Home > Uncategorized > The Nobel factor — the prize in economics that spearheaded the neoliberal revolution

The Nobel factor — the prize in economics that spearheaded the neoliberal revolution

from Lars Syll

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, usually — incorrectly — referred to as the Nobel Prize in Economics, is an award for outstanding contributions to the field of economics. The Prize in Economics was established and endowed by Sweden’s central bank Sveriges Riksbank in 1968 on the occasion of the bank’s 300th anniversary. The first award was given in 1969. The award this year is presented in Stockholm at a ceremony on Monday 10 October.

k10841Avner Offer’s and Gabriel Söderberg’s new book — The Nobel factor: the prize in economics, social democracy, and the market turn (Princeton University Press 2016) — tells the story of how the prize emerged from a conflict between the Swedish central bank — Sveriges Riksbank — and social democracy. It is no pure coincidence that the ascendancy of market liberalism, Reagan and Thatcher, to a large part coincides with the creation and establishment of the prize. Especially during the despotic Assar Lindbeck’s long chairmanship — 1980-1994 — the prize was thought to take advantage of the connection with the true Nobel prizes and spearhead a market-oriented neoliberal reshaping of the world. Although not all economists who have got the prize have enlisted in the market-liberal crusade, it is still an undeniable fact that neoliberal and conservative leaning male economists are highly over-represented among the laureates. Their often ideologically biased doctrines have to a large extent motivated the neoliberal turn in economic policies for more than forty years. 

Out of the 76 laureates that have been awarded “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel,” 28 have been affiliated to The University of Chicago — that is 37 %. Of all laureates, 80% have been from the US (by birth or by naturalisation). Only 7% of the laureates have come from outside North America or Western Europe. Only 1 woman has got the prize. The world is really a small place when it comes to economics …

Looking at whom the prize is given to, says quite a lot about what kind of prize this is. Offer and Söderberg do that, but looking at whom the prize is not given to, says perhaps even more.

The great Romanian-American mathematical statistician and economist Nicholas Georgescu-Roegen (1906-1994) argued in his epochal The Entropy Law and the Economic Process (1971) that the economy was actually a giant thermodynamic system in which entropy increases inexorably and our material basis disappears. If we choose to continue to produce with the techniques we have developed, then our society and earth will disappear faster than if we introduce small-scale production, resource-saving technologies and limited consumption.

Following Georgescu-Roegen, ecological economists have argued that industrial society inevitably leads to increased environmental pollution, energy crisis and an unsustainable growth.

Georgescu-Roegen and ecological economics have turned against the neoclassical theory’s obsession with purely monetary factors. The monetary reductionism easily makes you ignore other factors having a bearing on human interaction with the environment.

I wonder if this isn’t the crux of the matter. To assert such a thing really is to swear in the neoclassical establishment church and nullifies any chances of getting the prestigious prize.

Twenty years ago, after a radio debate with one of the members of the prize committee — Ingmar Ståhl — I asked why Georgescu-Roegen hadn’t got the prize. The answer was –mirabile dictu – that he “never founded a school.” I was surprised, to say the least, and wondered if he possibly had heard of the environmental movement. Well, he had — but it was “the wrong kind of school”! Can it be stated much clearer than this what it’s all about? If you haven’t worked within the mainstream neoclassical paradigm — then you are more or less excluded a priori from being eligible for the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel!

Three years ago — making an extraordinarily successful forecast — I told Swedish media the prize committee would show how in tune with the times it was and award the prize to Eugene Fama. Why? Well — I argued — he’s a Chicago economist and a champion of rational expectations and efficient markets. And nowadays freshwater economists seem to be the next to the only ones eligible for the prize. And, of course, an economist who has described the notion that finance theory was at fault as “a fantasy” and argued that “financial markets and financial institutions were casualties rather than causes of the recession” had to appeal to a prize committee with a history of awarding theories and economists totally lacking any real world relevance.

Well, my forecast turned out to be right — the Swedish Academy of Sciences awarded The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2013 to Eugene Fame. The prize committee really did show how in tune with the times it was …

I love to be right of course, but otherwise this is only saddening and shows what a joke this prize is, when someone like Fama can get it.

The ‘Nobel prize’ in economics is — and has always been — a total disaster from both a scientific and social point of view, and after having read Offer’s and Söderberg’s book, there is, at least to me, only one conclusion to draw, and that is: Drop it!

  1. October 2, 2016 at 6:50 pm

    I reead “The Entropy Law and the Economic Process” circa1976 and have been complaining about the bank prize since about then.

    Thanks, You are beginning to seem like an old friend.

    • October 3, 2016 at 3:51 pm

      i read ‘the entropy law’ quite a while ago (i wasnt even interested in economic theory then, but i read a book by ilya prigogine on self-organization theory/statistical mechanics and he discussed economics—as did stuart kauffman of santa fe institute) so i found ‘the entropy law’. much of the book is on track, but from a slightly more technical physics point of view, the book had a couple of flaws which were enough to turn people off. it proposed a ‘4th law of thermodynamics’ (which is already included in the other 3) and it’s derivation of the 2nd law of thermodynamics in the way its done in statistical mechanics does it in my memory had some technical errors so it was mathematically incorrect.

      (my copy of that book is not handy but it may be an interesting excercize to look at it and see if i was correct about the math problems –i could be wrong; other people discussed the problems with the ‘4th law of thermodynamics’)

      the main thing i got from ‘the entropy law’ was that economic theory as its done is essentially about a closed system, and hence timeless. This means for example ‘walras’ or ‘say’s law’ always holds exactly—for every seller/producer, there’s a buyer/consumer. But it also means there is no reason to buy or sell anything.

      This is the exact same situation as in standard boltzmann statistical mechanics. if you have a hot cup of coffee, it doesnt have to ‘cool off’. its just as happy to stay hot. if you flip a coin 100 times, it doesnt care if it gets 100 heads in a row, as opposed to 50H and 50T.

      you have to add a few postulates to make a ‘just so story’ as to why a hungry person with 10$ would like to trade the $ for some food a farmer wants to sell. (That’s a dynamic view—the process of ‘tattonement’ or ‘walresian auctioneer’. And, when you bring in the dynamics, you get SMD theorem—which i see as basically an analog of KAM theorem in physics—kolmogorov-arnold-moser, ergodic theory).)

  2. C-R D
    October 2, 2016 at 7:17 pm

    Just like an Anti-papa will never be canonized.

  3. October 2, 2016 at 7:21 pm

    As a friend of Nicholas Georgescu-Roegen, and one who wrote a review of The Entropy Law and the Economic Process in the Harvard Business Review, I was gratified to read Lars Syll’s article .
    I teamed up with lawyer Peter Nobel, descendent of Alfred Nobel, some 20 years ago in support of his efforts to de-link the real Nobels from this Bank of Sweden Prize ( see all my editorials on this at http://www.hazelhenderson.com
    Other allies who have also tried to expose this intellectual scandal include Nassim Nicholas Taleb , who told me he had brought it to the attention of the King of Sweden at a garden party , to no effect. I remember after a lecture I gave at the merger announcement of Sweden’s Sparbanken, Assa Lindbeck invited me to lunch , but dismissed my ideas . Finally, some years ago the Nobel family did announce that they were dissociating themselves from the Bank of Sweden Prize which they said had usurped the Alfred Nobel Foundation’s intellectual property. All this will appear in my forthcoming biography !

  4. October 3, 2016 at 4:49 am

    Beginning in 1936 the Fields Medal has been awarded to two, three, or four mathematicians under 40 years of age at the International Congress of the International Mathematical Union (IMU), a meeting that takes place every four years. The Fields Medal is sometimes viewed as the highest honor a young mathematician can receive. The Fields Medal and the Abel Prize have often been described as the mathematician’s “Nobel Prize.” Its purpose is to give recognition and support to younger mathematical researchers who have made major contributions. It’s the “major contributions” criteria that raises concerns for me. The works rewarded are highly technical. Not comprehensible by non-mathematicians, and with only two exceptions (University of Moscow) awarded to western academics. So few know about and even fewer study the work of the Medal winners. Even other mathematicians generally stick to narrow sub-specialties. The words of the Cambridge philosophy of physics Jeremy Butterfield ring in my ear, “… my critique of the claim that nature is mathematics is very simply stated. It all turns on the simple but crucial distinction between the ‘is’ of identity and the ‘is’ of instantiation. I am happy to concede that the world we live in instantiates a mathematical structure, but I deny that it is a mathematical structure — that is, a pure mathematical structure which since the nineteenth century we have taken to be ‘abstract’ or ‘contentless.” In the last 40 years mathematics has been involved in re-instituting itself as a social science. Finally! I cannot see a part for the Fields Medal in that process. Any more than I can see a part for the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in the same process in economics. So Lars advice is well founded.

  5. October 3, 2016 at 9:03 am

    The real problem with the economics Nobel
    Comment on Lars Syll on ‘The Nobel factor — the prize in economics that spearheaded the neoliberal revolution’

    Lars Syll argues that the economics Nobel is politically biased: “… the prize was thought to take advantage of the connection with the true Nobel prizes and spearhead a market-oriented neoliberal reshaping of the world.” (See intro)

    This is a minor problem, the real problem is in the title: “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

    The key word is science[s]. Why not simply “Bank of Sweden Prize in Economics”? The original title clearly communicates the claim that economics is a science. This claim is as old as Adam Smith/Karl Marx.

    Science is well-defined by the criteria of formal and material consistency: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994)

    Neither orthodox nor heterodox economics satisfies the criteria of formal and material consistency. It is a provable fact that neither Walrasianism, nor Keynesianism, nor Marxianism, nor Austrianism is materially/formally consistent.

    Accordingly, economics is not a science but what Feynman famously called a cargo cult science.*

    The Bank of Sweden is legitimized to award prizes to whomever it wants and to push any political agenda it wants. The Bank, though, is NOT legitimized to declare economics as science well knowing that economics has not lived up to scientific standards since the founding fathers.

    The scientific community has to see to it, firstly, that the word ‘sciences’ is eliminated from the “Bank of Sweden Prize in Economic Sciences”. The general public has to be informed that the 200 year old claim and the actual state of economics do not match and that ALL economic policy guidance, i.e. independently of political orientation, lacks a sound scientific foundation. It follows, secondly, that economists have to be expelled from the scientific community. It follows, thirdly, that organizations like AEA, Royal Economic Society, Verein für Socialpolitik etcetera refrain from speaking in the name of science.

    The real problem with the Bank of Sweden Prize is that it may give rise to a claim for damages in the case of severe depression/unemployment which is ultimately caused by provable false economic theory.

    Egmont Kakarot-Handtke

    * See Wikipedia https://en.wikipedia.org/wiki/Cargo_cult_science

    • October 4, 2016 at 5:49 am

      Egmont, an observation. Mathematicians have been working for the last 50 years to walk mathematics back from formal and material consistency. In hopes of making it a workable and useful part of society, which currently it is not. While you suggest economics go the opposite direction, making economics less workable and less useful. Your plan seems wrong to me. I’ll cite Jeremy Butterfield one more time. The more consistent and formal mathematics is the less well it describes nature. “Nature’s imagination outstrips ours!” Butterfield focus is physics so most of his examples involve physics. This one I like. “So to sum up: nowadays, we should revise Galileo’s saying. Instead of ‘Nature is a book written in the language of mathematics’, we should say: “Nature is a book written in the syntax of mathematics, but with the semantics of physics”. Formal and consistent systems such as mathematics cannot describe nature or its meanings. Such systems can sometimes give us insights that help uncover bits and pieces of nature. That’s what mathematics can do, sometimes. Why would formal/systematic structures such as mathematics be any more successful with areas such as economics? Again, I urge caution in turning over the study of society or economy to formal/consistent systems approaches.

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