Knut Wicksell: the father of Swedish social democratic economic policies and an influence on Mises and Hayek as well.
(This is the eighth in a series of articles on “the Swedish model”. Part one is here. It is an introduction that relates Swedish socialism to Bismarck’s reforms. Part two is here. It is about the persecution of the Samis. Part three is here. It deals with Sweden and the “scramble for Africa”. Part four took up the Myrdal enthusiasm for eugenics. Part five deals with Sweden’s economic partnership with Hitler. Part six covers the social pact that labor and capital agreed upon in 1938. Part seven addressed the question of “Who Rules Sweden”.)
Trying to understand the evolution of the economic theories underlying Swedish social democracy is no easy task. There is not only a dearth of English-language material but in Swedish as well. In “Seven Figures in the History of Swedish Economic Thought”, a specialized text on some of the leading economists associated with the “Swedish model”, author Mats Lundahl refers to their output as “unknown” or “forgotten”.
If the “Chicago School” summons up images of Milton Friedman consulting with Pinochet, what does the “Stockholm School of Economics” evoke? Founded in 1909 as a business school largely from donations by Knut Wallenberg, it was intended to churn out experts who could help Sweden modernize its economy and develop international trade. The Wallenbergs were the Rockefellers of Sweden and well equipped to shape the doctrines that would govern the nation’s future. As it turns out, the Rockefeller Foundation had considerable interest in Sweden’s politics as well, donating large sums to set up a Social Science think-tank under the jurisdiction of the University of Stockholm that would study the impact of wage levels in the labor market among other things. Among the earliest benefactors of Rockefeller funding was Gunnar Myrdal, a Stockholm School graduate who would later on be referred to the Carnegie Foundation for the funding he needed to write “American Dilemma”, widely considered a seminal work on civil rights.
So how did Sweden’s social democracy get hooked up with a business school funded by Sweden’s most powerful capitalist dynasty?
In a way this was inevitable given the social democracy’s ideological drift that began in the 1880s and deepened over the decades. It can best be described as the Swedish version of Eduard Bernstein but unconstrained by any kind of left opposition in the party such as existed in Germany.
One of the key departures from classical Marxism was rejection of the labor theory of value. Party theoreticians became seduced by the theories of Eugen Böhm von Bawerk, who was arguably the first economist to challenge the core beliefs of Marxism on the nature of capitalist exploitation.
As it turns out, the economist who is considered the ideological progenitor of the Stockholm School was one Knut Wicksell, who like Böhm-Bawerk took aim at the labor theory of value. It is of some note that Bohm-Bawerk is considered the father of the Austrian school of economics that includes Mises and Hayek. If Wicksell was an acolyte of Bohm-Bawerk, how did he end up influencing the likes of Gunnar Myrdal who is one of the 20th century’s iconic liberal figures? Furthermore, if the Stockholm School was indeed a pioneer of the kind of economic policies associated with John Maynard Keynes, even to the point of beating him to the punch, how do you explain the odd admixture of neoclassical economics and 20th century liberalism?
Wicksell was as much of an influence on the Austrians as Bohm-Bawerk. If you go to the Mises wiki, you will find a page that pays tribute to Wicksell as a major contributor to their business cycle theories. Since much of Wicksell’s writings involve very technical analysis of interest rates and credit allocation, it is not that hard to understand why he would be of use to reactionaries like Mises.
But the more interesting question is to what degree Wicksell’s neo-Malthusian views that were put forward largely in non-academic writings had an influence on subsequent social democratic policies, especially forced sterilization.
In his chapters on Wicksell, Lundahl finds those writings to be more important than the technical price, interest rate and credit analysis. In lectures to his students at Uppsala University, Wicksell dwelled at length on the vices of the lower class such as alcoholism and prostitution. He was also concerned about overpopulation, thinking that technological breakthroughs could never keep pace with population growth. Much of his writing is focused on determining an “optimum population”. While there is no particular recommendation on the need for forced sterilization, you have to wonder to what extent his fixation on such matters figured in the state policies that would leave many Roma women sterile.
If Wicksell’s emphasis on the need for market relations to guarantee efficient provision of capital, labor and resources seems at odds with Swedish values, keep in mind that his influence can be felt in the writings of Gunnar Myrdal who on first blush would appear to be the anti-Austrian par excellence.
If a $15 (or better) minimum wage is a demand that resonates with civil rights activists today, it is rather shocking to discover that Myrdal’s take in “American Dilemma” had more in common with Bill O’Reilly’s:
During the ’thirties the danger of being a marginal worker became increased by social legislation intended to improve conditions on the labor market. The dilemma, as viewed from the Negro angle is this: on the one hand, Negroes constitute a disproportionately large number of the workers in the nation who work under imperfect safety rules, in unclean and unhealthy shops, for long hours, and for sweatshop wages; on the other hand, it has largely been the availability of such jobs which has given Negroes any employment at all. As exploitative working conditions are gradually being abolished, this, of course, must benefit Negro workers most, as they have been exploited most—but only if they are allowed to keep their employment. But it has mainly been their willingness to accept low labor standards which has been their protection. When government steps in to regulate labor conditions and to enforce minimum standards, it takes away nearly all that is left of the old labor monopoly in the “Negro jobs.” (emphasis added)
As low wages and sub-standard labor conditions are most prevalent in the South, this danger is mainly restricted to Negro labor in that region. When the jobs are made better, the employer becomes less eager to hire Negroes, and white workers become more eager to take the jobs from the Negroes. (p. 397)
Perhaps the only thing that can be said here is that Myrdal remained committed to neoclassical economics despite his reputation of being some kind of socialist. If supply and demand dictate what Black labor gets, then how can a civil rights movement be built?
You can read a large part of Herbert Aptheker’s critique of Gunnar Myrdal’s “An American Dilemma” on Google Books. It is a reminder of how good Communists could be when they were ready to go for the jugular:
The bourgeois values of Myrdal are also given quite explicitly. He states that to him the terms good and bad are “defined according to our value premise of placing the general American culture ‘higher.” The same bias is apparent in Myrdal’s choice of the “friends” of the Negro. To him, “the Negro’s friend—or the one who is least unfriendly—is still rather the upper class of white people, the people with economic and social security.” And in another place Myrdal names one of these upper class people, Edgar G. Murphy, “who is distinguished as one of the most sincere friends of the Negro among the conservative-minded old Southerners.” This individual, a leader in the Alabama movement to overthrow Reconstruction government and constitution, felt that so far as the Negro is concerned, “the spirit of the South has been the spirit of kindliness and helpfulness…. The South gives to him the best gift of a civilization to an individual, the opportunity to live industriously and honestly. . . The South, must, of course, secure the supremacy of intelligence and property.” Such, to Myrdal, is “one of the most sincere friends of the Negro.”
To a large extent, Swedish social democratic economic policies rest on the notion of a “third way” in which labor and capital can cooperate with each other and avoid the mutual destruction revolutionary confrontations produce—at least according to theoreticians such as Knut Wicksell, Gunnar Myrdal, et al. But to what extent did the bourgeoisie really agree to a compromise that left both major classes in society on an equal footing? Were the Wallenbergs et al swayed by reason or were there other factors that accounted for the class peace that had dominated in Sweden for so many decades?
Unlike the USA, where the Communists were the largest party on the left, Sweden was social democratic territory. The social democrats were a known quantity to the big bourgeoisie in Sweden who regarded them as pushovers. In 1931 there was a general strike over the killings of strikers and their supporters in Adalen, a struggle led by the CP. It was that general strike that ironically led to the election of the SAP (the social democrats). In the 1920s, the SAP had demonstrated its willingness to avoid “extremism”. In an article titled “Forestalling the Business Veto: Investment Confidence and the Rise of Swedish Social Democracy” that was co-authored by Karen Anderson and Steven Snow that appeared in the March 2003 Social Science Quarterly, they document how willing the SAP was to bow to the bosses’ demands:
￼ The Social Democrats were historically linked to the unions, from which they derived much political support, but as a party often in government, it felt obliged to reduce the economic losses from labor conflicts. In the 1920s the SAP “repeatedly advocated general interests over and above the struggle of individual groups of workers for better working conditions”. Throughout this period, in fact, the SAP often stood with employers on the issue of wage rates. When the employers said that a wage reduction was unavoidable, the Social Democratic representatives in the unions often supported them. In 1920, for example, in response to a recession and in the face of unions’ appeals, the Social Democratic Minister of Finance declared “The demand for increased wages must cease”. The party was also willing to criticize outbreaks of violence in clashes between workers and police. In several labor disputes, even though the police apparently used excessive force, the SAP proved willing to denounce the tactics of striking workers. “Offenses against existing law must always be condemned,” the SAP Prime Minister argued.
In the 1930s, there was a rising tide of labor strikes in the USA but in Sweden, there was an opposite tendency thanks to the class collaborationism of the SAP as this chart from the Anderson-Snow article indicates:
In exchange for a housebroken trade union movement, the SAP was able to provide sizable material benefits to the working class until global competition in the 1980s forced Sweden to rip up the accords it had made with the workers and throw them in the garbage can. That will be the topic of my final article in this series.