The Nobel Factor

Tomorrow we will know the recipient of the Nobel Prize in Economics. This is not a ‘true’ Nobel, coming some 50 years after Alfred Nobel established the original prizes in physics, medicine, chemistry, literature, and peace. The Swedish Central Bank established the Prize in Economic Sciences in Memory of Alfred Nobel in the late 1960s as a way to counter what it saw as the virulent spread of social democracy across Nordic countries in particular.

The Nobel Factor, a new book by Avner Offer and Gabriel Söderberg, traces the development of the Nobel Prize in economics, which grants authority and ‘Nobel magic’ to economics above other social sciences, and ensures laureates are listened to on every subject. Economics itself is seen as being more scientific, more worthy of the ears of the powerful, as a result of the Nobel prize. The impact of neoclassical economics, the dominant form of economics which emphasises market based interactions above all others on policy makers through teaching and research, is assured because of the Nobel prize.

Offer and Söderberg begin their book with what may well be the best combined explanation, intellectual history, and critique of neoclassical economics and its policy variants I’ve ever read. From there we have a discussion of the social and economic context for the creation of the prize in economic sciences, and an extended discussion of the conflict between free market and social democratic values in the Nordic states in particular. There’s a really interesting series of chapters tracing the evolution of European politics and the individual awards and their subject areas. There’s a great chapter focusing on Assar Lindbeck, a forceful personality and someone who shaped the Prize. 

The story gets a little more complicated once the Prize itself evolves, because it’s not a simple case of rewarding only those who espouse ‘markets are great’ approaches, like Friedman and Hayek. For example in Chapter 7, we learn a lot about empiricists, experimentalists, econometricians and behaviouralists who won the Prize because of their rejection of equilibrium approaches to economics. In Chapter 10, the failure of economics to understand, model, or respond to the growing threats posed by unfettered global capital markets gets a very thorough treatment.

Overall I found the book riveting in that it is written in a deep and scholarly way. I buy the ‘Social Democracy vs Markets’ argument about the genesis of the economics Nobel in the 1960s, but I’m not sure the evolution of the Prize is as clear cut as it could be, after awards to people like Oliver Williamson and Lin Ostrom and Vernon Smith.

The book concludes on a hopeful note. The authors write on page 278:

“To recapture validity, economics has to come down to the ground of argument, evidence, and counterargument, supported by reason and an open mind. In the quest for valid knowledge, for those of Enlightenment disposition, it is well to ignore black boxes, the magic of prizes, and the lure of immutable laws”.

I couldn’t agree more. As intellectual, social, and political history, the Nobel Factor is well worth your time getting stuck into.

My wish for tomorrow’s Prize: Duncan Foley for his work on Public Goods and General Equilibrium, and Charles Manski for his work on just about everything else.

The box below should display the Nobel citation tomorrow around lunchtime.