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The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1977
Bertil Ohlin, James E. Meade

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Bertil Ohlin - Biographical

I was born into an upper-middle class family in a village in the South of Sweden in April, 1899. It was a large family with seven children, a large house and a home which was very hospitable and open to friends and relatives. There was a private school which was not very particular about the knowledge entering children had acquired. Normally, they should have had three years of preparatory studies but many of the children had only two years. For some reason, I was given only a little private teaching and prep school for one year before entering the school at the age of seven. Hence, I passed the "baccalaureat" in the classical line in the city of Hälsingborg rather early. As mathematics had been my best subject at school, my parents proposed - and I accepted - studies at the University of Lund in mathematics, statistics and economics. The choice of the latter subject is said to be due to the fact that at the age of five years, I was very fond of calculating the cost of the various cakes my mother used to bake.

After two years, I obtained the degree of fil. kand. with the highest mark in economics. My teacher, Professor Smil Sommarin, was a fine pedagogue, a very generous person and a great admirer of Kurt Wicksell.

Having seen in a newspaper a review of a book about the economic aspects of the world war - written by professor Eli Heckscher, who was professor at the Stockholm Business School - I suggested to my parents, that I should take up studies there. This I did and was much stimulated by Heckscher's teaching. He was always helpful and friendly although we started with a cleavage of opinion about the correct economic principles for the right time to cut trees in forestry. With the aid of differential calculus I solved a fairly obvious profit-maximization problem.

Having finished the two years' course at the Business School, where my studies included the French and Russian languages, I moved to the philosophical faculty of Stockholm University where my teachers were Gustav Cassel and Gösta Bagge. I also took up work for the State Tariff Committee. Cassel and Bagge were not quite so stimulating lecturers as Heckscher but they sacrificed a great deal of time for private discussion, which was exceedingly fine teaching. Like Heckscher, they did not discuss my thesis before its first version was ready.

A Stimulating Club
Already, in 1918, I had become a member of the "Political Economy Club" which had been created a year before. This was a small gathering of trained economists who were interested in scientific work in economics. Apart from my three main teachers, also Professor Sven Brisman, Knut Wicksell, David Davidson and half a dozen "docents" were members. The total membership was about 20 of which 4 were graduate students. One of the latter was Per Jacobson who later became head of the International Monetary Fund. The meetings of this club were certainly the most stimulating "seminar" one could imagine. One of the members opened a discussion and then followed a free exchange of opinions. The subjects were chiefly theoretical. Knut Wicksell, who was 67 years old when I became a member, was probably the most stimulating participant of all the members. I shall never forget his questioning and modest attitude even when the problems concerned his speciality, which was monetary theory and financial policy. When meeting him privately in the library, he would sometimes ask Jacobson or me if we could help him to understand a difficult problem.

In 1919, I presented a paper on the theory of inflation in the Political Economy Club which differed from that of Cassel and Wicksell in stressing that - even in a state of balance between total demand and supply - the volume of purchasing power could rise when some prices go up. Consequently, the fact that a limitation of supply during the war could lead to higher prices of many commodities would not automatically bring about a fall in the prices of other commodities. Part of the content was published two years later in the Ekonomisk Tidskrift. There was some similarity with one aspect of Wicksell's last paper in 1925 which, however, covered a wider field and provided a deeper insight into monetary theory.

From the autumn of 1920, I served for one year as assistant secretary to the Economic Council which, under the chairmanship of the Minister of Finance, included nine economic leaders from banking, industry and agriculture, and Gustav Cassel as representative of economic science. One of the bankers was Mr. Marcus Wallenberg, who played such a great role in Sweden's economic life, as have also his two sons done later during several decades.

After one year of military service in the Navy and three months studies at Grenoble, France, where the international student's milieu and the friendliness of the teachers and many other local people made the stay extremely pleasant, I presented my thesis about international trade theory to Gustav Cassel in 1922 to obtain the degree licentiatus philosophiae. It followed the same lines as my doctor's thesis in 1924 and the mathematical appendix in my later book, Interregional and International Trade (1933). At that time, neither Cassel nor myself knew that the construction to combine the price systems for two different countries had been used long before by the famous French economist, Cornot, as well as by Pareto and other prominent Italian economists, building on the opportunity cost idea. However, they had drawn very few practical conclusions from their fine scientific attack on the international trade problem. I soon found that the approach in Heckscher's pioneer paper on The Influence of Foreign Trade on the Distribution of Income (1919), where he analysed facts behind the differences in comparative costs, could profitably be used in a mutual interdependence price system for a realistic analysis of international trade. While Heckscher regarded his reasoning as a kind of supplement to the classical comparative cost analysis, I insisted on the use of a consistent reasoning in terms of prices. Thereby, the price system of the different national economies could be joined together and the trade between them, which takes place with the aid of prices could be analysed and many modifications in terms of money expenditure could be added.

Cassel thought that I greatly exaggerated the influence of Heckscher's paper, but I did not agree then and do not agree now. It was a very essential stimulus.

At Cassel's suggestion, I sent a paper containing a brief version of my thesis to Professor Edgeworth who was then co-editor with Keynes for the Economic Journal. It presented equation systems as a basis for an analysis of the causes and effects of international trade. At that time, equations were not so popular as diagrams. Anyhow, Edgeworth sent my paper to Keynes and asked for his opinion. Keynes wrote on a piece of paper which followed the manuscript via Edgeworth back to me: "This amounts to nothing and should be refused. J.M. Keynes." I still retain this little note as a valuable document.

At this time, as well as later, Keynes was a very busy man. He could not read all manuscripts carefully. If he had done so with my manuscript in 1922, we might have agreed more easily about the German reparation problem which we discussed seven years later in The Economic Journal and in several letters.

Visits to the Two Cambridges
In 1922, I got a small stipend from the Swedish-American Foundation and went to Cambridge, England, for a few months and thereafter to Harvard University. In the summer, Cambridge was rather empty, but I am grateful for many pleasant talks about economics with Austin Robinson who, in the summer of 1922, seemed to be about as lonely as I was.

Visit to Harvard
When the Atlantic steamer arrived in New York harbour, the health officer came on board. The examination was very brief. He looked in my eyes and then asked what I was going to do in the United States. I said I was going to study for one year. "Where" he asked. "At Harvard", was my answer. "You are lucky. Go ahead!" It was said with a friendly smile. There was something of open arms in his attitude which was, on the whole, characteristic also of the later reception at Harward and elsewhere in the American academic world.

My main teachers were Taussig and John H. Williams in international relations, Carver in agricultural economics as well as Alleyn Young in the history of economic doctrine. I rapidly came to the conclusion - as I had done several times before - that I was lucky in getting teachers who were brilliant, friendly and stimulating. Instead of reading well-known books for the courses, I wrote some chapters on my thesis and a paper on the laws of production which, later, however, I never published. When I looked at it a couple of years later, I found that my friend, Ragnar Frisch, had presented a superior analysis in his first non-published compendium, which later became his well-known book on the Theory of Production. There was no need to publish my version.

After the two autumn months at Cambridge, England, where I had an attack of eye inflammation and was - as doctors later learned - quite unnecessarily kept in bed during the second month, I returned to Sweden. It was nevertheless a very pleasant stay and the lectures by D.H. Robertson which I attended in October were stimulating. Naturally I did not get as many contacts when confined to my bed as I might otherwise have done.

Having returned to Stockholm I dictated the later part of my thesis in English. However, I found it wiser to publish the thesis in Swedish, translated it, and got my doctor's degree and the position as docent ("Assistant Professor") in May 1924.

Five Years in Copenhagen
Already, by Christmas time, 1923, Heckscher had written, telling me that the chair in economics which had been held by the famous statistician Harald Westergaard in the University of Copenhagen was open for applications. He hinted that even if one could not say anything about the result he saw no reason why I should not send in my papers. The Danish universities have a system of arranging a "competition" when there are different applicants and no one is clearly superior. Two Danes, one Norwegian and two Swedes - the other one was Erik Lindahl - were given three months to write a thesis on "the economic effect of the 48 hours week". We also had to give a lecture on "guild socialism" after 48 hours preparation, and two lectures on a freely-chosen subject, which, in my case was "Monetary Stabilisation".

The outcome was that a majority of the seven judges voted for me, the minority for Erik Lindahl. So I was appointed and took up my new duties in Copenhagen in January 1925.

It would take me too long to attempt a description of the intellectual and scientific stimulus given to me in the fine university, and in Copenhagen, in general, in the five years I remained there. Coming from the south of Sweden I felt at once at home. Among the economists, Dr. L.V. Birck, who combined a sharp intelligence with an exquisite sense of humour, exercised the greatest influence on me. But I think that I learnt as much from the students and those who had recently been students as from my colleagues. To this category belonged Carl Iversen, Thorkel Christensen, Jörgen Dich and Jörgen Pedersen, all of whom later made important contributions to economics and international economic cooperation.

The trouble was that life was too pleasant and there were too many things to do. The re-writing of my thesis in English and the adding of a section on location theory could not be done as quickly as I had hoped. In 1928 I sent a version to Harvard in the competition for the David Well's prize. Taussig sent me a kind letter and said that they had granted the prize to another economist but that they were willing to print my long manuscript in the Harvard Economic Studies. I was delighted. The book was finished in January 1931, when I had returned to Sweden as successor to Heckscher in the Stockholm School of Business. Several colleagues, and, particularly, Carl Iversen, made useful, more or less critical observations about the manuscript. Chiefly owing to my own correcting and revising proofs - after valuable suggestion by my colleague and relative, Tord Palander - the book did not appear until the spring of 1933.

Apart from the general approach indicated above, the book was characterised by an attempt to pay more attention to how factor supply reactions, location, taxation, social policy, and risk affect international division of labour. The static factor proportion model was only a beginning.

From January to the end of August 1931 I was busy at Geneva making a report about "The Course and Phases of the World Economic Depression". Working conditions were practically ideal. I was helped by the members of the economic and statistical secretariat whenever I wanted it. I also had two very good assistants, Major Wright and Al Kraal. Besides, a dozen and a half good economists came twice for a couple of days of discussion around the outline I had made for the book. Nevertheless, it was hard work to get the report ready for the September Assembly as I had to go to Stockholm for lectures during four weeks in the spring and was far from having specialist knowledge about business cycles when I started in January. I also gave a lecture on a combined deficit financial policy and monetary policy as a remedy for the world depression at the Nordic Economic Conference in June 1931.

Monetary Theory and Unemployment
From that time, I concentrated my attention chiefly on monetary theory and economic expansion. Utilizing earlier achievements by Knut Wicksell, Erik Lindahl and Gunnar Myrdal, I tried to construct a model for an analysis of a process of expansion in a state of large unused resources. After writing some papers in the Ekonomisk Tidskrift and elsewhere, I finished my report on measures against unemployment in the spring of 1934. It was summarised in the Finaly Lectures in the University of Dublin the same year. The theoretical model for a time-using process and the policy conclusions that was there presented had some similarity with Mr. Keynes' The General Theory of Employment, Interest and Money which was published two years later. I want to stress that I could not have produced this book without the assistance of the previous achievements of my Swedish colleagues. To what extent a theoretical development in Stockholm went parallel to, and, in some respect, preceded the development at Cambridge is a matter which has been subject of much discussion in recent years - which still continues - particularly in the scientific journal, History of Political Economy and in earlier books by Landgren and Steiger.

I was asked to deliver the Marshall Lectures at Cambridge in 1936 which gave me an opportunity to summarize the Swedish theory and make some comparisons with Keynes' work. A considerable part of the lectures was published in the Economic Journal, 1937, under the title, The Stockholm Theory of Saving and Investment. It led to a discussion with Keynes, D.H. Robertson and R.G. Hawtray, chiefly about the theory of interest.

A year before, I had published a volume on International Economic Reconstruction which was part of an international investigation into world economic problems organised by the International Chamber of Commerce and the Carnegie Endowment for International Peace.

In 1938, I became a member of the Swedish Riksdag. As I continued to teach at the Stockholm School of Business in the coming years, I had only little time for scientific work. The scope for political work during a world war is almost unlimited even in a neutral country.

However, I took a few weeks off to lecture at Columbia University in January 1947. A somewhat modified series of lectures was given at Oxford in the autumn of the same year. The lectures were published in 1949 under the title, The Problem of Employment Stabilisation.

The scientific papers I published in the 1940s and in the following twenty years were not numerous. Perhaps I should mention the comparison between the monetary theory of the Stockholm School and the "quantity theory" which was published in 1943 in Swedish in the Ekonomisk Tidskrift and, some years later, in the annual volume of translations edited by the International Economic Association.

Political Activity
As I became leader of the Liberal Party from 1944 - and for the rest of the war, a member of the government - and as I continued to teach from 1945 to 1965 and remained party leader until 1967, only little time was available for scientific research. From 1946 until my resignation from the leadership, the Liberal Party was the leading opposition party, except for an interregnum of two years after a setback at the municipal election in 1958.

This is not the place for a discussion of my political activity as leader of a political party for 23 years. The Swedish two-chamber system made the vote in municipal elections affect the composition of "the first chamber" many years after the vote. This chamber was elected through "indirect" elections by municipal councils - one eighth of its members every year. In some periods the social democratic government owed its majority in the Riksdag to the "overrepresentation" the advantages this electoral system brought and to the support from the Communist Party. The attitude of the Liberal Party was all the time positive to social reforms but negative to nationalisation of Swedish industry or unnecessarily detailed central state control of economic life. It is worth noting that in the four decades before 1970, practically no nationalisation took place in Sweden - much less than, e.g., in France, Italy and Austria. A constitutional reform in 1968 ended the two-chamber system and led to a 50-50 position in 1973, and a non-socialist majority in 1976. The earlier existence of "the first chamber" had prevented that such a majority in 1957 led to a new government.

During the greater part of the time as party leader, I contributed articles to one or two leading Swedish newspapers. All in all I published about 1200 newspaper articles in the years 1919-1977, of which around 700 appeared in the years from 1931 to 1943.

Since I left the Riksdag in 1970 I have had more time for scientific articles and lectures. I have also written newspaper articles based on some research into monetary theory and the distribution of income as well as "inflation-protected taxation" and international economic problems.

Nobel Symposium
It gave me great satisfaction when the Nobel Foundation - using a grant from the Bank of Sweden - as well as grants from the Marcus Wallenberg and the Handelsbanken Research Foundations - in 1974 decided to add a symposium in economic science to the symposia in natural sciences, international peace problems, and literature which had been organized in the preceding decades. The "Prize Committee" in economic science decided to choose as subject, The International Allocation of Economic Activity. As chairman of the organizing committee, I was grateful for the friendly reception of our invitations. The Symposium took place in Stockholm in 1976, and a volume edited by P.O. Hesselborn, P. Wijkman and myself appeared towards the end of the following year. It contains contributions from a large part of the most prominent economists in this field. However, monetary aspects of international trade relations found no place on the agenda as several international symposia had in recent years taken up this subject for debate. On the other hand, scientists who have come from economic and social geography to a study of the international division of labour or have specialised in regional economics were well represented. One of the chief aims of the symposium was to avoid arbitrary border lines between different approaches to research into local aspects of production and trade.

To sum up a personal reaction: It has not been easy to combine scientific work, teaching, journalistic writing and political leadership. All of these types of activity have no doubt suffered from my attempts to do too many things at the same time. However, I have found it all to be a fascinating business.

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

This autobiography/biography was written at the time of the award and first published in the book series Les Prix Nobel. It was later edited and republished in Nobel Lectures. To cite this document, always state the source as shown above.

 

Bertil Ohlin died on August 3, 1979.

 

Copyright © The Nobel Foundation 1977
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