the persecution of conservative Society – is today generally accepted. His researches on marriage, birth, and death rates, and their economic and social consequences, opened up the possibility of calculating an optimum of population. At the present time, however, the population of the optimum is not the same as at the time of Knut Wicksell's researches. The conceptions of economic relativity and economic dynamics have modified the problem.

Nevertheless, Wicksell gave to the theory of population a new impulse that proved to be of capital importance. He demonstrated that for every estimate of an optimum of population a thorough knowledge of the whole economic mechanism is essential. And as that mechanism is put in motion by human requirements and opinions with respect to the relative utility of everything that can satisfy these requirements, the theory of population must in the last instance rest on the theory of value.

The key phrase in the quotation from Åkerman is ‘a thorough knowledge of the whole economic system is essential.’ This is what the present work is about. We will present Wicksell's views of the causes of poverty, its consequences and remedy, as they appear in his writings, sprinkled with a liberal dose of quotations, in the hope of conveying at least some of the flavor of his unique – slightly involved – personal style of writing. It will then be argued that there is a great deal more originality in Wicksell than that which is commonly realized. Wicksell's views on population growth, diminishing returns and poverty, in fact, constitute a fully fledged general equilibrium system of international trade and migration (possibly also capital movements), along the lines that would be foreshadowed in the 1930s by Gottfried Haberler (1936), but formalized only by later international trade theorists, notably Ronald Jones (1971) and Paul Samuelson (1971a,b). It is mainly here, and less in his insistence on Malthusian characteristics or in his discussion of the optimum population, that Knut Wicksell's original contribution to the analysis of poverty and population lies. The optimum population concept is just one of many buildings blocks in Wicksell's system, and it is only when we take a comprehensive view of this system that his insistence on the optimum becomes fully intelligible.

We will start the story of Knut Wicksell's views of poverty and population in Chapter 2, with an account of how he began his neo-Malthusian career by delivering a speech at a temperance lodge in 1880 on the causes of drunkenness – an event that ended in a major public scandal, and which quite probably was instrumental when it came to turning Wicksell, who at the time was a mathematics student, into an economist. Chapter 3 is devoted to an account of Wicksell's longest piece on poverty and population, simultaneously his first attempt to produce a scientific essay on the subject. The occasion was a contribution to a French prize contest in 1891. The piece has fallen into almost complete oblivion because it has never been printed and appears to have been read by a mere handful of people in modern times. It is important because it offers a comprehensive and coherent view of Wicksell's thinking on the population problem. Had it been available to those in the economics profession, their verdict would possibly have been different.

In Chapter 4, we will turn to the centerpiece in all Wicksell's writings on population and poverty: diminishing returns to labor, not only in agriculture, where land was a fixed factor, but in the rest of the economy as well. We will then also deal with Wicksell's technological pessimism and sketch how he did not believe that technological progress could, in the longer run, neutralize and overcome the income-depressing effects of diminishing returns.

Directly related to diminishing returns is overpopulation. When the population grows rapidly, while the growth of output is held back by diminishing returns, the size of the population easily expands beyond what is optimal from the income point of view. Chapter 5 will relate how Wicksell thought that this stage had already been reached in Europe, including his own country, Sweden, and Germany. The chapter also shows that Wicksell considered that overpopulation would be conducive to war. Finally, it deals with the possibility of bridging the gap between population and income growth by resorting to specialization and international trade. Wicksell did not believe that this would solve the problem. Chapter 6, in turn, presents his views on emigration as a solution mainly of the past – a subject that he dealt with on various occasions.

With both international trade and emigration rendered ineffective, the problem of population and poverty remained, and Wicksell saw no other way of solving it than by reducing the size of the population until a stationary size was realized at the level that maximized per capita income. Chapter 7 deals with Wicksell's concept of optimum population and how he envisioned that the optimal state should be reached.

In Chapter 8 we will present a summary view of Wicksell's views of poverty and population growth, pulling together the evidence gathered in Chapters 2–7. We will use the stylized facts that emerge and synthesize these in a general equilibrium model of international trade between two ‘large’ regions: the Old World, i.e. Europe, and the New World, essentially the overseas regions of recent settlement. This model will be solved for the main parameter changes discussed by Wicksell in his writings, in order to show that Wicksell argued within the implicit framework of a remarkably modern, coherent general equilibrium system capable of handling all of his questions and worries.

Chapter 9, finally, raises an inevitable question: Why have Wicksell's works on population and poverty not received the attention and praise they rightly deserve? Why have his readers failed to perceive his originality in this area as well? We will seek the answers mainly in his fervent conviction and the circumstances surrounding the presentation and publication of his ideas.

With this, let us turn to Knut Wicksell's story. We will then begin with an account of his earliest public statement on poverty and population. This occasion is an important one, as there Wicksell gave vent to ideas that would stay with him for the rest of his life and make an imprint on everything he later said and wrote on the subject.

2 Tumultuous beginnings

The cause of poverty and its remedy

Knut Wicksell had begun his academic studies in the fall of 1869 with the firm proposition to get a PhD and possibly in the end also a professorial chair in mathematics. His bachelor's degree two and a half years later had included mathematics and astronomy, but also philosophy, history, Latin and Scandinavian languages (Gårdlund, 1996: 29). It was not until five or six years later that he began to display an interest in the social issues of the time. The circumstances were as follows.

As a young man, Wicksell had been religious, but...