The Nobel Factor: The Prize in Economics, Social Democracy, and the Market Turn by Abner Offer and Gabriel Söderberg (review)

In 1761, the biggest adventure in mercantile finance since the South Sea bubble was underway—in Sweden. Two parties in the Riksdag, the Hats and the Caps, had battled back and forth for twenty years, much of the fifty-year span of Swedish history known as “the age of freedom.” The Hats favored vigorous promotion of a nascent industrial revolution through easy credit—paper-money mercantilism similar to that of John Law’s Banque Royale fifty years before. Domestic prices had risen far above parity with prices in gold. The Hats ascribed high prices to the trade deficit. The Caps attributed inflation and currency depreciation to the reckless issue of paper money. They favored a sharp deflation back to old gold parity.

Enter Pehr Niklas Christiernin, (1725–1799), a contemporary of Adam Smith, professor of law at university of Uppsala, and the author of Lectures on the High Price of Foreign Exchange in Sweden (1761). Though a Hat by virtue of his position, Christiernin accepted the argument of the Caps, but warned that deflation would produce massive unemployment. Instead, he recommended stabilizing prices at current levels by tightening monetary policy. Sure enough, when the Caps came to power in 1765 and cut prices in half, the big depression Christiernin had predicted ensued. The Hats returned to power, but nothing was resolved until a coup in 1772 replaced parliament with an absolute monarchy. Convertibility at existing prices was restored in 1777.

Christiernin’s was the first clear theory of paper money, a big advance over the notions of John Law, the architect of the South Sea bubble. The same controversy would be repeated during the bullionist controversies in Britain, 1797–1810, when the same lessons were learned. Even though he had anticipated David Hume and Henry Thornton, Christiernin left no trace in the literature until he was rediscovered and introduced to readers of English, in 1963, by Robert V. Eagly. The story is laid out by Jürg Niehans in A History of Economic Theory, Classic Contributions 1720–1980 (Baltimore, 1990), from which the foregoing account is largely drawn.

The episode is mentioned in this review because the Christiernin Lectures, along with contributions by various Swedish economists of the nineteenth and twentieth centuries, are part of the foundation on which the authority of the newest Nobel prize is thought to rest, at least by those involved in its creation. Offer and Söderberg do not mention it in their book. Authors are entitled to write what they want, and Nobel Factor contains much that is new and interesting. It is framed as a discourse about large twentieth-century trends in historical views that saw “market liberalism” largely displace “social democracy” after 1970. This “market turn”—a worldwide change in fundamental attitudes, in which metaphors of buying and selling between individuals replaced social democratic norms of obligations to family, group, class, and nation—is left unexplained, except insofar as the authors view the prize in economic sciences as mainly a marketing campaign. The prize was added to the original five, in 1969, by the Nobel Foundation and the Royal Swedish Academy of Sciences.

The authors examine the role of Assar Lindbeck—twenty-four years on the prize committee as well as an extensive career in Swedish public affairs—and conduct a study to document what they consider as two deliberate omissions from the list of prizes given (Joan Robinson and John Kenneth Galbraith). But the heart of the book is an archive-based account of where the money for the prize came from—a gift of the Swedish Central Bank, derived from earnings on its open-market operations, designed to commemorate the tercentenary of its founding. According to the authors, Governor Per Asbink mainly sought to buttress the independence of monetary policy from the government’s centralized wage bargaining. The endowment of the prize...