When Gunnar Myrdal (born 1898) had passed away in 1987, the New York Times wrote:

Mr. Myrdal has been called the leading economist and social scientist of his epoch. Statesman, reformer, dissenter, pacifist and foe of inequality, an architect of the Swedish welfare state, he literally left his mark in a footnote to history - the famous footnote 11 to the United States Supreme Court’s 1954 ruling that segregation in public schools was unconstitutional.

It might be disputed that Myrdal was the leading economist in his epoch, which lasted for almost half a century from the early 1930s onwards. Yet he was certainly one of the most prominent representatives and critics of his discipline. His success derived largely from applying the principle of circular and cumulative causation to different economic and social contexts.

Myrdal was a student of Gustav Cassel, whom he succeeded as professor of politi­cal economy and public finance at the University of Stockholm in 1933. In his doctoral dissertation on “price formation and changeability”, Myrdal (1927) attempted to trans­form Cassel’s static framework of general equilibrium analysis into a dynamic theory. Myrdal’s innovation was to include expectations in the set of data that determine prices, in addition to tastes, technology and factor endowments. Various constellations of expectations and their interaction in the markets lead to different disequilibria and to multiple equilibria. This became a recurrent theme in Myrdal’s later work, and it was the first step towards the conceptualization of circular and cumulative processes.

The second step was Monetary Equilibrium (1931 [1939]), a critical reconstruction of Knut Wicksell’s theory of interest and prices (1898). Wicksell had argued that inflation and deflation are caused by divergences of the money rate of interest from the “natural rate”, defining the latter as the yield on real capital that brings investment in line with planned saving, independently of changes in the monetary sphere.

Throughout his academic life, Myrdal combined the analysis of economic issues with methodological critique of neoclassical economics. His book on The Political Element in the Development of Economic Theory, first published in 1930, was soon translated into many languages (yet, in English only in 1953). Myrdal criticized “economic orthodoxy” for its tautological “explanations” of profits and its teleological theories of development. He argued that economic orthodoxy suffered from self-referential and “spurious objec­tivity”, confusing “what is” with “what ought to be” (Streeten 1998: 542). Yet he con­ceded that all work in the social sciences is based on value premises, and recommended therefore to disclose these, so as to give readers a chance to control for distorting biases.

His critique of biases in economics made Myrdal take a sociological view on his dis­cipline. He acquired an even wider interest in sociological issues in the 1930s, when he, together with his wife Alva, propagated welfare-state policies and became active in the Social Democratic Party, the parliament and the government. He contributed to debates on population policy and education, and to the design of countercyclical fiscal policies in 1933-36. From 1945 until 1947 he was Swedish minister of commerce (Barber 2008: chs 4, 5, 7).

Myrdal’s breakthrough as an academic sociologist came in the years between with An American Dilemma: The Negro Problem and Modern Democracy (1944), a large study he undertook in the United States by invitation from the Carnegie Foundation. Working on the value premises of the “American Creed of liberty, equality, justice, and fair opportu­nity for everybody” (1944: xlviii), he confronted these ideals with the discrimination and poverty of black people. For the latter’s explanation, Myrdal took recourse to his princi­ple of circular and cumulative causation, “also commonly called the ‘vicious circle.’ This principle has a much wider application in social relations. It is, or should be developed into, a main theoretical tool in studying social change” (1994: 75).

At the next stage, in the 1950s, Myrdal came to find an even wider application for this tool. From the explanation of social inequality within one nation he took it to the explanation of economic inequalities between regions and between nations. Based on his experience as executive secretary of the United Nations Economic Commission for Europe (1947-57), Myrdal advanced a theory of polarizing development under the title Economic Theory and Under-Developed Regions (1957). In his description of the condi­tions under which the development of some regions leads to the underdevelopment of other regions, he stressed the role of institutions, both for polarization and for counter­acting it.

In 1974, Myrdal was awarded the Nobel Prize (officially: Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel), together with Friedrich A. von Hayek. As the Prize Committee put it, they had been selected jointly “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”. This must have left the co-laureates with mixed feelings, as their economic and political views differed fundamentally in almost every respect. It is said that you always meet twice in a lifetime: the paths of Myrdal and Hayek had crossed before, in 1933, when Hayek published the German version of Myrdal’s Monetary Equilibrium in his anthology of contributions to monetary theory. In combination with the translation of The Political Element in the Development of Economic Theory, this had made Myrdal known outside Sweden.

Hans-Michael Trautwein

See also:

Gustav Cassel (I); Development economics (III); Erik Lindahl (I); Macroeconomics (III); Stockholm (Swedish) School (II); Knut Wicksell (I).