The political arithmetics of the Stockholm School

Abstract

Outside Britain the most interesting development in the analysis of fiscal policy was in Sweden, where a group of young economists (especially E. Lindahl and G. Myrdal) brought up in the general or macro-economic approach by their teacher, Knut Wicksell, were groping for a comprehensive and rational policy of compensatory finance. The Swedish contribution was notable for emphasizing from an early stage … the need to gear the system of public accounting and the arrangement of the budget so as to make it appropriate for the additional responsibilities of fiscal policy.… The first country to manifest any interest in the economic classification of the budget was Sweden, which established a fairly comprehensive reorganization of the budgetary structure on a current/capital basis in 1938. (Ursula Hicks, 1947, pp. 272 and 339; italics added). Bertil Ohlin's celebrated article in the Economic Journal (Ohlin, 1937) ushered into the Anglo-Saxon world the now familiar concepts by which all and sundry refer to the Stockholm School: dynamic method, disequilibrium dynamics, temporary equilibrium, ex ante versus ex post , process analysis, liquidity preference versus loanable funds, and so on. Section B of part I of Ohlin's paper, where the above much-maligned concepts were elegantly introduced, has attained the status of a classic: much quoted, seldom read. Ohlin, in one respect at least, presented the fundamental, unifying theme of Swedish economics extending from Davidson, Wicksell, and Cassel to Lindahl and Myrdal: the necessity of starting from feasible and useful accounting conventions.