Presentation Speech by Professor Erik Lundberg of the Royal Academy of Sciences
Translation from the Swedish text
Your Majesty, Your Royal Highnesses, Ladies and Gentlemen,
Hitherto the prize in Economic Science dedicated to the memory of Alfred Nobel has been awarded to researchers who have made pioneering contributions in what may be called “pure” economics. It has been awarded for work on economic theory at a high, abstract level with the theory of general equilibrium as the starting point, for work on analytical techniques on the basis of theoretical models with the aim of achieving quantitative precision of various relations and, finally, for work on historical-statistical analysis of economic development during long and short periods. However, there are prominent researchers in the field of the social sciences whose range of interests covers other and wider areas than those embraced by the term “pure economics”. Among these prominent researchers are this year’s prize winners, Professors Myrdal and Hayek.
Professors Myrdal and Hayek both began their careers with important contributions in pure economic theory. To a great extent their early work (during the 1920s and 30s) lay within the same field: business-cycle theory and monetary theory. But thereafter both Myrdal and Hayek greatly extended their range in order to deal with problems which cannot be studied only within a narrow economic framework. The need felt by both Myrdal and Hayek to expand the range of problems studied and the methodology applied is tellingly expressed in the following quotation from Hayek: “But nobody can be a great economist who is only an economist – and I am even tempted to add that the economist who is only an economist is likely to become a nuisance if not a positive danger”.
Although these two economists have thus broadened their scope to cover more than purely economic problems, this does not mean that they have pursued the same line of development. Myrdal has, above all by directing his attention mainly to social problems (in the widest sense), especially as regards the negro question in the U.S.A. and the poverty of the underdeveloped countries, attempted to integrate economic analysis with a high measure of attention to social, demographic and institutional conditions. Hayek has extended his field of interest so as to take in the legal framework of the economic system and psychological-philosophical questions concerning the way in which individuals, organizations and different social systems work. Both scholars have shown a dominating interest in problems of economic policy, including possible changes in the organizational, institutional and legal structure of society. Here Myrdal has usually advocated reforms of a radical and unconventional kind, whereas Hayek has looked for ways of enhancing the viability of a liberal, individualistically orientated social system. These politically-coloured differences, however, are altogether subordinated to a common attitude towards social science research: the conviction that the major socio-economic questions of our time cannot be fully understood without an interdisciplinary broadening of the range of problems studied as well as of the methodology applied.
It is above all in the great work An American Dilemma. The Negro Problem and Modern Democracy that Myrdal has proved his eminent ability to combine economic analysis with a wide social science approach in studying the series of factors and relations which may determine the situation of the negro population and its possibilities of development. In order to support his analysis of the social situation of the negro population Myrdal makes use in a fruitful way of economic equilibrium models and of dynamic analysis of cumulative processes that follow from disturbances. He draws attention to the interdependence between a large number of economic and social factors and shows how cumulative processes of deterioration can arise (“vicious circles”), making it impossible to point to particular factors as “final causes”. In fact Myrdal has in this work accomplished a many-faceted analysis of strategic factors which influence all underdevelopment (education, health, living conditions, job satisfaction, discriminatory attitudes on the part of employers and trade unions), factors which were not taken into account in the analytical models of the economists until the 1960s. The book has become a classic, and in addition has had an exceptional impact in the course of the years on American opinion and policies as far as the negro question is concerned.
It can be maintained that Myrdal’s extensive contributions to the study of the problems of underdeveloped countries have to a considerable extent been of the same character as in An American Dilemma. Again it is a question of social science research in the widest sense, research where great importance is attached to political, institutional, demographic, educational and health factors. On a number of points Myrdal’s ideas and research results have been of importance for the public debate on underdeveloped countries; this applies, for example, to the conceptions regarding the character and causes of unemployment, the nature of the inefficiency of farming, in particular in India, the way in which the diffusion effects from industrial development in a given country are functions of that country’s cultural, social and economic levels, and, finally, the importance of social discipline.
Hayek’s contributions in the fields of economic theory are both deep-probing and original. His scholarly books and articles during the 1920s and 30s sparked off an extremely lively debate. It was in particular his theory of business cycles and his conception of the effects of monetary and credit policy which aroused attention. He attempted to penetrate more deeply into cyclical interrelations than was usual during that period by bringing considerations of capital and structural theory into the analysis. Perhaps in part because of this deepening of business-cycle analysis, Hayek was one of the few economists who were able to foresee the risk of a major economic crisis in the 1920s, his warnings in fact being uttered well before the great collapse occurred in the autumn of 1929.
It is above all the analysis of the viability of different economic systems which is among Professor Hayek’s most important contributions to social science research. From the middle of the 1930s onwards, he devoted increasing attention to the problems of socialist central planning. In this area, as in all others to which Hayek has devoted research, he presented a detailed exposition of ideas and conceptions in this field. He evolved new approaches in his examination of fundamental difficulties in “socialist calculation” and investigated the possibilities of achieving effective results through decentralized “market socialism”. His guiding criterion in assessing the viability of different systems refers to the efficiency with which these systems utilize the knowledge and information spread among the great mass of individuals and enterprises. His conclusion is that it is only through a far-reaching decentralization in a market system with competition and free price formation that it is possible to achieve an efficient use of all this knowledge and information. Hayek shows how prices as such are the carriers of essential information on cost and demand conditions, how the price system is a mechanism for communication of knowledge and information, and how this system can mean an efficient use of highly decentralized resources of knowledge.
Hayek’s ideas and analyses of the viability of economic systems, presented in a number of writings, have provided important and stimulating impulses to the great and growing area of research which is named comparative economic systems.
Thus, after their work in central economic theory, Professors Myrdal and Hayek have carried out important interdisciplinary research. The Royal Swedish Academy of Sciences has therefore decided to award the Prize in Economic Science in Memory of Alfred Nobel for 1974 in equal shares to Professor Gunnar Myrdal and Professor Friedrich August 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.
It is a great honour for me to convey to both of you the congratulations of the Royal Swedish Academy of Sciences and to ask you, Professor Myrdal and Professor von Hayek, to accept from the hand of His Majesty the King the 1974 Prize in Economic Science dedicated to the memory of Alfred Nobel.
Their work and discoveries range from the formation of black holes and genetic scissors to efforts to combat hunger and develop new auction formats.
See them all presented here.