Published version of an article in the journal: Econ Journal Watch. Also available from the publisher at: http://econjwatch.org/articles/a-reply-to-olav-bjerkholt-on-the-postwar-norwegian-economy Open AccessProfessor Olav Bjerkholt has provided a spirited critique of our 2014 article titled “Ragnar Frisch and the Postwar Norwegian Economy.” Here we reply briefly, noting that many of the quotations he provides actually support our interpretation, that it is naïve of him to play the ideology card, and that he offers no response whatsoever to our central point: that Norway’s postwar growth rates have to be understood in light of the country’s exceptionally high investment ratios, which meant that Norwegian consumers were consuming less in order to sustain those growth rates

Eriksen, Ib E.

Sæther, Arild

Professor Olav Bjerkholt has provided a spirited critique of our 2014 article titled “Ragnar Frisch and the Postwar Norwegian Economy.” Here we reply briefly, noting that many of the quotations he provides actually support our interpretation, that it is naïve of him to play the ideology card, and that he offers no response whatsoever to our central point: that Norway’s postwar growth rates have to be understood in light of the country’s exceptionally high investment ratios, which meant that Norwegian consumers were consuming less in order to sustain those growth rates

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A reply to Olav Bjerkholt on the postwar Norwegian economy

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A Reply to Olav Bjerkholt on thePostwar Norwegian EconomyArild Sæther1 and Ib E. Eriksen2LINK TO ABSTRACTIn spite of Professor Olav Bjerkholt’s belittling language we are grateful forhis spirited and highly critical commentary on our paper titled “Ragnar Frisch andthe Postwar Norwegian Economy” (Sæther and Eriksen 2014). We very muchhope that Professor Bjerkholt’s critique finds a large audience. Although it makes afew criticisms that are legitimate, its main tendency is to bolster our interpretationof postwar Norway.Bjerkholt (2014) quotes the work of numerous scholars of the 1950s aboutNorway. It seems reasonable to suppose that these scholars were themselvesadmirers of economic planning under democratic socialism or social democracy.They give high marks to Norway for prosecuting planning and controls in exem-plary fashion. If the reader reads the quotations from our viewpoint, it is easyto see that most of them support our interpretation. That these writers celebrateNorway’s supposed ability to prosecute its planning “without impinging upondemocratic freedoms” (Galenson 1949, 261; quoted in Bjerkholt 2014, 302-303)and without “interference with political and civil liberties” (Bourneuf 1958, 2;quoted in Bjerkholt, p. 304) does not undermine our interpretation. Economicplanning and controls restricted individual liberty, what Adam Smith called“natural liberty” (1976/1776, 687). We never contended that economic planningupset the country’s institutions of democratic governance.After quoting the studies from the 1950s, Bjerkholt concludes: “The studiescited above remarked on the healthy and resilient political democracy in Norway”(2014, 307). It seems to us that Professor Bjerkholt does not understand theDiscuss this article at Journaltalk:http://journaltalk.net/articles/5856ECON JOURNAL WATCH 11(3)September 2014: 313-3171. Agder Academy of Sciences and Letters, 4604 Kristiansand, Norway.2. University of Agder, 4604 Kristiansand, Norway.VOLUME 11, NUMBER 3, SEPTEMBER 2014 313distinction between democratic institutions and “free market economy” or “freeenterprise economy.” Bjerkholt notes that we use the latter terms and remarks: “Ido not know exactly what [Sæther and Eriksen] mean by the latter terms” (p. 306).Such confusion over terminology shows how deeply one’s ideological views areintertwined with one’s analysis. In his abstract, Bjerkholt accuses us of “ideologicaland moralistic bias,” as though he, by contrast, represents “Weberian objectivity,”which he then praises in the paper (p. 300). Isn’t it obvious that it is better tounderstand the disagreement as two contending interpretations of postwarNorway, neither with any scientific privilege?Regarding the central importance of Ragnar Frisch, Bjerkholt provides awonderful quotation from Alice Bourneuf (1958), a quotation we wish we hadprovided. It bears full reproduction here:The fact that a large number of well-trained economists were availablefor the job was due largely to the work of Professor Ragnar Frischof the economics department at the University of Oslo. Of theconsiderable number of economists who were trained at theUniversity, only a few were absorbed by the University; most of theothers, whether Conservative, Liberals, or Labor Party members weredrawn into government service. In many countries, the scarcity ofhighly trained economists and administrators is a serious bottleneck inattempts at over-all economic planning. The success of any economicplan is bound to depend on the individuals available to carry it out.(Bourneuf 1958, 206)Bjerkholt (2014, 300) says it is “blatant untruth” that Frisch put forward avision of a planned economy with “no place for private investors or entrepreneursin the system,” as we had written (Sæther and Eriksen 2014, 54). Bjerkholt adds, “Iam not aware of any document by Frisch—published or unpublished—giving anykind of support to these curious assertions. Politically and economically the ideasexpressed are totally remote from Frisch’s thinking.” In our reading of Frisch’spostwar writings we have found no references to the entrepreneur. As for thesupposed remoteness to Frisch of the idea of an economic system where privateinvestors play no role, the interested reader should contemplate the economicplanning scenarios that Frisch imagines in his “Rational Price Fixing in a SocialisticSociety” (Frisch 1966, 120-121).It is interesting how Bjerkholt (2014, 305) draws on Patrick Salmon (1990).Firstly, Bjerkholt refrained from sharing what Salmon says about the objectives andinstruments of the economic policies in Norway in the 1950s and 1960s:SÆTHER AND ERIKSEN314 VOLUME 11, NUMBER 3, SEPTEMBER 2014Labour Party politicians and economists looked first and foremost toBritain as a model (Pharo 1984) but subjected the economy to controlsover prices, consumption, and production which were ‘more stringentthan in other democratic countries’ with the explicit aim of ‘trans-forming society into a socialist order’, as prime minister Gerhardsenput it (Hodne 1983: 143; Bourneuf 1958). (Salmon 1990, 162)Second, Bjerkholt does show that Salmon reports that the Norwegiangrowth rate in the 1946–56 period was much higher than those of Denmark andSweden, and that Salmon noted that Norway had a very high level of investment(1990, 156, 162). But Bjerkholt does not mention Salmon’s reference to Finland,which was harder hit by the war but achieved a higher growth rate of 5.5 percent.There has been considerable discussion about the reason for different growth ratesin the initial postwar years. Odd Aukrust (1965, 64, our translation) notes that “Thecountries that were hardest hit by the war, have almost without exception had thestrongest growth after 1946.” The Norwegian growth rate dropped considerablyafter 1950.Finally, Bjerkholt omits part of Salmon’s explanation for the high level ofinvestment:But the government retained a large measure of control over the scaleand direction of investments, thus contributing to one of the mostdistinctive features of Norwegian postwar development: a very highlevel of capital formation… (Salmon 1990, 162; cf. Bjerkholt 2014,305)The matter of Norway’s capital formation, or investment ratio, brings us to themost significant aspect of Bjerkholt’s critique. In our paper we make a major pointthat the record of Norwegian growth rates in the postwar years has to be viewedin light of Norway’s exceptionally high investment ratios, because that means thatNorwegian consumers were in fact consuming less to provide for heightenedgrowth rates. Professor Bjerkholt does not respond to the point at all.Bjerkholt (2014, 306) questions what Norway’s policy options were in 1946,as though the challenges left nowhere else to turn. But most OEEC countries optedfor a different policy, less controls, than Norway, and many of them performedbetter with lower investment ratios (Salmon 1990, 156). Bjerkholt (p. 307) thenclaims that we “suggest that the Norwegian economy had come to the brink ofcollapse” during the 1970s, but this statement has no foundation in our paper.REPLY TO BJERKHOLTVOLUME 11, NUMBER 3, SEPTEMBER 2014 315We conclude by saying that we are grateful to Professor Bjerkholt forengaging our interpretation of postwar Norway. We hope that readers learn fromthe clash of perspectives.ReferencesAukrust, Odd. 1965. Norsk vekst i internasjonalt og historisk lys. In Norges økonomietter krigen [The Norwegian Postwar Economy], ed. Odd Aukrust, 55-87.Samfunnsøkonomiske studier nr. 12. Oslo: Statistisk Sentralbyrå. LinkBjerkholt, Olav. 2014. Ragnar Frisch and the Postwar Norwegian Economy: ACritical Comment on Sæther and Eriksen. Econ Journal Watch 11(3): 297-312.LinkBourneuf, Alice. 1958. Norway: The Planned Revival. Cambridge, Mass.: HarvardUniversity Press.Frisch, Ragnar. 1966. Rational Price Fixing in a Socialistic Society. Economics ofPlanning 6(2): 97-124.Galenson, Walter. 1949. Labor in Norway. Cambridge, Mass.: Harvard UniversityPress.Hodne, Fritz. 1983. The Norwegian Economy 1920–1980. New York: St. Martin’sPress.Pharo, Helge. 1984. Domestic and International Implications of NorwegianReconstruction. EUI Working Paper 81. European University Institute(Florence, Italy).Sæther, Arild, and Ib E. Eriksen. 2014. Ragnar Frisch and the PostwarNorwegian Economy. Econ Journal Watch 11(1): 46-80. LinkSalmon, Patrick. 1990. Scandinavia. In Government and Economics in the PostwarWorld: Economic Policies and Comparative Performance, 1945–85, eds. AndrewGraham and Anthony Seldon, 154-178. London: Routledge.Smith, Adam. 1976 [1776]. An Inquiry Into the Nature and Causes of the Wealth ofNations, eds. R. H. Campbell and A. S. Skinner. Oxford: Oxford UniversityPress.SÆTHER AND ERIKSEN316 VOLUME 11, NUMBER 3, SEPTEMBER 2014Arild Sæther is professor emeritus in economics, AgderAcademy of Sciences and Letters, Kristiansand, Norway. Hehas held administrative and academic positions at the Uni-versity of Agder in Kristiansand since 1970. He has for two anda half years been professor of European economic integrationat the European Institute of Public Administration, Maas-tricht, the Netherlands; for three years, he has been Director ofEuroFaculty Tartu-Riga-Vilnius. His teaching and researchareas include micro and macroeconomics, welfare economics, European economicintegration, international economics, regional economics, economic history andthe history of economic thought. His email address is arild@saether.no.Ib E. Eriksen is professor in economics at the University ofAgder, Kristiansand, Norway. He has also been a researchscholar and assistant professor at the Institute for ShippingResearch at the Norwegian School of Economics, Bergen. Hehas been a management consultant. His teaching backgroundis in international economics, shipping economics and finance.His research fields are in shipping economics and financialeconomics. In recent years he has worked on projects relatedto the history of economic thought. His email address is ib.e.eriksen@uia.no.About the AuthorsGo to archive of Character Issues sectionGo to September 2014 issueDiscuss this article at Journaltalk:http://journaltalk.net/articles/5856REPLY TO BJERKHOLTVOLUME 11, NUMBER 3, SEPTEMBER 2014 317

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A reply to Olav Bjerkholt on the postwar Norwegian economy

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