Swedish economists in the 1930s debate on economic planning

With his new book on how Swedish economists debated economic planning in the 1930s, Professor Emeritus Benny Carlson at Lund University’s Department of Economic History has added yet another very readable title to a lifelong scholarship in the history of economic ideas. Overall, the book is a pleasant and informative read, although somewhat repetitive, and tells of Carlson’s background as a journalist before becoming an academic. As the story’s main actors were at the international forefront of both developing economics as a science and debating it publicly, the book will be valuable to anyone interested in the development of economic thought in the inter-war decades. The book also reveals how this, until now somewhat forgotten debate, preceded both domestic and international discussions on the links between planning and totalitarianism, government and market failures, and the role of institutions in economic policy.

Carlson analyses the debate through the lens of five prominent economists in a decade with growing calls for more government intervention as a response to economic, social, and political disorder. Gustav Cassel, Eli Heckscher, and Gösta Bagge were the three older market liberals who opposed (peacetime) planning. Against them stood the up-and-coming Bertil Ohlin and Gunnar Myrdal, who both argued for state intervention, albeit for different reasons. These were all men of great ambition who did not shy away from participating in public debate. Cassel and Heckscher were in the 1920s and 1930s among the world’s most well-known economists. Bagge later went on to become party leader for the Conservatives, Ohlin became party leader for the Liberals, and Myrdal influential social democratic ideologue and cabinet minister. Of these, Bagge was the least active in the debate and he also plays a significantly smaller role in Carlson’s narrative than the other four and could probably have been left out altogether.

The book is structured in five chapters where Chapter 4 describes the actual debate. Chapters 1–3 provide the reader with an introduction, the international context, and a short introduction to the main actors. In the last chapter Carlson persuasively summarises his findings, makes some interesting comparisons between the Swedish debate and arguments brought forward by planned economy skeptic Friedrich Hayek his critic E.F.M Durbin, before ending with (what could have been a much longer) section on lessons for our time. In terms of sources, Carlson relies on an impressive amount of newspaper pieces, both editorials and articles. Between 1929 and 1939 Cassel wrote 430 pieces, Ohlin 600 and Heckscher 100. He also makes use of books, pamphlets, and records from the Swedish Economic Society (Nationalekonomiska Föreningen), spiced up with personal letters that reveal how their different views and not so small egos eventually rendered any personal relationships among them impossible.

What is ‘economic planning’? Carlson uses a straightforward definition by proclaiming it to be ‘the allocation of resources by means other than markets’ and leans on earlier scholarship that maintains that for those involved in the debate this definition was ‘the usual one and uncontroversial’. However, as Carlson’s analysis shows, one of the most striking characteristics of the 1930s debate was that the actors had different views on what economic planning was and what it would lead to. For especially Cassel and Heckscher (inspired by a visit to Russia) economic planning would inevitably lead to dictatorship as politicians and bureaucrats would not be able to resist the temptation to centralise the decision-making process to achieve greater efficiency. To them, the debate was much bigger than arguing over economic effectiveness, it was ultimately about civilisation. As we know, this argument was popularised some 10 years later by Friedrich Hayek in his international bestseller The Road to Serfdom. To Ohlin and Myrdal this was a grossly exaggerated fear. In their view, the world had changed so much that the type of nineteenth-century economic liberalism that their older peers argued for did not fit with modern monopolistic tendencies and the sharp business cycle turns. Contrary to Hecksher’s and Cassel’s standpoint they argued that a lack of state intervention could cause revolutions and dictatorships if the masses saw decision-makers that failed to act in the face of economic upheaval. However, while Myrdal regarded planning as a necessity to prevent chaos and achieve the type of adjustments that the liberal economy could not accomplish on its own, Ohlin took a middle way with his ‘frame planning’ (ramhushållning). Through legislation, the government would set ‘a frame’ but within it, private enterprises should take care of themselves. There is a clear connection between the main actors’ political outlook and their attitude towards economic planning and economics as a science. A longer background chapter (now only 10 pages) on the economists could have given the reader a greater understanding of how their political views were formed.

The book aims to ‘survey arguments for and against economic planning as they were put forward by leading Swedish economists in the 1930s and to put these arguments into a context of events and inspirational sources’. Carlson definitely succeeds with the first part. However, it turns out that, except for Bertil Ohlin who drew on a similar debate in the UK, it is difficult to find the inspirational sources as especially Gustav Cassel and Eli Heckscher were not particularly transparent about what or who inspired them. Further, Carlson treats the ‘context of events’ without much detail. He could have explained more thoroughly how the economic development in Sweden affected the debate. The same goes for developments in the totalitarian countries and the U.S.A. as the Swedish economists kept referring to those countries. The book would also have benefited from more rigorous editing. The empirical chapter could have been divided into two or three chapters and subheadings would have facilitated for the reader in keeping track of the debate and how it related to a wider context.

To conclude, what Benny Carlson eloquently shows is the intensity of the debate on planning among the leading Swedish economists in the troublesome decade of the 1930s. It convincingly depicts an intellectual contest over a state- versus a market-based society that was well underway before Hayek’s rise to world fame in the 1940s and even before the publication of Keynes General Theory in 1936. It is a book that can be of use at university courses in twentieth-century economic history but laymen with an interest in the development of economic ideas and political philosophy will also find it interesting.