The monetary economics of the Stockholm School

Abstract

The Stockholm School was christened by Bertil Ohlin in Economic Journal in 1937. He used this name to refer to the scientific work by Alf Johansson, Dag Hammarskjold, Erik Lindahl, Erik Lundberg, Gunnar Myrdal, and himself that was published between 1927 and 1937, mostly in Swedish. Ohlin wanted to challenge Keynes's claim of having conceived a new theory about macroeconomic developments. According to Ohlin, the Stockholm School had worked with similar tools and problems for many years and had successfully reached similar conclusions. Schumpeter (1954) picked up this thread, although without any far-reaching analysis of the subject. Later Landgren (1960) questioned Ohlin's conclusion. In more recent years Steiger (1971, 1978) and Brems (1978) have praised Ohlin's articles (1933, 1934) as clear forerunners of Keynes's General Theory . Patinkin (1982), however, has remained skeptical about this interpretation. It is the purpose of this article to reopen the case. My starting point in this endeavor is the following interpretation of what was new in the General Theory . In my opinion, the first important building block in Keynes's theory is the idea that output adjustment instead of price adjustment equilibrates the output market. This is emphasized by Patinkin (1982). The second significant building block is Keynes's monetary theory. In it we see the continuation from Marshall (1975) and Pigou (1917) in focusing on the supply of money and the demand for money. But by setting the interest elasticity at the center of liquidity preference, Keynes moved a long way toward a portfolio theory.