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Presentation Speech - The Sveriges Riksbank (Bank
of Sweden) Prize in Economic Sciences in Memory of Alfred Nobel
KUNGL. VETENSKAPSAKADEMIEN THE ROYAL SWEDISH ACADEMY OF SCIENCES
October 1969
Speech by Professor ERIK LUNDBERG of the Royal
Academy of Sciences
Translation
Your Majesty, Your Royal Highnesses, Ladies and Gentlemen.
In the past forty years, economic science has developed increasingly
in the direction of a mathematical specification and statistical
quantification of economic contexts. Scientific analysis along these
lines is used to explain such complicated economic processes as
economic growth, cyclical fluctuations, and reallocations of
economic resources for different purposes. In economic life there is
an elusive mixture of relatively systematic interrelations, for
which one can find a more or less regular repetitive pattern and
historically unique events and disruptions. To the layman, it may
seem somewhat reckless to seek, without support from experiment, for
laws of development within these extremely complicated processes of
economic change, and to apply for this purpose the techniques of
mathematical and statistical analysis. However, the attempts of
economists to construct mathematical models relating to strategic
economic relations, and then to specify these quantitatively with
the help of statistical analysis of time series, have, in fact,
proved successful. It is precisely this line of economic research,
mathematical economics and econometrics, that has characterised the
development of this discipline in recent decades. It is therefore
only natural that when the Bank of Sweden's Prize in Economic
Science dedicated to the memory of Alfred Nobel is awarded for the
first time, it should be to the two pioneers in this field of
research: Ragnar Frisch of Norway, and Jan Tinbergen
of Holland.
Since the late twenties, Professor Frisch and Professor Tinbergen
have been working along essentially the same lines. Their aim has
been to lend economic theory mathematical stringency, and to render
it in a form that permits empirical quantification and a statistical
testing of hypotheses. One essential object has been to get away
from the vague, more "literary" type of economics. The
arbitrary "naming" of causes of cyclical fluctuations, for
instance, and the concentration upon certain simple chains of causal
connection, has given way, in the work of both Frisch and Tinbergen,
to mathematical systems that state the mutual relationships between
economic variables.
Let me take, as an example, Professor Frisch's pioneer work in the
early thirties involving a dynamic formulation of the theory of
cycles. He demonstrated how a dynamic system with difference and
differential equations for investments and consumption expenditure,
with certain monetary restrictions, produced a damped wave movement
with wavelengths of 4 and 8 years. By exposing the system to random
disruptions, he could demonstrate also how these wave movements
became permanent and uneven in a rather realistic manner. Frisch was
before his time in the building of mathematical models, and he has
many successors. The same is true of his contribution to methods for
the statistical testing of hypotheses.
Professor Tinbergen was concerned primarily to confront dynamic
economic theory with statistical application. His great pioneer work
in this field is an econometric study of cyclical fluctuations in
the United States. An important aim in this impressive investigation
was to test the explanatory value of the existing flora of business
cycle theories by trying to specify, quantitatively, the importance
of different factors. Tinbergen built up an econometric system
involving some 50 equations, and determined reaction coefficients
and "leads and lags" with the help of statistical
analysis. Several of his conclusions excited great attention, and
are still the subject of debate. Professor Tinbergen's pioneer work
in econometrics has been of major importance for subsequent
methodological development.
It has been natural for both Professor Frisch and Professor
Tinbergen, with the support of macroeconomic analysis, to construct
theories for stabilization policy and long-term economic planning.
Both our laureates have made fundamental analysis of the theoretical
basis of rational decision-making in the field of economic policy.
By the end of the thirties, Frisch was presenting new ideas on a
detailed system of national accounts (økosirksystem) for the
entire national economy as a support for the rational planning of
economic policy in Norway. The structure of the Swedish national
accounts and national budget since the mid-forties stems largely
from Professor Frisch's pioneer work at the Sosial-Økonomisk
Institutt in Oslo. Professor Tinbergen, with the support of theories
previously put forward by Frisch, has developed a simplified system
for economic policy that has been applied in Holland. Tinbergen lets
the economic policy of the state function within a model of the
economic system with a number of variables and an identical number
of equations. Within the framework of a determinate system, the
state must, as a rule, have as many means of economic policy as the
number of aims. As head of the Central Planning Bureau in the Hague,
Professor Tinbergen and his co-workers have constructed an
econometric model for forecasting and planning economic policy in
Holland.
During the past ten years, both Professor Frisch and Professor
Tinbergen have devoted themselves primarily to long-term economic
policy and planning, with a view particularly to the problems of the
developing countries. Both have served as advisers in different
contexts. In the rapid development of methods for long-term
planning, our two laureates have made major contributions. Professor
Tinbergen, for instance, with regard to systems of priorities in
investments, and the use of "shadow prices". Professor
Frisch has developed decision models for economic planning, devising
mathematical programming methods with a view to exploiting modern
computer techniques.
Professor Frisch (not present because of illness), Professor
Tinbergen, you have both been pioneers in the development of
economics into a mathematically-specified and
quantitatively-determined science. Your contributions in creating a
rational foundation for economic policy and planning with the help
of well-developed theory and statistical analysis have involved a
major scientific breakthrough. You are both, at present, intensively
occupied with continued research, designed above all to assist the
poor countries of the world.
It is a great honour for me to convey to you the congratulations of
the Royal Swedish Academy of Sciences, and to ask you, Professor
Tinbergen, to accept from the hand of His Majesty, the King, the
1969 Prize in Economic Science dedicated to the memory of Alfred
Nobel.
From Nobel
Lectures , Economic Sciences 1969-1980.
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