Fixing the Economists Article of the Week

by Philip Pilkington

In my post on the Austrian Business Cycle Theory Jan, a regular commenter on Lord Keynes’ blog, once again brought up the Stockholm School of economics. He has been doing this on Lord Keynes’ blog for as long as I can remember and there has so far never been a proper discussion.

What was the Stockholm School? They were a group of economists working in Sweden in the first half of the 20th century who, like Keynes, were followers of the Swedish economist Knut Wicksell who had expanded the latter’s theories to take into account shortfalls in aggregate demand. The two main figures were Bertil Ohlin and Gunnar Myrdal.

I am only really familiar with the work of the latter — and even then, only in a highly abridged edition entitled The Essential Gunnar Myrdal from which I derive all the quotes in the following post. It seems to me that the purely economic work of Myrdal and Ohlin is very hard to come by in English.

In what follows we will focus on what Myrdal considered to be his main contribution to Keynesian theory; that is, the distinction between ex post and ex ante in the analysis of savings and investment.

This distinction, which came from a book called Monetary Equilibrium which the Post-Keynesian economist G.L.S. Shackle called “the most undervalued work of economic theory ever written”, strikes me as being extremely useful in discussing the equilibrium/disequilibrium of savings and investment. Many Post-Keynesians would later come to realise this.

In Monetary Equilibrium Myrdal writes that:

A criticism of Keynes and Hayek would have to begin by pointing out the fact that in their theoretical systems there is no place for the uncertainty factor and anticipations. (Pp32)

This may strike Post-Keynesians as being a rather unusual statement. After all, doesn’t the General Theory contain an extensive discussion of “animal spirits” and action undertaken in the face of uncertainty? Yes, it does but what Myrdal is complaining about is that the actual theoretical framework of the General Theory, which is static, cannot really accommodate these observations. He writes: