The History of Swedish Economic Thought

Bo Sandelin

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781317829423
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Originally published in 1991, this is the first book in English to chart the history of economic thought in Sweden. Concentrating on the major figures of Davidson, Wicksell, Cassel, and Heckscher, and on the members of the Stockholm School, it discusses Swedish contributions to both the neo-classical and Keynesian revolutions. Throghout, Swedish economic thought is seen in the context both of international economics and of domestic institutional developments.

Chapter one

Introduction

Bo Sandelin

To write the history of economic thought is an arduous mission, even if it is confined to the evolution of thought in a single country. Generally no single person can master all the texts and all the epochs that he should. This means that a sole author who takes upon himself such a task must either have excessive erudition and genius – which have been granted to but a few persons in our trade – or must to a large extent rely on secondary sources and judgements. In the latter case, a great deal of courage is required.

This is one reason why this book is not one man’s work. Five specialists in different aspects of the history of Swedish economic thought contribute in areas where they are experts. One cannot, however, deny that there are risks involved in such an approach, and not only the risk of lacking formal uniformity in the presentation.

In the words of S. Tood Lowry:

our methodology and our notions of what is important, our paradigms and our research programs, keep changing from generation to generation, both in evolutionary and revolutionary transitions. This would lead us to believe that the study of the history of thought is one of the best possible antidotes for intellectual ossification. Economic thought should be as dynamic and responsive to the challenges of the economy as are cultural and natural forces. (1987: 5)

It is not a unique idea that the history of economic thought should focus on change.¹ This was, for instance, expressly a leading principle for Heimer Björkqvist (1986) when he wrote his large-scale work on the history of economic thought in Finland, which partly coincides with that in Sweden, as Finland was a part of Sweden until 1809. The intimated risk in a multi-author book like ours is that the link between different stages will be suppressed, i.e. that the book will give a number of snapshots while concealing the dynamics in the evolution of thought. It is for the reader to determine whether we have obtained a reasonable tradeoff between expertise in single epochs and exposition of change between epochs.

Before economics

The next chapter, by Johan Lönnroth, differs from the subsequent chapters by extending over two millennia, ending at the end of the nineteenth century, when modern economics, represented by Davidson and Wicksell, took over. However, for lack of written sources there is not much to say about the first millennium.

The provincial laws, landskapslagarna, were written down from the beginning of the thirteenth century and indicate a change from extended to nuclear family relations as a basis for inheritance rights and maintenance obligations, and from the promotion of the economic interests of relatives to the interests of the Church and the king.

Another kind of economic text began to circulate among educated landowners early in the sixteenth century: husbandry literature with practical advice on sowing, beekeeping, brewing, etc. Economic literature, as we interpret the term nowadays, did not appear until the seventeenth century, when Sweden’s military and political power was great and a number of distinguished immigrants raised the intellectual level of the country. Foremost among these immigrants was probably the historian and natural law philosopher Samuel von Pufendorf, who was one of the learned Germans who were offered a Chair when a new university was founded at Lund in 1668; the province of Skåne, in which Lund is situated, had recently been won from Denmark by conquest. Pufendorf became one of Adam Smith’s leading authorities on natural law, and he wrote on price formation and on taxes. Taxes should be just, which in Pufendorf’s view implied a variant of the benefit principle which has since been advocated by Wicksell, Buchanan, and others.

An often analysed era in Swedish political economy is the eighteenth century, more specifically the period 1718–72, which has been called the Age of Freedom (i.e. freedom from royal absolutism). During this period ‘the promotion of economic growth and modernization was the cornerstone of official policy’ (Magnusson, 1987). It found expression in different kinds of measures. The first Chairs of political economy at Swedish universities were created during this period. The very first Chair was located in Uppsala, where Anders Berch took office in 1741; the Diet had resolved to establish the Chair in 1739.

This was the fourth Chair in Europe; the first was set up in Halle in Prussia in 1727, the second in Frankfurt an der Oder, also in 1727, and the third in Rinteln in 1730 (Liedman, 1986: 27). Both in Sweden and in Prussia the State had power over the universities; this Liedman regards as one of the reasons why those countries had Chairs in political economy before England and France.

The first Chair in Sweden, Berch’s, like the German Chairs, was formally connected with cameralism and law. It was followed by three Chairs which all had a different determination, towards applied natural science: at Turku in 1747, at Lund in 1750, and a second at Uppsala in 1759.² Knowledge about nature is essential if one is to utilize nature economically, which was an object of the policy of the Age of Freedom.

Other measures to promote economic growth were a number of economic regulations. The ‘Produktplakatet’ of 1724 was a Swedish version of the English navigation laws. Subsidies were given to, especially, import-substituting manufactures. Domestic trade was regulated.

During the Age of Freedom there was lively internal discussion on economic matters, made possible by general freedom of the press. Supporters of the policy of regulation have, not unexpectedly, been called mercantilists, while the adherents of a greater degree of economic freedom have been labelled reform mercantilists (Magnusson, 1987). Some of the latter might rather be called physiocrats; a Swedish-style physiocracy’ is discernible from the end of the 1760s. At the turn of the century Adam Smith was introduced to a Swedish audience by translations of extracts from The Wealth of Nations and by a book on his ideas translated from German. The ideas of the British classical economists were often disseminated in Sweden by German and French translations (Björkqvist, 1986: 47). This is, of course, just a reflection of the general cultural influences of the time.

The economic writing of the first eight decades of the nineteenth century in Sweden has received less attention in the literature than that of the eighteenth century; I think this is a correct judgement. There is no straightforward explanation, but we can make a few observations. First, at the end of the nineteenth century David Davidson and Knut Wicksell appeared on the scene, and compared with them their immediate Swedish predecessors may seem less significant. Second, during a large part of the century the historical school predominated, during another part it subsisted beside other movements. History 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.³ (One could argue that they should not regard the Age of Freedom as very interesting either, before the 1760s; and, not unexpectedly, more economic historians and specialists in the history of ideas than pure economists have studied the Swedish thought of this period.)

In the period 1815–30 the historical school defined official State ideology, and in political economy as a university discipline it dominated until the middle of the century. Subsequently, liberal ideas flourished; at the universities this meant an increased interest in the classical economists. Wicksell’s predecessor in the Chair at Lund, G. K. Hamilton, was the most pronounced liberal – today we might say libertarian. Outside the universities liberalism had to compete for radical minds with the growing strength of socialism.

The transition to modern economics

Such was the atmosphere when David Davidson and Knut Wicksell arrived on the scene. Carl Uhr has a chapter on each of them in this volume. They were dominating Swedish economics around the turn of the century, although Gustav Cassel soon attained a respected position. We let them represent the era of transition to modern economics in Sweden.

Some scholars contend that modern economics began when the total economy was comprehended as a mathematical general equilibrium system by Walras in his Eléments d’économie politique pure in 1874 and 1877. It is, however, possible to find objections to any such dividing line. For instance, Lowry indicates that in a way Walras’s approach did not begin with Walras but:

has roots that reach back into Parmenedean and Pythagorean mathematical presumptions of a totally rational world order, perpetuated in Platonic thought and drawn upon in the Enlightenment with Copernicus’ and Kepler’s analyses of planetary motion, and the post-Newtonian image of astronomy and physics as the ideals of scientific precision. (1987: 3)

Others lay greater emphasis on marginalistic thought, and regard Jevons’s Principles and Menger’s Grundsätze from 1871 as the beginning of modern economics. We know, however, that marginalism can be found even earlier, for instance in von Thünen (1826), Cournot (1838), Dupuit (1844), and Gossen (1854). A third party takes Marx as the turning point.

If we follow the convention of considering the 1870s, i.e. Jevons’s, Menger’s, and Walras’s books, as the outset of modern economics, we can hardly find any fully modern economic literature in Sweden before Wicksell’s writings in the 1890s. Davidson was younger – born in 1854, three years after Wicksell – but his books, written between 1878 and 1889, partly represent an older tradition. In Uhr’s words, ‘as a theorist Davidson denotes a transitional figure endeavoring to bridge the gap between classical, especially Ricardian, economics and neoclassical economics in the realms of value and distribution theories’. Wicksell was one of the earliest advocates of a marginal productivity theory of distribution, while it is questionable whether Davidson ever accepted it. Davidson had evidently no aspirations to an international reputation: he always wrote in Swedish. Wicksell published his first three books in German, and became a respected member of the international corps of economists. Davidson and Wicksell became close friends as time went on, often pondering the same economic problems, but often reaching different conclusions.

The theory of capital was one of the main subjects in economics at the time, and within this area of research both Davidson and Wicksell wrote their first book, in 1878 and 1893 respectively. For Davidson, with at least one foot in the pre-neoclassical tradition, capital formation is the main focus, while Wicksell confines himself to a stationary economy, which is easier to handle with the mathematical tools brought into vogue by Jevons and Walras. This shifting is a good illustration to Kuhn’s (1970: 167) conclusion that ‘there are losses as well as gains in scientific revolutions’.

Davidson and Wicksell both published books on taxation as well, Davidson in 1889 and Wicksell in 1896, besides contributions to government reports and numerous articles in Ekonomisk Tidskrift, which Davidson founded in 1899.

In personality Davidson and Wicksell were quite different. Davidson was polite and behaved as a well educated man could be expected to behave. Wicksell was a radical social reformer, and a stickler for principle who seemed to love provoking the public with his attitude on controversial issues. His two months in prison for blasphemy when he was a well known professor in his late fifties are a logical consequence of this posture. So are his strained relations with the presumptuous Gustav Cassel, whom Lars Magnusson scrutinizes in this book.

Consolidation and broadening

Gustav Cassel is sometimes considered one of the founders of modern economics in Sweden, together with Davidson and Wicksell. This is a questionable view, as the bulk of Cassel’s output falls later than Davidson’s and Wicksell’s. When Wicksell had already published three books in the 1890s, Cassel was still a novice at economics. Therefore it is advisable to assign him to a later epoch.

Cassel had no great opinion of his precursors but considerable confidence in his own capacity. In his memoirs, I förnuftets tjänst (In the Service of Reason), he says that when he came to economic theory at the end of the nineteenth century he ‘immediately found that it did not at all satisfy the demand for clarity and a firm quantitative foundation which [he] habitually took for granted, not only in pure mathematics but also in its applications in the natural sciences’ (1940: 13). He thought that he could be the man to construct something better, and during a stay in Germany he decided to ‘abolish the whole theory of value and to build up an economic theory directly on a study of price formation’ (1940: 15).

Cassel’s price theory reminds us of Walras’s, and in his first serious study, ‘Grundriss einer elementaren Preislehre’ (1899), there are several references to Walras. It is an enigma that Cassel conceals this influence two decades later in his Theoretische Sozialökonomie (1918), and that he even denies it in his memoirs.⁴

Cassel was an economic guru in his day. His reputation was not restricted to academic circles; it was probably even higher among practical working economists and politicians, who appreciated a simple and resolute answer on a complicated question. As a consequence – if it was not a source of his fame – he had a lot of engagements in organizations working on solutions to international monetary problems.

Cassel’s and Wicksell’s reputations have developed differently, and to Wicksell’s advantage, since their deaths. This is probably a just outcome. While Cassel often expressed his ideas in a telling way, the ideas themselves were not always very clear. Wicksell was almost the exact opposite. A first reading of one of his economics publications may result in a number of question marks in the margin. However, they may all be crossed out on the second or third reading, confirming Ragnar Frisch’s (1951) words, ‘the discovery of the fact that Wicksell is, after all, right will always be a matter only of patience and intelligence on the part of the reader’.

Wicksell left a larger and more cogent body of work on theoretical issues of permanent interest. Today few would deny his stature. Cassel has been subject to more divergent assessments. One scholar calls him ‘the greatest scientific charlatan that Swedish economics has, so far, brought forth’ (Södersten, 1970: 114). Another says, ‘We must not treat Cassel the way he treated others. We must respect him as a pioneer. He was the first to dynamize general equilibrium into his “uniformly progressing state” …’ (Brems, 1986: 158).

In 1904 Cassel acquired an (unpaid) assistant, Eli F. Heckscher. Heckscher was to become known to a wider audience for two things: the Heckscher–Ohlin theorem in international trade theory, and his contributions as an economic historian. To us he is interesting also because he has given rise to much of the traditional view of the early history of Swedish economic thought. Rolf Henriksson provides the chapter on Heckscher in this book.

Heckscher differed from Davidson, Wicksell, and Cassel in at least one respect. As late as in 1909, when he took up a Chair in economics and statistics at the Stockholm School of Economics, he had written hardly anything on economic theory, only on economic history. This was not, however, a serious drawback. At the time economic theory was considered merely one part of economics, not the whole discipline. His above-mentioned older colleagues, on the contrary, were predominantly theorists.

Heckscher was not, however, hostile to theory. His plea for theory in economic-historical research is well known. He proposed a combined approach, where methods used in history should be used to establish facts, and economic theory, i.e. neoclassical theory, should be used to interpret the facts. He would not plead for the traditional inductive method of the historical school.

In 1929 Heckscher’s Chair was changed to a research Chair in econ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Table of Contents
• 1. Introduction
• 2. Before economics
• 3. David Davidson: the transition to neoclassical economics
• 4. Knut Wicksell, neoclassicist and iconoclast
• 5. Gustav Cassel, popularizer and enigmatic Walrasian
• 6. Eli F. Heckscher: the economic historian as economist
• 7. The Stockholm school and the development of dynamic method
• 8. Beyond the Stockholm school
• References
• Index