Swedish economics: From unique contributions to Anglo-American absorption

by the classical homo economicus assumption. Instead, behavioural economists have shown that students (the experimental subjects) given a sum of money to share as they see fit with an unknown co-player (a dictator game) tend to be somewhat fair without technically having to be; they show a preference for fairness aside from self-interest. Similarly, researchers have shown that individuals are not so rationally calculating when it comes to comparing the utility of using some resource today with possibly using it in the future. Instead, there are behavioural explanations in terms of various cognitive biases or impulsivity.

Behavioural economics is an important development in economics. However, its seemingly interdisciplinary character is very much a question of borrowing some small parts about behavioural assumptions mainly from psychology to try to alter specific assumptions in some circumstances, rather than replacing the core assumptions of the discipline. And this process seems to take a very long time, despite its seemingly modest claims. For example, when it comes to self-interest:

“While formal economic theory relaxing self-interest now exists, the models are often specific to a particular type of problem. More importantly, and partly because of the lack of a general model, the traditional approach is still the basis for an overwhelming majority of research within economics” (Weber and Dawes 2005:96). It is clear that we are still looking at a science of choice in Robbins’s sense. Behavioural economics may look new and promising, but it is not very different from the rest of the twentieth century’s marginalist tradition that stripped away the social and historical aspects that once were a part of political economy.

4. Swedish economics: From unique contributions to

took inspiration from and was read by an international community of economists.

Second, following the founders, the so-called Stockholm school developed a uniquely Swedish school of thought in the 1920s and 1930s, which had some lingering influence until the 1950s. The achievements of these early economists has been hailed as an unparalleled contribution to economics by a small country.

Whereas prominent individual economists have emerged from, for example, Norway and the Netherlands, the rise of a group of economists with such influence is seen as remarkable by a 1992 evaluation of the field, Economics in Sweden. The international evaluators, Dixit, Honkapohja and Solow (1992:129), emphasise that “those episodes are without parallel in the modern history of economics. No other small country has produced anything genuinely comparable”.

However, the evaluators see no reason to expect something similar happening again, since Swedish economics has become integrated into the international field:

over the past three or four decades the literature of analytical economics has become almost completely homogeneous worldwide. Mainstream economists in all countries now contribute to a single international literature as part of a single intellectual community. (Dixit et al. 1992:129)

The historian of economic thought Bo Sandelin gave the same verdict, arguing that there is no reason to write the history of Swedish economic thought after the Second World War, since

After the Stockholm school there is hardly any such thing as a unique Swedish economics. It has, with a few important exceptions [. . .] been absorbed by, or, rather, has been eager to join, the Anglo-American mainstream tradition, which is, of course, not literally Anglo-American. (Sandelin 1991a:9)

Following this line of argument, the sketch of the history of Swedish economic thought presented below will emphasise the unique contributions and the increasingly smaller differences between it and the international intellectual community of modern economics.

The prehistory of modern economics in Sweden dates back to 1741, when Anders Berch took the first chair in political economy at Uppsala University. This was the fourth chair in political economy in the whole of Europe, following those established in the preceding decades in Germany (Lönnroth 1991:18). During the nineteenth century, influences came from Germany with the historical school, and from England with the works of Smith, Ricardo, Malthus, Mill and others, together with political and economic liberalism, which lagged in Sweden, just like industrialisation and the capitalist transformation (Lönnroth 1991). Although the

historical school dominated during the first half of the century, it is often downplayed in historical accounts, since “[h]istory is written by victors, i.e. by economists brought up in the classical/neoclassical tradition, who seldom regard the writings of the historical school, with its inductive method and organic conception of the State, interesting” (Sandelin 1991a:4).

In the very first generation of modern Swedish economists, Knut Wicksell had already published three major books in German before being appointed to the professorship at Lund University, giving him international fame, especially for his work in the theory of capital. Unlike his peer David Davidson at Uppsala University, he fully embraced and worked within the new marginalist theory of distribution in the 1890s, and was thus the first modern economist in Sweden (Sandelin 1991a:6). Wicksell was a radical social liberal, known in his time for creating outrage, and even served a two-month prison term for publicly

“ridiculing the holy word of God” in a 1908 speech. An important aspect of Wicksell’s work was his interest in growth and business cycles, phenomena he understood in relation to uneven bursts of technological development that causes fluctuations in an otherwise static equilibrium state (Pålsson Syll 2007:251).

However, he explained the distinction between the business cycle and crises by the former being caused primarily by investments in fixed capital, while the latter were caused by false expectations. Like a rocking horse, sudden exogenous shocks could set it in motion, but the properties of the horse itself—society and its psyche—would determine how and to what extent the impulse would resonate and spread (Pålsson Syll 2007:252).

Gustav Cassel of Stockholm University was among the internationally best-known economists of his day, “probably the best-best-known economist internationally prior to the rise of Keynes”, according to Jonung and Gunnarsson (1992:23). Eli Heckscher started out as Cassel’s assistant, and became known primarily for his work in economic history and his study of mercantilism. He also became the first professor in the new subject of economic history in 1929 at the Stockholm School of Economics, pioneering an approach combining historical methods for collecting data with neoclassical theory to analyse the data (Sandelin 1991a:7).

If these founders of Swedish economics were strongly internationally oriented, a group of talented students of Cassel and Heckscher in Stockholm came to develop economic theory in a unique direction in a series of works that broke with the liberalism of their predecessors. They took an interventionist position that they developed independently, but which was strikingly close to the one developed simultaneously by Keynes in England. The idea of a distinct Stockholm school was coined in an Economic Journal article by Bertil Ohlin in 1937 and

included a body of work since 1927 primarily by Dag Hammarsköld, Erik Lundberg, Erik Lindahl, Gunnar Myrdal, and Bertil Ohlin (Hansson 1991).

Sometimes, Ingvar Svennilsson is also included among its members (Pålsson Syll 2007:386). It should be noted that Ohlin’s construction of a coherent “Stockholm school” has been questioned and that it was in many ways a loose group. Like Keynes, the Stockholm school emphasised the role of expectations in economics analysis. However, a fundamental difference compared to Keynes, and its differentia specifica was the development of the dynamic method as a way out of static equilibrium analysis. Myrdal introduced the idea of anticipation and planning with the notion of ex ante expectations in planning, and ex post outcomes at the end of a period, which becomes the start of new adjusted expectations (Hansson 1991). These themes were later developed in the focus on the dynamics of economic planning by companies and governments.

Like Keynes, the Stockholm school opposed lowering wages as a means to solve the unemployment problem. However, while Keynes was pessimistic about the prospect of remedying instabilities caused by lack of investments, the Stockholm school members were more optimistic about the possibility of using public investment to create effective demand to reduce unemployment. Whilst cautionary about price stability, expansionary politics would be able to also drive private investment (Pålsson Syll 2007:392). While the Stockholm school in a stricter sense only existed roughly during 1927–1937, it did not suddenly die with the rise of Keynes, but had a lingering influence at least until the 1950s. One reason for its decline was the practical problem of using its advanced dynamic methods, as even its members admitted (Hansson 1991:213).

After the Stockholm school, “only stray signs of anything that could be called a Swedish way of economic thinking” remained, according to Sandelin (1991a).

The verdicts of the international evaluation of Swedish economics as well as Sandelin’s history of economic thought, both published in the early 1990s, are in agreement that the mainstream of Swedish economics has eagerly become part and parcel of an international research field in the post-war years. In the words of Jonung and Gunnarson, who compare the institutions of Swedish economics to US economics in the 1992 international evaluation:

Academic research in Sweden is now part of the international economics marketplace, in roughly the same way that research by economists in the state of Michigan does not differ much from the research of their colleagues in other parts of the United States. Swedish economists active in research are often linked into various international networks. They generally accept American models and techniques and try to improve upon these. There is no common principles

textbook in Swedish. This important section of the literature is completely dominated by the standard American products. (Jonung and Gunarsson 1992:47) Among the few stray signs Sandelin mentions are the institutionalism of the later Myrdal, the trade union economics of the Rehn-Meidner model, and the legacy of Johan Åkerman. I address these three phenomena briefly, since they are all relevant to understanding potential deviations from the international mainstream, and add a brief note on the virtual absence of Marxism in Swedish economics.

Gunnar Myrdal became internationally well-known and established as a leading institutional economist after An American Dilemma (Myrdal 1944;

Pålsson Syll 2007:278). While his dissertation and starting signal for the Stockholm school was a theoretical work, Myrdal had encountered American institutionalism on a visit to the United States in the late 1920s. An American Dilemma, today probably better remembered by sociologists than by economists, was a very broad social scientific enterprise. Myrdal was critical of economic orthodoxy, and had already criticised its inherent market liberal bias and falsely positive character in Vetenskap och politik i nationalekonomin (Myrdal 1930). The central target of his critique was the idea of equilibrium. He emphasised that all real economic processes always move away from equilibria, and that there are no warrants for the harmony assumptions of free market proponents. Instead of equilibrium, he emphasised the notion of cumulative causation, borrowed from Veblen and Wicksell, exemplified by processes like the Matthew effect or vicious circles (Pålsson Syll 2007:281). Despite his international fame, and position as the first director of the Institute for International Economic Studies (IIES) in Stockholm, Myrdal exerted little influence on a Swedish economics profession that was moving along other tracks. Sandelin’s verdict is that, unlike Bertil Ohlin whose

contribution to the theory of trade can be considered an achievement within the neoclassical paradigm—a result of “normal science”, to use Kuhn’s term—Myrdal was fundamentally an economic heretic. As such he seems to have exerted more influence on researchers in other disciplines than on mainstream economists.

(Sandelin 1991a:218)

An important example of economists working mainly outside academia, but influencing economic theory to some extent, are the trade union economists Gösta Rehn and Rudolf Meidner, whose Rehn-Meidner model became official economic policy, often known as the “Swedish model”. They worked on a critical development of some aspects of Keynesian expansionary politics already in the 1940s, and developed their full model in a 1951 report for the Swedish Trade

Union Confederation, LO (Erixon 2003; Pålsson Syll 2007:393). The report was an output of LO’s research department, where both economists worked at the time (Erixon 2011a). Their aim was a politics for full employment, while guarding strongly against inflation, which would be the outcome of too expansionary policy. Instead, they proposed a generally restrained model with active labour market policy and selective expansionary measures, combined with the important element of solidarity wage policy where strengthened trade unions would demand wages rising with productivity, while forcing less productive sectors into automation and structural adjustment. The model became a backbone of Social Democratic government policy through the 1960s (Pålsson Syll 2007:394). There are clear connections back to the Stockholm school, and especially some of the fundamental ideas from Myrdal, according to Erixon:

Both Meidner and Rehn considered themselves as Myrdal’s disciples. Rehn often expressed a spiritual affinity to Myrdal. These fathers of the “Swedish model”

inherited, for instance, Myrdal’s doubts about axiomatic-deductive theorising in economics. They also shared Myrdal’s scepticism, typical for the Stockholm school, towards wage cuts as a remedy against recession. (Erixon 2011a:98) However, the actual influence of the Stockholm school, or for that matter, the legacy of Johan Åkerman and the Swedish growth school of structural analysis, was limited. Instead, Erixon (2011a:117) points to the original character of the Rehn-Meidner model, both as a theory and as a social innovation in the form of a complete policy package. It was also unique in the way that it built on practical experience and intuitions from central wage negotiations: “The RM model was primarily based on intuitive, experience-based theorising by Rehn and Meidner in their role as trade-union economists, not on deductive economic modelling, or even on economic research in a conventional sense”. Although the model had an international breakthrough in the late 1960s, changing macroeconomic orientations in the face of declining profitability in OECD countries meant that the model became out of tune with the new macroeconomics of the 1970s (Erixon 2011a:113).

If Myrdal’s later institutionalism has become internationally renowned, another strand of economic analysis has played less of an international role, but influenced later Swedish theory development somewhat more. This is the tradition of structural analysis, initiated by Johan Åkerman at Lund University in the 1940s. Åkerman was dissatisfied with the lack of causal realism and dynamics in neoclassicism. He was inspired by both Schumpeter and Veblen and, importantly, found established economic analysis and its equilibrium assumptions and lack of structural and historical analysis at fault. Instead, he argued, economics

needs true causal analysis which reconstructs actual sequences of events (Pålsson Syll 2007:276). Åkerman argued that all the economic principles analysed by economists are really structure-dependent and only valid for a specific period when a certain structure exists. Therefore, the analysis of structural transformations lies at the core of causal analysis. According to Pålsson Syll (2007:507), Åkerman was the most important European institutionalist before the war, besides John Hobson (Pålsson Syll 2007:277). In Pålsson Syll’ss account, Åkerman’s legacy also forms the main strand of Swedish heterodoxy, followed by the work of Erik Dahmén and Ingvar Svennilsson in the same vein, an alternative institutional theory of business cycles with slightly different focus from that of Schumpeter (Erixon 2011b). However, this tradition of structural analysis has primarily been influential among economic historians, where Lennart Schön and others have connected it to a Swedish version of a neo-Schumpeterian programme of empirical analysis of long waves and structural transformations since the 1970s (Pålsson Syll 2007:451).

Swedish economists have participated in political life and public debate to an unusually high degree. This is especially true for the founding generation, who produced vast numbers of articles for the daily press. For example, Wicksell wrote some 450 newspaper articles, Cassel 1,500 in Svenska Dagbladet alone, and Bertil Ohlin over 2,000, while Myrdal produced a mere 50 pieces for the daily press (Carlson and Jonung 2006:513). In the views of Lars Jonung and Benny Carlsson (2006:512), “In Sweden, economists probably have more influence than any other category of social scientists. In other countries there is usually a wider gulf between academically active economists and the world of politics and the media, more so in the United States than in Europe”. Several leading economists have also had close relations to, or been central players in, political parties. For example, of those already mentioned, Ohlin was the leader of the Liberal Party, while Myrdal was a Social Democratic member of parliament in the 1930s, and later served as trade minister in a Social Democratic government. Swedish economists have often been heavily involved in producing various government reports besides their purely academic work, and this has meant that the work was both more domestic and problem-oriented, and published in Swedish (Jonung and Gunarsson 1992). The 1992 international evaluation looks rather critically at this tendency of what the international evaluators call “routine studies” (Dixit et al. 1992; see also Sandelin 2000:67).

Many prominent economists, from Gunnar Myrdal to Assar Lindbeck, have had close ties to the Social Democratic party. This was a central social and political force in twentieth century Sweden, and the strong role of the labour movement meant that economists like Rehn and Meidner, who had one foot in academia

and the other in the movement, for a while had considerable status even among academic economists (Erixon 2011a). However, economists with Social Democratic ties also played an important role in keeping the discipline all but completely free from Marxist influences. For example, Marxist economist Johan Lönnroth recalls how the University of Gothenburg’s economics department had a lively group of Marxist economists heavily influenced by the New Left in the early 1970s, to the detriment of the new professor and social democrat Bo Södersten (Lönnroth 2011).

Similarly, Stockholm University saw the short-lived group Kritiska ekonomer (critical economists) in the late 1960s, influenced by the wider group Unga filosofer (young philosophers), who introduced and took a strong interest in continental philosophy and theory of science (Nycander and Agell 2005:170).

The group was influenced both by American neo-Marxism and French structuralist social theory, and was founded with a critical stance towards the economics mainstream in mind. The group believed that economics had difficulties grappling with the real problems of society, and neither economists nor the general public were aware of the value premises and outlook that grounded economic theory. The virtual absence of any Marxian economics in Sweden is in fact emphasised by historians of thought. For example, Jonung and Gunnarsson claim that

a peculiar feature of Swedish economics is the almost complete absence of any influence or impact from Marxism. To my knowledge no Swedish economist, after becoming a professor of economics, has ever openly declared himself to be a Marxist. This absence of Marxism may be partly due to Knut Wicksell’s harsh criticism of Marx. Wicksell was highly regarded in the social democratic movement as well as in the economics profession. Unlike the older generation, the members of the Stockholm school who were drawn to the left did not accept any communist or Marxist influence. The 1968 New Left had no impact on Swedish economics.

In this context Assar Lindbeck adopted a stance that was representative of the attitude of most economists. (Jonung and Gunarsson 1992:45)

As indicated, Assar Lindbeck’s (1971) critique of the New Left (Lindbeck 1971) was probably quite influential both in an international and the domestic context.

The influence of Marxism was thus already kept at bay by the founding fathers while establishing modern economics around the turn of the twentieth century, and this heritage of boundary keeping was maintained throughout the century by the elite of the profession.

On the other hand, Jonung and Gunnarsson note that in the neighbouring discipline of economic history, Marxists gained a “strong foothold” in the 1960s

and 1970s, and still exerted some influence in the early 1990s. In an international context, the role of the discipline of economic history in Sweden is fundamental for understanding the history of heterodox economics in Sweden. In a 2003 paper on the international exposure of economic history in Sweden, Daniel Waldenström (Waldenström 2005:11–12) estimates the size of economic history communities, and concludes that the Swedish community is probably almost as large as the British or US community in absolute numbers, and that the three largest economic history departments in the world are probably located in Sweden. Thus, it is a fair guess that the discipline of economic history have served as a safety valve for economics, and, from the point of view of aspiring researchers discontented with the economics mainstream, as a good alternative career option.

This brings us to the institutional infrastructure of Swedish economics.