Lundberg, Erik 1907-1987
The Swedish economist Erik Filip Lundberg was born in Stockholm into an academic family. His father, Filip Lundberg, was a famous insurance mathematician. After studying economics and mathematics at Stockholm University, Erik Lundberg spent 1931 to 1933 in the United States, where he came under the influence of Wesley C. Mitchell (1874–1948), founder of the National Bureau of Economic Research. Mitchell inspired in Lundberg an interest in empirical research and a certain skepticism toward theory.
Despite this influence, Lundberg wrote a theoretical PhD thesis titled Studies in the Theory of Economic Expansion. This thesis earned him an international reputation among economists, but it was his only theoretical work. Lundberg’s thesis was completed in December 1936, a few months after the publication of John Maynard Keynes’s (1883–1946) General Theory of Employment, Interest, and Money. The disposition of Lundberg’s work was to some extent adapted to the then-current climate of discussion generated by the General Theory, but Lundberg was little influenced by Keynes’s book in any other sense. Lundberg, unlike Keynes, discussed both the production side and demand side of the economy, though Lundberg’s demand-side theory is similar to Keynes’s.
The starting point for Lundberg and for the Stockholm school was to a great extent the Swedish economist Knut Wicksell (1851–1926), though Lundberg was also influenced by Eugen Böhm-Bawerk (1851–1914) and Friedrich August von Hayek (1899–1992), according to whom capital was perceived as time consumption. Prior to Keynes, capital in this sense—that is, the length of the production cycle from raw materials through semi-manufactured products, investment products, and final products—played a role in explaining the business cycle.
Lundberg developed these lines of reasoning, in the spirit of the Stockholm school, into a sequence analysis. The combination of the accelerator principle, which determined investment and the multiplier via consumption, analyzed in a sequence of periods, was shown to cause instability in free market economies. This theory was dynamic in contrast with Keynes’s General Theory. Keynes analyzed the equilibrium situations in the economy and compared them with one another, while Lundberg analyzed processes in disequilibrium, namely, the development of the economic system over time. Paul Samuelson (1939) later simplified Lundberg’s theory in an elegant mathematical formulation.
After completing his doctoral thesis, Lundberg was drawn into analysis work and economic advisor tasks. He became head of the Swedish National Institute of Economic Research in 1946 and there developed inflation-gap analysis, based on his thesis. The inflation-gap hypothesis was measured, in a closed economy, as the difference between the aggregated effective demand and the production capacity at full employment. Lundberg’s years of empirical work resulted in 1953 in his great Konjunkturer och ekonomisk politik (Business Cycles and Economic Policy). This is a rich book with retrospective references to economic developments and discussions during the period between the world wars. The book also deals with the conditions for stabilization policy and the efficiency of regulated and planned economies compared to free markets. The significance of free market prices for efficient allocation of resources is also an important theme, one that aroused considerable interest in Swedish economic policy debates.
Lundberg’s Produktivitet och räntabilitet (Productivity and Rate of Return; 1961) studies the significance of capital formation for economic growth. Lundberg observed, for instance, that the small ironworks of Horndal in central Sweden had not made any net investment during a period of fifteen years, only investing in some maintenance work. Despite this, labor productivity increased by 2 percent a year. This is usually termed the Horndal effect and has since been studied under the label learning by doing.
Lundberg’s final major work was Instability and Economic Growth (1968). One of the issues in this book concerns the relationship, if there is one, between instability and growth. Lundberg found no such relationship.
Lundberg ranks as Sweden’s leading economist during the postwar period. He was chairman of the International Economic Association (1968–1971) and of the Nobel committee for economics (1974–1979). Because Lundberg was skeptical toward theory and worked eclectically, it is impossible to definitively establish his attitudes toward many social problems, apart from a deeply rooted economic liberalism. Lundberg had a pronounced sense of humor that could occasionally wound colleagues and students, but he was a good person and as a debater and advisor he epitomized integrity and honesty. He was not as successful as a teacher. His excess of approaches and ideas could easily confuse an inexperienced doctoral student, and few of his students continued on an academic path.
SEE ALSO Stockholm School
Lundberg, Erik. 1937. Studies in the Theory of Economic Expansion. Trans. Nils G. Sahlin and Florianne Dalberg. London: King and Son.
Lundberg, Erik. 1953. Konjunkturer och ekonomisk politik. Stockholm: Swedish National Institute of Economic Research and Studieförbundet Näringsliv och Samhälle.
Lundberg, Erik. 1957. Business Cycles and Economic Policy. Trans. J. Potter. Cambridge, MA: Harvard University Press.
Lundberg, Erik. 1961. Produktivitet och räntabilitet. Stockholm: Studieförbundet Näringsliv och Samhälle.
Lundberg, Erik. 1968. Instability and Economic Growth. New Haven, CT: Yale University Press. Lundberg, Erik. 1995. Studies in Economic Instability and Change: Selected Writings Through Five Decades, Together with an Obituary by William J. Baumol, ed. Rolf G. H. Henriksson. Stockholm: SNS Förlag.
Samuelson, Paul A. 1939. Interactions Between the Multiplier Analysis and the Principle of Acceleration. The Review of Economics and Statistics 21 (2): 75–78.