Gunnar Myrdal shared his Nobel Prize with an arch rival. Meanwhile his Nobel Prize-winning wife enjoyed less recognition. André Pedersen Ystehede and Stefan Kesting tell the story of a quest for peace, a People’s Home and what should be.
It is 45 years since Swedish economist, sociologist and politician Gunnar Myrdal was rewarded the Nobel Prize in economic science. The pluralistic character of his work is much due to his “immense curiosity to understand how everything is connected and works”1. In economics, his ideas are gaining importance with the increasing focus on understanding the economy as a complex system with virtuous and vicious feedback cycles.
Gunnar Myrdal was born 6 December 1898 in Gustafs, a small town 200km north of Stockholm. His father was a builder and he eventually took the family to the capital. Gunnar was the oldest of four siblings and grew up in a conservative-oriented home. Further conservative influence came from Myrdal’s reading of Swedish political scientist, Rudolf Kjellén. Kjellén who first coined the term, “geopolitics”, and saw the state as formed in a dialectic process between progressive and conservative forces in society. Kjellén also originated the concept of People’s Home (Folkhemmet) – a notion that underpinned Sweden’s welfare state and cast society as akin to a family where responsibiities to contribute and to take care of others were shared. It was undoubtedly were Gunnar drew much inspiration from in his later work on the welfare state.
In 1923, he graduated in law at Stockholm University. However, he could not see himself working as a lawyer because of the moral issue of potentially representing criminals2. Sociologist, diplomat and eventual Nobel laureate, Alva Reimer (see box), whom he met in 1919 and married in 1924, guided him to study economics which healed his anxiety and frustration. She made him read Theory of Social Economy by inter-war economics giant, Gustav Cassel, and he went on to write his doctoral thesis on the role of expectations for price formation under the supervision of Cassel.
In his thesis, he criticised the notion of equilibrium economics and the implicit assumptions in Neoclassical Theory. His thesis – which he built on Risk, Uncertainty and Profits by co-founder of the Chicago School of economics, Frank Knight – challenged Cassel’s thinking. His criticism was not unnoticed and Cassel once told him: “Gunnar, you should be more respectful with your elders, because it is we who will determine your promotion” to which Myrdal replied: “Yes, but it is we who will write your obituaries”.
In 1929, he and Alva toured the US as Rockefeller Fellows meeting distinguished institutionalist American economists including John R. Commons, John M. Clark and Wesley C. Mitchell. He sided with them and was not convinced by the counter-movement of “New Economics” introduced to him by the Norwegian pioneer of the statistical approach of econometrics, Ragnar Frisch, while discussing the early stages of the developing Econometric Society.
“There are no economic, sociological, or psychological problems, just problems.”
His early work became an important pillar in the dynamic analysis practised at the Stockholm School of economic thought (Lundberg, 1974)3. In 1931, his Monetary Economics was published (in Swedish) where he discussed the importance of ex ante and ex post in relation to savings and investment. These, he argued, were important concepts because they show that individuals’ decisions to save and invest are not bound together but have opposite effects despite the overall identity that savings equal investment at the macro level4. This work illustrated his suspicion and critique of the comparative static reasoning in economic theory.
In the Political Element (published in Swedish in 1930 and German in 1932, but not in English until 1939) he shows how normative value judgements have enabled people to form political conclusions from theoretical models. The Political Element reveals the presence of ideology hidden in economic models under the veil of objectivity and scientific rigour. This was an attack on the idea that economic theory could be apolitical and ahistorical which remains important in today’s debate of economic models.
This was the start of his quest for more transparency in economic theory and models. He began to set out his Theory of Value Premises, where he argued that the researcher must separate what is and what should be. Myrdal asserted that political economy should describe facts and analyse causal relationships. But the complexity in the world, he said, forced researchers to make decisions on conditions and relationships that are imagined to exist within social conditions to pursue the research question. And the nature of those conditions reflected the values and understanding of the researcher and not necessarily the true conditions. The Theory of Value Premises underpinned all his major work since 1930 and was stated in its most refined version in Objectivity in Social Research published in 1969.
The world stage
Alva Myrdal had not only led him to the discipline of economics but she also collaborated with him. Their first work together, Crisis in the Population Question, came out in 1934 and caused much public debate in Sweden. They argued that Swedes needed to have more children to deal with the ageing population.
In 1938, the Myrdals were commissioned by the Carnegie Corporation to undertake a study of the racial segregation in the US. This resulted in Myrdal’s magnum opus – An American Dilemma published in 1944. The interdisciplinary approach taken in this book is to a great extent credited to Alva Myrdal’s 5 influence. An American Dilemma entered the public stage in 1954 when it was referenced by the Supreme Court in its decision of Brown vs. Board of Education which outlawed racial segregation in public schools. This led to Myrdal’s reputation in the Southern States, as the “unknown Swedish communist”6.
“Everything causes everything else.”
During the work on An American Dilemma, he came to the realisation that “there are no economic, sociological, or psychological problems, just problems, and they are all mixed and composite”7. In his future research, he did not distinguish between disciplines, but by relevant conditions. He based his work on the concept of Circular Cumulative Causation (CCC) set out in an appendix of An American Dilemma. A notion he borrowed from Thorstein Veblen8. The principle of CCC states that a change in one condition will have an impact on other conditions, that will induce further changes: “everything causes everything else,” (Myrdal, 1978, p. 774). Combined with the Theory of Value Premises, he argued that one needs to incorporate the whole social system when investigating a problem so economics should apply a more holistic approach.
In 1977, he gave a lecture on institutional economics at the University of Wisconsin in which he predicted that institutional economics would overtake the dominant position of neoclassical economics in the near future. The lecture was later published in the Journal of Economic Issues in 1978.
Alas, his predictive powers were seemingly no better than those of other economists.
Three years prior, he had been awarded the Nobel Prize in economic science with his political opponent Friedrich A. von Hayek: “for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena”. He can therefore be considered the first institutionalist economist to have received the award. But he wasn’t particularly pleased, telling his children: “If I had not still been a bit asleep when they called me early in the morning in the US, I would have said no”9 .
Following the announcement of the award, both men warned of the looming crisis with increasing inflation. However, where Myrdal argued for more aggressive measures from the US government, Hayek proclaimed that the interference from the state had amplified the dire situation. This was one of many paradoxes with the shared award between the two.
In his Nobel Prize lecture, Myrdal focused on the issue of equality in world development. His lecture covered many aspects of this issue from the social and psychological to the financial and economical. However, he emphasised that at the bottom of these topics lay a moral issue. He stressed this when he highlighted the over-riding influence of self-interest: “Our knowledge, as well as our ignorance, at any time and on every issue, tends to be opportunistically conditioned.” He stressed also the rising impact from natural disasters and the growing concern of food shortages, draughts and environmental conditions. The relevance of these topics today is a testament to his insight.
The role of the welfare state in the economy was central to Myrdal’s work on inequality and development. Moreover, he emphasised as nonsense the dichotomy of “free” versus “planned” economy. He argued that coordinated public policies and economic planning emerge from increasing democratic social control in society.
In his later work, he became interested in the global issue of unequal development and the increasing gap between the rich and poor countries. He started working on the Asian Drama in 1958 (published in 1968) when he followed his wife to India due to her appointment as Swedish Ambassador to New Delhi.
1. From an interview with Gunnar Myrdal in 1981 (‘Mötet med Gunnar Myrdal’ [The meeting with Gunnar Myrdal] on
Swedish National Television, SVT).
3. Lundberg, E. (1974) ‘Myrdal’s Contribution to Economic Theory’, The Swedish Journal of Economics, vol. 76, no.4, pp. 472-478.
4. This contribution was highlighted in Joan Robinson’s review of Monetary Economics by Gunnar Myrdal in The Economic Journal, 1939, vol. 49, no. 195, pp. 493-495.
5. Jackson, W. (1990) Gunnar Myrdal and America’s Conscience: Social Engineering and Radical Liberalism,
1938-1987, Chapel Hill, N. C.: University of North Carolina Press. Gustafsson, B. (1990) ‘Gunnar Myrdal 1898-
1987: Liv och Verk’, Uppsala Papers in Economic History, Research Paper no. 25, p. 18.
6. Myrdal, G. (1978) ‘Institutional Economics’, Journal of Institutional Economics, vol. 12, no. 4, pp. 771-783.
7. Dopfer, K. (1988) ‘In Memoriam: Gunnar Myrdal’s Contribution to Institutional Economics’, Journal of Economic
Issues, vol. 22, no. 1, pp. 227-231.
8. Cited in the ‘Introduction’ by Richard Swedberg of The Political Element in the Development of Economic Theory
(2000), London: Transaction Publishers.
9. Cited in the ‘Introduction’ by Richard Swedberg of The Political Element in the Development of Economic Theory
(2000), London: Transaction Publishers.