Studies in the Theory of Money and Capital

Erik Lindahl

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315443584
• Edition: 1
• Topic: Economics
• Subtopic: Comparative Economics
• Index: Economics

It is well-known that the Swedish experiment in practical economic control was inspired by a simultaneous development of economic thought in Sweden. Despite Swedish economics being known globally, until this book was originally published in 1939 there was little except second-hand descriptions of what the Swedes were really saying. This volume remedied that and explained hitherto hidden contemporary Swedish monetary theory.

Part One
The Dynamic Approach to Economic Theory

Introduction to the Study of Dynamic Theory

1. THE AIM OF ECONOMIC THEORY

The final aim of Economic Science is either to explain the economic phenomena of the past or to forecast the economic events that will, under given conditions, probably occur in the future. In the first case we are concerned with problems of Economic History, in the second with problems of our actual life, especially those referring to the domain of Economic Policy.

In both cases scientific treatment of the questions involves, not only the collecting of empirical material and its appropriate arrangement, but also the demonstration of causal connections between the phenomena studied. The first step in this analysis is to explain a certain development as a result of certain given conditions prevailing at the beginning of the period studied. These given conditions must be stated in such a way that they contain in mice the whole subsequent development. Thus they should embrace not only the external facts and the plans in existence at the initial point of time, but also, as latent propensities of the economic subjects taking part in the system, their subsequent reactions to what happens during the period. If all this is known, it will be possible to give a theoretical construction of the development in question.

But the analysis should not stop there. We do not fully understand the importance of the initial conditions for the resulting development, unless we have undertaken a comparison with hypothetical developments that might be the result of an assumed variation of these conditions. We may elucidate this further by the aid of the following scheme:

Given conditions at an arbitrary point of time	Resulting developments during a following period of arbitrary length
a′	A′
a″	A″
…	…
b′	B′
b″	B″
…	…

The treatment of a historical problem includes first the description of the development in question (A´), then the ascertainment of which initial conditions (a´) can be assumed to be the joint causes of the said development. In order to obtain an idea of the importance of each separate condition, we must make a further investigation as to the possible connections between initial conditions and subsequent developments, on the lines indicated in the scheme above. Thus if we can prove that a development of the actual type, A, can be occasioned either by our original set of conditions, a´, or by some other combinations of conditions, a˝, etc., and that a development of another type, B, can only be the result of certain other combinations, b´, b˝, etc., we can draw the following conclusion: the fact that our original set of conditions is of the type a instead of the type b, is the cause of the fact that the actual development has been of the A-type instead of the B-type.

Similar reasoning can be applied to the treatment of practical and political problems. In some cases a future development of a certain type (A) is given as a desirable end for our activities, and we have to find out the best means for attaining this end. The solution of this question involves firstly the statement that initial conditions of the a-type must be established, and, secondly, an investigation of the consequences of the alternative lines of action (a´, a˝, etc.) between which we then have to choose. In other cases the task of the economist may only be to make clear what developments will be the probable result of certain lines of action. He has then also to rely on a scheme showing the connections between initial conditions and resulting developments.

The purpose of this introduction is to make clear the aim of Economic Theory: to provide theoretical structures showing how certain given initial conditions give rise to certain developments. The structures are to be used as instruments with which to analyse historical and practical problems. Economic theory has thus no end in itself; it is only a servant of those parts of economic science which are devoted to the treatment of concrete economic problems.^* But it is an indispensable servant. Even the arrangement of empirical material must be based on a system of concepts, elaborated by economic theory. And if we wish to go deeper and make judgments regarding the causal connections between the phenomena studied, it is, as we have seen, necessary to work with hypothetical cases in the form of theoretical structures.

The conclusions contained in these structures are of a purely formal nature, stating what series of events must be the consequences of the assumptions made about the situation at the start.^* It is questionable whether propositions of this type should be honoured by the term of “economic laws,” since their relevance to the real world cannot be determined from the content of these structures themselves. It is of course essential that the assumptions which are the data of the theoretical system should be related as much as possible to empirical phenomena. Only in this way can the theoretical structures acquire relevance for the solution of actual problems,^†

If a historical case is analysed, the structures used should be based on assumptions that are in accordance with the real situation at the time. And if we have to deal with a problem of practical life, to explain the probable effects of possible alternative actions of a person, a firm or a public body in a certain situation, the data of our structures should correspond to this situation. Ideally the system of economic theory should include all the structures—showing the connections between different sets of data and the resulting developments—that could be of any relevance to the treatment of those historical and practical problems, the solution of which would be of interest, now or in the future.

In view of the infinite variety of economic phenomena in the real world, it is of course impossible to reach this aim. As economic theory can contain only a limited numb...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Original Title
• Original Copyright
• PREFACE
• CONTENTS
• PART ONE THE DYNAMIC APPROACH TO ECONOMIC THEORY
• PART TWO THE RATE OF INTEREST AND THE PRICE LEVEL (1930)
• PART THREE THE PLACE OF CAPITAL IN THE THEORY OF PRICE (1929)
• APPENDIX THE PROBLEM OF BALANCING THE BUDGET (1935)
• INDEX