Faculty of Social Sciences University 1964 – 2014

Eds. Dahl and Danielson 111

Department of Astri Muren and Hans Wijkander

Lectures in Economics at Stockholm Uni- unions and long-run . He played versity College started already in 1888 with an important role as entrepreneur, channelling Johan Leff­ler (1845–1912) as lecturer. Leffler, from the Rockefeller Foundation to an who had studied in Leipzig, combined econom- extensive empirical investigation of wage for- ic liberalism with an in social policy mation and national income in Sweden. Bagge (Olofsson & Syll 1998). The first full professor was also a politician; from 1913 he was active of economics was Gustav Cassel who was ap- in local Stockholm politics and later he was pointed in 1904 (Nycander 2005, ch.1). Cassel party leader for the Conservatives (1935–1944) (1866–1945) had originally studied mathemat- and Minister of Education. ics (writing a doctoral dissertation on linear Cassel retired in 1934 and was succeeded by algebra) and later turned to economics. Cassel (1898–1987) (Gustafsson 1998). is known for his deve­lopment of general equi- Myrdal’s dissertation, ‘Pricing and Change’, in- librium theory. During the 1920s, he was one troduced inter-temporal planning and risk into of the most prominent economists in the world, price theory. Cassel was the dissertation advi- lecturing widely on monetary issues. Bringing sor. Erik Lindahl, another of the prominent mone­tary analysis into general equilibrium Stockholm school economists, who was at the ­theory is still an unresolved issue, particularly time lecturing in the Department, is mentioned regarding . A second chair in the preface for his ­advice. Lindahl’s­ own de- in economics was created in 1921, with Gösta velopment of inter-temporal­ and temporary Bagge (1882–1951) as its first incumbent equilibrium theory in the late 1920s was, in (Wadensjö,­ in Nycander 2005, ch.2). Bagge’s turn, influenced by Myrdal’s analysis. During early work concerned wage-setting under trade the 1930s, several members of the Department 112 Department of Economics

were involved in the development of employ- apparatus and the conclusions reached in Sweden ment theory. Considering the economic crisis in on the one hand and Mr. Keynes’ ‘General Theory’ on the world at that point, it was the hot topic of the other hand. Hoping that a discussion of two in- the time. Gunnar Myrdal, Gösta Bagge, Alf Jo- dependent attacks on the same set of problems hansson and Dag Hammarskjöld contributed may throw some light on the latter, I intend in this to the Unemployment Commission. From 1937 and the succeeding paper to make some observa- to 1944, Myrdal spent his time in the United tions on these two theories. (Ohlin, 1937:53) States, working on ‘An American Dilemma’ and financed by the Carnegie Foundation. After re- The Stockholm school of thought has attracted­ turning, he became Minister of Trade in 1945– a lot of interest and publicity through the years, 47. Much later, in 1974, Myrdal shared the though opinions have always differed on the Sveriges Riksbank Prize in Economic Sciences extent to which the Stockholm school really in Memory of Alfred Nobel with Friedrich von was very different from Keyne­sian theory. In Hayek. He was not entirely happy about that; any case, the Stockholm school economists, to perhaps the main problem was the co-laureate which Lindahl, Hammarskjöld, Johansson, whose values he did not share, but he had also Myrdal and Ohlin, as well as Lundberg and expressed criti­cism of the prize itself (Swedberg Svennilson belong, were creative and influen- 2004). tial researchers and policy makers. Erik Lundberg and Ingvar Svennilson offered­ The Stockholm school of thought theoretical contributions to the Stockholm The term ‘Stockholm school of thought’ or school in their doctoral dissertations. Lund- ‘Stockholm school’ was used by Bertil Ohlin in berg’s dissertation, ‘Studies in the Theory of Eco- 1937 in the first of two articles in the ‘Economic nomic Expansion’, completed less than a year Journal’. He introduced the article by stating: after the publication of Keynes’ ‘General Theory’, presents an independently developed dynamic Owing to a coincidence of circumstances, already­ at theory of business cycles, later formalized by an early stage of the depression Swedish econo- (Lindbeck & Persson 1987). mists came to deal with the problem of variations in Lundberg took up a position at Konjunkturin- employment, output and prices by means of a theo- stitutet (KI, the National Institute of Economic retical apparatus­ rather different from the price the- Research) in 1937 and became its head in ory in economic textbooks. There are surprising sim- 1946. The same year he was also given a per- ilarities as well as striking differences­ between that sonal professorship at the Department, where Faculty of Social Sciences – Stockholm University 113

Seminar in political economy in the seminar room A700. (Photo: Mats Danielson) he acted as a full-time professor after 1955 to the newly created ‘Research Institute of when he left Konjunkturinstitutet. Lundberg’s ­Industrial Economics’ (Industriens Utrednings­ overview of business cycles and stabilization institut) and was its head 1942–51. Svennilson policy from 1953 (Konjunkturer och ekonomisk was appoin­ted professor at the Department in politik, translated into English as ‘Business 1947. In parallel with his professorship, he ­Cycles and Economic Policy’, 1957) influen­ced played an important role in the development of a generation of students of Keynesian fiscal and The Medium Term Surveys (Långtidsutredning- . arna) of the Swedish government. Svennilson Svennilson’s doctoral dissertation, Ekono- was an early proponent of , i.e. misk planering: Teoretiska studier, was a theo- the use of statistical methods of analysis of eco- retical study of organizational planning explor- nomic data. (Persson & Siven 2009) ing intertemporal decision-making under risk. At this time the academic world of econom- After his doctorate, Svennilson initially worked ics was almost exclusively male, in Sweden and as an expert in Konjunkturinstitutet where Lund­ elsewhere. There was only one senior faculty berg was already working. He was then recruited woman in economics at Stockholm University 114 Department of Economics

College, Karin Kock (1891–1976). She defended encouraging the intellectual development of her doctoral dissertation, A Study of Interest their students. One of Lundberg’s few graduate Rates, in 1929. It was the second in Sweden students was Peter Bohm, who became one of presented by a woman – the first was by Margit the Department’s more influential professors in Cassel (the daughter of Gustav Cassel) in 1924. a later era, to which we now turn. Kock’s advisors were Cassel and Bagge. Kock became docent in 1931 and replaced Bagge and The 1960s and 1970s: Expansion Myrdal as acting professor during the period and change 1936–1946, when they were often on leave. In the early days of Socialvetenskapliga institu- One of her teaching areas was monetary eco- tet, as the Department was called until 1964 (in nomics. Kock was given ‘professor’s name’ in English the Institute for Social ­Sciences of 1945, served as Minister of Trade during Stockholm University, according to Lundberg’s 1947–49, and was the head of Statistics Swe- foreword to his doctoral dissertation, written den from 1949 until her retirement in 1957 in December 1936), the students were few and (Jonung & Jonung 2013). comparatively undemanding. The situation seems Lundberg and Svennilson were professors in to more or less have remained like that through- the Department for some considerable time, out the 1940s and much of the 1950s. How­ Lundberg until 1965 when he left for the Stock- ever, in the late 1950s that was about to change holm School of Economics, and Svennilsson un- in many ways. Ideas about how to organize the til 1967, when he succeeded Myrdal as head of education of future researchers were brought the Institute for International Economic Studies. in from leading universities in the United During that time, they were both also much in- States, where PhD course programmes were volved in policy advising activities (in those days held. Assar Lindbeck, who returned from a when there were not many students, it seems to two-year stay at Yale University, started by giving have been perfectly normal to combine a profes- an extensive course on monetary theory one year, sorship with extensive other commitments). and one on the second year. The Svennilson appears to have been a kind and car- initiative was followed up by Karl Jungenfelt ing person, if a bit preoccupied, while Lundberg and Östen Johansson. could be ironic towards his students. In general, It may seem a minor thing to start giving the Stockholm school economists were appar- courses for doctoral and licentiate students; ently more interested in their own scientific yet, this change was probably instrumental in a work and in being government advisors than in shift of research focus from research topics Faculty of Social Sciences – Stockholm University 115

much influenced by leading persons connected ed with the period when the baby-­boom gen- with the National Institute of Economic Re­ eration born in the 1940s was leaving school. search to research topics that were instead in- Hence, in the period 1956–1960 some 8,000 fluenced by international literature­ in economics people received a secondary school degree. In and other intensively discussed topics. The the period 1961–1965 that number almost dou- courses were much appreciated by young re- bled to 15,000, and between 1966 and 1968 searchers, who later became prominent in aca- (which is only two years) it increased to demia, such as Peter Bohm, Ingemar Ståhl, Alf 28,000. The volume of higher education ex- Carling and persons who became prominent in panded, and the number of students at the De- politics such as Kjell-Olof Feldt. partment of Economics increased greatly. The One topic within economics that interested Department moved from Odengatan 61 to Ha- several young researchers, for example Peter gagatan. Lectures took place in nearby cine- Bohm and Karl-Göran Mäler, and that later mas, making good use of the newly invented ­became a very prominent research area at the overhead projector (Nycander 2005:167–168). Department of Economics, was welfare eco- In 1970, the Department was one of the first to nomics. An important early contribution to the move to the new Frescati campus, and has since field was made by J. de V. Graaff in 1957. then had its main location on floor 7 in build- ­Another influence was Rachel Carson’s book ing A in Södra huset. Silent Spring (1962) in which she criticized the A natural response to a strong increase in extensive use of pesticides, in particular DDT, the number of students would have been a which she claimed threatened­ the fauna. The strong increase in the number of teachers and book received much attention in public forums professors. However, that did not come through; and awakened an interest in environmental ­instead, two research institutes were created. ­issues in many economists. In 1974, Mäler In 1962, Gunnar Myrdal was given a personal published the book Environmental Economics: professorial chair as manager for the Institute A Theoreti­cal Inquiry, which became very in- for International Economic Studies, which he fluential. himself had started. In 1966, Rudolf Meidner In the 1960s, the number of students at became the manager of the Swedish Institute universities increased rapidly, probably large- for Social Research. The former institute dealt ly due to changes in the school system, which mainly with macro­economics and the latter made many more young people eligible for with labour issues. The two institutes university studies. This development coincid- attracted many promising young researchers. 116 Department of Economics

The Department of Economics’ version of the ubiquitous Södra huset corridor. (Photo: Mats Danielson)

In the late 1960s, two chairs in the Depart- ‘Studies in the Structure of the American Eco­ ment of Economics received new incumbents, nomy’ (1953). Guy Arvidsson and Lars Werin Lars Werin and Guy Arvidsson, who were both both had their academic backgrounds from appointed in 1969. The Department then had Lund, where they had both had Johan Åker- three professors: Anders Östlind, Guy Arvids- man as dissertation advisor. In addition, ­Arvids-­ son and Lars Werin. Werin received his doctoral son, who was ten years senior to Werin, had degree in 1965 on the dissertation ‘A Study of succeeded Åkerman when he retired, but later Production, Trade and Allocation of Resources’, left Lund for the chair in Stockholm. which was an input-output study of the Swed- Guy Arvidsson died prematurely in 1973 ish economy in the spirit of the seminal contri- (aged 55) and was succeeded by Peter Bohm. bution of Nobel laureate Wassily Leontief’s Bohm’s licentiate thesis ‘External economies in Faculty of Social Sciences – Stockholm University 117

production‘ (1964), in which he thanks “my very important dissertations such as those by teachers, Erik Lundberg and Ingvar Svennil- Claes-Henric Siven, Bo Axell and the one writ- son”, is a theoretical examination of optimal ten jointly by Thomas Franzén, Kerstin Löfgren pricing under different forms of market imper- and Irma Rosenberg. The internationally most fections. At quite an early stage, Bohm moved well-known of those is probably Bo Axell. He into the new research area of experimental eco- made important contributions to search theory. nomics, and became influential within field By modelling how imperfect information about ­experiments, always with a focus on microeco- job opportunities opens up for wage bargain- nomic policy and welfare economics (see ing, search models provide explanations for the Dufwenberg and Harrison, 2008, for a descrip- existence of unemployment in equilibrium. The tion of Bohm’s research contributions within dissertation by Franzén, Löfgren and Rosen- the area of field experiments). Östlind retired berg on the effects of the public sector’s activi- in 1979 and was succeeded by Claes-Henric ties on the income distribution received interna- Siven, who received his doctoral degree in 1975 tional attention. Both Franzén and Rosenberg on the dissertation ‘A Study in the Theory of became deputy governors of Sveriges Riksbank ­ and Unemployment’. In addition to (the Swedish ). The dissertation by labour market functioning and wage setting, Siven was an important specimen when he ap- which was also the area of his dissertation, Siven plied for the chair after Östlind. has conducted research within the history of Bohm’s group was, in contrast to Werin’s economic analysis and economics of crime. group, much more focused on one field of eco- The research in the department during the nomics, namely welfare economics. A number 1970s and 1980s was informally organized of dissertations were produced in that group into three different groups, each with one aca­ and also works by more senior economists demic leader and several PhD students. One such as Roland Andersson who later was group was headed by Lars Werin and another ­appointed professor of real estate economics at by Peter Bohm. The third group was headed by the Royal Institute of Technology (KTH). The Alf Carling who was associate professor and in research in the early years of the 1970s was in charge of a large research project dealing with the field of economics. It involved studies of the energy system, a field that was central elements of welfare economics such as topical after the first oil crisis in 1973. policy alternatives when dealing with increas- Werin’s group was not oriented towards any ing returns to scale, public and externali­ particular field of economics. It produced some ties. Bohm was the editor of an influential book 118 Department of Economics

to which he also contributed, ‘Transport Policy government sector. To a high degree this has and Economics’ (Transportpolitiken och sam- also been the case for Stockholm University’s hällsekonomin), which had impact on a major Department of Economics. The research focus government inquiry about transport policy in the Department at different points in time headed by Alf Carling (Vägtrafiken. Kostnader has reflected general policy concerns, partly as och avgifter, SOU 1973:32). Many of the PhD a result of this contact. The list of publications students who participated in Bohm’s group later in the ‘Stockholm Economic Studies’ series, went on to careers within public administra- published within the Acta Universitatis Stock- tion. A few stayed in academia, like Hans Wij­ holmiensis in 1929–1970, shows a concern kander and Jan-Erik Nilsson. Wijkander was with macroeconomic­ issues as well as with fis- appointed professor first at the Swedish Insti- cal and monetary policy until the mid-1960s. tute for Building Research and the Royal Insti- This is not surprising, given that a number of tute of Technology (KTH), and later at the the leading researchers during that time had Depart­ment of Economics at Stockholm Uni- been or were connected with the National In- versity where he held the position of depart- stitute of Economic Research (KI), which lies ment chair for several years. Nilsson is profes- under the Ministry of Finance. The latter part sor in transport economics at KTH. of the 1960s represents a change in that the The group around Alf Carling was some- Depart­ment became more oriented towards what separate from the rest of the Department microeconomic policy and welfare economics, socially as well as physically, being located and the link with KI was broken. The 1960s across the from the rest of the Depart- were characterized by high growth and expan- ment. Those two factors, together with a more sion of the public sector, which generated or less pronounced mission to produce poli- ­demand for the advice of economists on, for cy-relevant investigations into energy related example, transport policy. After the oil crises in issues, probably made it difficult to produce 1973 and 1979, the referendum on nuclear dissertations. Not many PhD dissertations power in 1980, and the general rise of concern came out from that research group. There are, about energy and environment, energy eco- however, some exceptions. A number of PhD nomics and environment­ economics became students defended their theses when the group important research areas. was about to be dissolved in the 1980s. The shift in research focus in the late 1960s The academic field of economics hasalways ­ also brought with it a more fundamental change been closely in touch with policymakers in the in research questions. In the earlier period, the Faculty of Social Sciences – Stockholm University 119

main challenge was to find out more about the indication of the discussions at the time. functioning of the economy­ in its many aspects, ­Directly after its first publication, the book was from the possible causes of business cycles to reviewed in the top economics journals by the importance of forestry in the Swedish eco­ Franklin Fisher, Paul Samuelson, Murray nomy. This approach­ is called ‘positive eco- Kemp, William Baumol, I.M.D. Little, and nomics’ by economists, and economic models ­others. An inte­resting and clarifying review by here serve the important function of structur- Siven, landing on the side of positive econom- ing arguments and clarifying mechanisms of ics, appeared in the ‘Swedish Journal of Eco- interest. Welfare economics, in contrast, is nomics’ in 1965, after the book’s first reprint- much more concerned with how things should ing. (Intriguingly, Graaff himself seems to have be, and involves making recommendations for left academic economics soon after having so policy (‘normative economics’). These recom­ successfully stirred up the debate.) mendations take their point of departure in a model which presumes to describe the import- Recent and present times ant aspects of the market in question, or per- In the middle of the 1990s, the Department haps even the whole economy. In evaluating­ had entered a bit of a slump. Werin was retiring policy recommendations arrived at by this and the successor to his chair, which was joint method, the correctness of the model and its with the Department of Law, was on perma- assumptions become crucial issues. nent leave and not taking up the position as In comparison with most present-day aca- full-time professor. The research funds for demic economists, the welfare theorists of the ­energy applications had dried up and Carling 1960s and 1970s were quite ambitious con- had left the Department, first to KI and later to cerning the possibilities for economic theory to become an economic advisor to the Mandela deliver clear and detailed policy recommenda- government in South Africa. The improve- tions. This may have been one reason behind ments in graduate student financing­ meant that the at times considerable controversy over the doctoral students no longer took the whether economic theory really did, or does, respon­sibility for teaching that they had done provide a good enough model to motivate such in previous times. This was obviously in many a research agenda. The debate over the book ways a good change, but meant that most of by J. de V. Graaff, ‘Theoretical Welfare Eco- the teaching was now done by temporary nomics’, and the many reprints of this book ­replacement teachers. These young people did since its first publication in 1957, provide some good work, but the necessary long-term devel- 120 Department of Economics

opment of courses in response to the research the Ministry of Finance. In the years following advancement in the different fields of the disci- 1996, a number of promising young persons pline could not occur. have moved to the Department from other uni- To move the Department from this state, it versities and taken up professorial positions at was necessary to recruit people who would be the department. Some have also left the Depart­ qualified and interested in doing both research ment such as Martin Dufwenberg, who moved and teaching. Moreover, it was essential to to the University of Arizona, and Karolina ­attract a large enough number of people to create ­Ekholm and Martin Flodén, who both have a research environment. The construction of ­become deputy governors at Sveriges Riksbank. academic positions in Sweden at the time, An important change in the Swedish aca- where the choice was basically between full- demic system is the possibility of promotion time teaching positions and full-time research from senior lecturer to professor. This made positions, was not well-suited to achieve this – teaching positions more attractive in themselves, the full-time research positions were too few and contributed to changing the focus of academ- and the full-time teaching positions were not ic from being mainly within the De- attractive enough. The slow and unpredictable partment (for docent positions and professorial hiring process used in Swedish universities did chairs), to being outside and between depart- not help in this case. However, in the mid- ments (for good research environments, high 1990s a change in the way the Employment rankings, the best junior researchers,­ etc.). An Protection Act was implemented in the univer- effect of that change is that the number of full sities made it temporarily possible to create at- professors at the Department­ has increased sub- tractive positions. This opportunity was used stantially from three full professors in the mid- by Wijkander to enable the Department to re- 1990s to now 17 (including professors on leave). cruit young promising PhDs who were given The change in competitive focus may also have positions that were split between teaching and contributed to making the academic atmosphere­ research. The first who were recruited in that more pleasant than in the old days – boosting manner were Jonas Häckner and Sten Nyberg. one’s own department can seem more productive Both have been promoted to professors and than criticizing one’s colleagues. This does not Häckner is the current department chair. After and should not remove the critical attitude and them Michael Lundholm was recruited. He was habit which must always be an important part of also promoted to professor and is currently academia, but the balance between criticism and (May 2014) on leave to be undersecretary at cooperation may be better nowadays. Faculty of Social Sciences – Stockholm University 121

Departmental coffee breaks and collective cake eating is advertised by the ringing of the bell. (Photo: Mats Danielson)

In the Department of Economics at Stock- opportunities to plan working time, and by not holm University the policy is that all faculty scheduling meetings and semi­nars in the early members should do both teaching and research mornings or late afternoons. Also, we make sure and be free to choose their preferred area of re- that the doctoral students and post docs on sti- search. Everyone should teach basic courses as pends do not miss out on their rights to parental well as specialized courses in their area of choice leave. Both women and men in the Department and should have access to their schedule long in take out parental leave and sick child-days. advance. We make it easier for both female­ and The present Department of Economics has male faculty to combine work and parenthood, about 30 faculty members with at least a PhD for example by using long planning horizons, degree, 50 graduate students, 100 master stu- 122 Department of Economics

dents and well over 1,000 students in intro-  •  ductory and intermediate courses each semes- We thank Roland Andersson and Claes-Henric­ ter. Of the 17 full professors four are women. Siven for interesting discussions and helpful Most of the faculty members have their doc- comments. The first section is partly based on a toral degrees from other institutions of higher text by Lennart Erixon and Claes-Henric­ Siven learning than Stockholm University, an indi- used in the Department’s yearly “Current re- cation of the growth of academic mobility and search”. contact areas. A sign of the low level of aca- demic endogamy at the Department is that Dufwenberg, Martin and Glenn W. Harrison there is only one straight link to the early 2008. Peter Bohm: Father of field experiments. Stockholm school economists: Wijkander,­ who 11:3, 213–220. wrote his doctoral dissertation on second best Graaff, Johannes de Villiers 1957. Theoretical pricing within public economics,­ had Peter Welfare Economics, London: Cambridge Bohm as his advisor. He can thereby count University Press. Erik Lundberg as his ‘academic­ grandfather’, Gustafsson, Bo 1998. Ekonomporträttet: Gun- whom he never met. nar Myrdal (1898–1987). Ekonomisk De­ batt­ The current research at the Department 26:8; 617–627. ­covers a wide range of fields from monetary Jonung, Christina and Lars Jonung 2013. economics to social network theory. Within ­Karin Kock 1891–1976. Ekonomisk Debatt that wide span economic geography, public fi- 41:7; 66–78. nance, financial­ markets, behavioural econom- Lindbeck, Assar and Mats Persson 1987. Erik ics, political­ economy, labour markets, compe- Lundberg 1907–1987. Ekonomisk Debatt tition policy, development economics, economics 15: 6; 459–466. of crime and education economics can be found. Ohlin, Bertil 1937. Some Notes on the Stock- There has been an emphasized shift from theo- holm Theory of and I. retical methods into more empirical research. It Economic Journal 47:185, 53–69. can of course be expected that the range of re- Olofsson, Jonas and Lars Pålsson Syll 1998. search topics has increased since the number of Ekonomporträttet: Johan Leffler (1845– researchers has increased substantially. A bene- 1912). Ekonomisk Debatt 26:7, 527–532. fit of that is that the Department nowadays can Persson, Mats and Claës-Henric Siven 2009. offer a broad spectrum of courses and qualified Ingvar Svennilson 1908–1972. In IFN/IUI advising of students at all levels. 1939–2009. Sju decennier av forskning om Faculty of Social Sciences – Stockholm University 123

ett näringsliv i utveckling. Magnus Henrek- son (Ed.), 40–58. Stockholm: Ekerlids. Nycander, Svante 2005. Från värde till väl­ färdsteori – nationalekonomin vid Stock­holms högskola/ universitet 1904–2004, Stockholm: SNS Förlag. Siven, Claës-Henric 1965. Theoretical Welfare Economics by J. de V. Graaff (Review). Swedish Journal of Economics 67:1, 98–100. Swedberg, Richard 2004. Introduction to the Transaction Edition. In The Political Ele­ ment­ in the Development of Economic Theory. New Brunswick, NJ: Transaction Publishers. Proud110 exhibitionKapitelnamn of past and present professors at the Department of Economics. Recently, signs have been seen of a change in the gender ratio. (Photo: Mats Danielson)