Presentation Speech by Professor Erik
Lundberg of the Royal
Academy of Sciences

*Translation*

Your Majesty, Your Royal Highnesses, Ladies
and Gentlemen,

In the past forty years, economic science has developed
increasingly in the direction of a mathematical specification and
statistical quantification of economic contexts. Scientific
analysis along these lines is used to explain such complicated
economic processes as economic growth, cyclical fluctuations, and
reallocations of economic resources for different purposes. In
economic life there is an elusive mixture of relatively
systematic interrelations, for which one can find a more or less
regular repetitive pattern and historically unique events and
disruptions. To the layman, it may seem somewhat reckless to
seek, without support from experiment, for laws of development
within these extremely complicated processes of economic change,
and to apply for this purpose the techniques of mathematical and
statistical analysis. However, the attempts of economists to
construct mathematical models relating to strategic economic
relations, and then to specify these quantitatively with the help
of statistical analysis of time series, have, in fact, proved
successful. It is precisely this line of economic research,
mathematical economics and econometrics, that has characterised
the development of this discipline in recent decades. It is
therefore only natural that when the Bank of Sweden's Prize in
Economic Science dedicated to the memory of Alfred Nobel is
awarded for the first time, it should be to the two pioneers in
this field of research: Ragnar Frisch of Norway, and Jan
Tinbergen of Holland.

Since the late twenties, Professor Frisch and Professor Tinbergen
have been working along essentially the same lines. Their aim has
been to lend economic theory mathematical stringency, and to
render it in a form that permits empirical quantification and a
statistical testing of hypotheses. One essential object has been
to get away from the vague, more "literary" type of economics.
The arbitrary "naming" of causes of cyclical fluctuations, for
instance, and the concentration upon certain simple chains of
causal connection, has given way, in the work of both Frisch and
Tinbergen, to mathematical systems that state the mutual
relationships between economic variables.

Let me take, as an example, Professor Frisch's pioneer work in
the early thirties involving a dynamic formulation of the theory
of cycles. He demonstrated how a dynamic system with difference
and differential equations for investments and consumption
expenditure, with certain monetary restrictions, produced a
damped wave movement with wavelengths of 4 and 8 years. By
exposing the system to random disruptions, he could demonstrate
also how these wave movements became permanent and uneven in a
rather realistic manner. Frisch was before his time in the
building of mathematical models, and he has many successors. The
same is true of his contribution to methods for the statistical
testing of hypotheses.

Professor Tinbergen was concerned primarily to confront dynamic
economic theory with statistical application. His great pioneer
work in this field is an econometric study of cyclical
fluctuations in the United States. An important aim in this
impressive investigation was to test the explanatory value of the
existing flora of business cycle theories by trying to specify,
quantitatively, the importance of different factors. Tinbergen
built up an econometric system involving some 50 equations, and
determined reaction coefficients and "leads and lags" with the
help of statistical analysis. Several of his conclusions excited
great attention, and are still the subject of debate. Professor
Tinbergen's pioneer work in econometrics has been of major
importance for subsequent methodological development.

It has been natural for both Professor Frisch and Professor
Tinbergen, with the support of macroeconomic analysis, to
construct theories for stabilization policy and long-term
economic planning. Both our laureates have made fundamental
analysis of the theoretical basis of rational decision-making in
the field of economic policy. By the end of the thirties, Frisch
was presenting new ideas on a detailed system of national
accounts (økosirksystem) for the entire national economy as
a support for the rational planning of economic policy in Norway.
The structure of the Swedish national accounts and national
budget since the mid-forties stems largely from Professor
Frisch's pioneer work at the Sosial-Økonomisk Institutt in
Oslo. Professor Tinbergen, with the support of theories
previously put forward by Frisch, has developed a simplified
system for economic policy that has been applied in Holland.
Tinbergen lets the economic policy of the state function within a
model of the economic system with a number of variables and an
identical number of equations. Within the framework of a
determinate system, the state must, as a rule, have as many means
of economic policy as the number of aims. As head of the Central
Planning Bureau in the Hague, Professor Tinbergen and his
co-workers have constructed an econometric model for forecasting
and planning economic policy in Holland.

During the past ten years, both Professor Frisch and Professor
Tinbergen have devoted themselves primarily to long-term economic
policy and planning, with a view particularly to the problems of
the developing countries. Both have served as advisers in
different contexts. In the rapid development of methods for
long-term planning, our two laureates have made major
contributions. Professor Tinbergen, for instance, with regard to
systems of priorities in investments, and the use of "shadow
prices". Professor Frisch has developed decision models for
economic planning, devising mathematical programming methods with
a view to exploiting modern computer techniques.

Professor Frisch (not present because of
illness), Professor Tinbergen,

You have both been pioneers in the development of economics into
a mathematically-specified and quantitatively-determined science.
Your contributions in creating a rational foundation for economic
policy and planning with the help of well-developed theory and
statistical analysis have involved a major scientific
breakthrough. You are both, at present, intensively occupied with
continued research, designed above all to assist the poor
countries of the world.

It is a great honour for me to convey to you the congratulations
of the Royal Swedish Academy of Sciences, and to ask you,
Professor Tinbergen, to accept from the hand of His Majesty, the
King, the 1969 Prize in Economic Science dedicated to the memory
of Alfred Nobel.

From *Nobel Lectures, Economics 1969-1980*, Editor Assar Lindbeck, World Scientific Publishing Co., Singapore, 1992

Copyright © The Nobel Foundation 1969

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