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Bertil Gotthard Ohlin

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Bertil Gotthard Ohlin PROFILES OF WORLD ECONOMISTS 20 BERTIL GOTTHARD OHLIN BERTIL GOTTHARD OHLIN doc. Ing. Anetta Čaplánová, PhD. Bertil Gothard Ohlin was born on 23rd rent economic development. In 1931 he April 1899 in Klippan, the village in the prepared a report on the World Depres- East of Sweden, in the middle-class sion for the League of Nations and in family. In 1917 he graduated from the 1934 an analysis of the unemployment Lund University, where he studied mat- situation for the Swedish government. hematics, statistics and economics. Between 1937 – 1947 he studied for Later he studied economics at Stock- some period at recognized world uni- holm School of Economics under Eli versities, at the University in Berkley, at Heckscher and Gustav Cassel, who con- Columbia and Oxford University. ducted research in the theory of in- Ohlin belongs, due to his economic ternational trade. This inspired ideas developed between the world Ohlin’s interest in this area. Ohlin wor- wars, which had formed in discussions ked on the theory of international trade in his docto- with his colleagues – other economists in Stock- ral thesis from 1924 entitled Handelns teori (Trade holm, E. Lindahl, G. Myrdal, E. Lundberg, to the theory). Between 1925 – 1930 he held a chair at the Stockholm School, a group, which is in many res- Copenhagen University. In 1931 he returned back to pects considered to be a parallel and independent Sweden, where he succeeded Heckscher at the developer of the theory of the economy with unused Stockholm School of Economics. Already during this resources, which became the essence of Keynes‘ period he paid attention to the analysis of the cur- General Theory. At the end of 30-ties Ohlin became a member of the beginning and towards the end of his professio- the Swedish parliament „Riksdag”, with which the nal career, since his long-lasting political activities long period of his active participation in the political did not allow him to allocate more time to his acade- life of Sweden began.Between 1944 – 1967 he wasmic work. a chairman of the Liberal Party.During the 2nd World In 1977 he was awarded, together with James War he served as the Minister of Trade in the Swe- Meade, the Nobel price for economics for his contri- dish government.He was an MP until 1970. bution to the development of the monetary theory For many years Ohlin contributed to Swedish and the theory of economic expansion and for the newspapers.He wrote articles related to current eco- analysis of theoretical and practical problems of nomic events and economic policy.Similarly to hisinternational trade and movements of capital.Bertil academic work most of these articles were written at Ohlin died on 3rd August 1979 in Stockholm. Ohlin’s contribution to economic theory maintain its macroeconomic equilibrium. In differen- ce to Keynes, Ohlin emphasized that if proper mone- Monetary Theory tary and fiscal policies were formulated and fixed In 1929 for the first time Ohlin attracted attention of exchange rate regime applied, the increase of taxes a wider audience of economists and gained recogni- required by the need to accumulate resources to pay tion in his polemics with J. M. Keynes on the mecha- reparations, would bring about the decrease of the nism of capital transfers applied to the concrete purchasing power in Germany and the increased example of reparations, which was Germany assig- demand in England and France. This would find cor- ned to pay after the 1st World War. In this discussion responding response in the trade balance of these Ohlin took the position that even in the situation of a countries. Germany would create export surplus and large international monetary transfer a country can England and France import surpluses. BIATEC, Volume XII, 7/2004 PROFILES OF WORLD ECONOMISTS BERTIL GOTTHARD OHLIN 21 Similarly to other representatives of Stockholm operations as a tool of monetary policy was limited in School, Ohlin frequently used the ex-ante and ex-post Sweden. Ohlin criticized it and requested to use chan- approach in his analysis. He emphasized the impor- ges in the interest rate and subsequently in the volu- tance of time-lags and with respect to the analysis of me of credits as the main tool of the monetary policy the monetary policy he pointed out that changes in of this period. psychological reactions of individuals could influence Ohlin also dealt with the issue of the optimal level of the economic development to a larger degree than the interest rates, which he considered to be at 3-3.5 per- monetary policy itself. The ex-ante and ex-post app- cent. He arrived at this estimate on the basis of the roach did not allow him to consider the interest rate as analysis of the dynamics on the Swedish market of an equilibrating variable. Regardless from its value, ex long-term credits in 1930. He concluded that the inter- post investment will be always equal to savings. So in est rate at 3 percent represented a critical lower mar- the first place he considered the interest rate as the gin, since there existed psychological barriers, which price of credit and only in this respect able to influen- did not allow it to decrease below this level. However, ce to some extent the size of investment. in 1938 interest rates in Sweden fell even below 3 per- Ohlin’s monetary theory is in a wider sense closely cent. Ohlin attributed it to the fact that the recession in related to his business cycle theory. If the central bank the industry created suitable psychological preconditi- aims to influence the real sector of the economy then ons for their decrease. the interest rate will play a key role. Ohlin also analy- According to Ohlin, the aim of the interest rate regu- zed possibilities for endogenous changes in the lation should be the price stabilization and the desi- money supply and credit, but questioned whether rable economic development. He criticized the ban- these changes are sufficient to influence aggregate king system that during the war it was not able to expenditures. Ohlin’s paper „Till fragan om penningte- maintain the flexibility and did not issue bonds with oriens uppläggning“ (On the Formulation of Monetary short periods of maturity. Ohlin did not emphasize the Theory) from 1933 is considered by several econo- role of money in the economy. If the ex ante - ex post mists as a parallel formulation of the theory, which approach is applied, not the quantity of money in cir- Keynes came with in his General Theory. However, in culation is important for changes in price level, but the difference to Keynes a primary concern of Ohlin’s conditions, which exist on the capital market. He cal- insterest in this article is the analysis of changes in the led for attention of economists to an individual, whose price level and the fluctuations of output are treated psychological reactions to the liquidity and interest only as secondary ones. On the other hand, it is rates, he considered to be more important as money necessary to emphasize that Ohlin did not specify the and its circulation if aiming to influence the economic role of changes in output as an equilibrating variable development. as Keynes did. As stated above, Ohlin analyzed changes in the Ohlin’s theory of interest rates can be considered as price level and also factors, which lead to the price his monetary theory in the narrower sense. This theo- changes. His explanation of changes in the price level ry was presented in his papers in the „Economic Jour- elaborates on the Wicksell’s idea according to which nal“ (1937) and further elaborated in the monograph the inevitable and sufficient condition for the increase Kapitalmarknad och räntepolitik (The Capital Market in prices is the increase of the sum of the consumpti- and Interest Rate Policy) (1941). The main aim of the on and investment demands compared to the change later one was to formulate a capital market theory and in output. Thus, the price increase can be initiated eit- to criticize credit policy in Sweden during the first two her from the side of investment or from the side of years of the war. He also analyzed factors, which consumption. If trying to explain changes in prices determine the level of interest rates. He considered then we have to concentrate on the identification of one of the most important factors in this respect factors, which influence the demand and the supply of expectations of economic agents. Prices on the secu- consumption and investment goods. rities market are formed in the mutual interaction of In his paper from 1934 Ohlin pointed to the interest the demand and supply. He called for the diversifica- rate as a factor, which has impact on the size of the tion of this market in general and in Sweden of those demand and the supply. The decrease of the interest days in particular. In Sweden up to 1935 securities rate leads to the increase of planned investment. The with the maturity period between 30 – 80 years were impact of the increase of investment on output and issued. Only in 1935 securities with the maturity peri- price level depends upon the elasticity of supply deter- od of 12 years were issued, however this step was not mined by the existence of unused resources in the met positively by investors. Because of the situation economy. If the supply is perfectly elastic, i.e. there during this period the possibility to use open market exist spare resources in the economy, the increase of BIATEC, Volume XII, 7/2004 PROFILES OF WORLD ECONOMISTS 22 BERTIL GOTTHARD OHLIN investment will lead to the corresponding increase and se for the discussions among several economists on will not increase the price level.
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