Bertil Ohlin
Encyclopedia
Bertil Gotthard Ohlin (ˈbærtil uˈliːn) (23 April 1899 – 3 August 1979) was a Swedish
economist
and politician
. He was a professor of economics
at the Stockholm School of Economics
from 1929 to 1965. He was also leader of the People's Party
, a social-liberal
party which at the time was the largest party in opposition to the governing Social Democratic Party
, from 1944 to 1967. He served briefly as Minister for Trade from 1944 to 1945 in the Swedish coalition government during World War II
.
Ohlin's name lives on in one of the standard mathematical model
of international free trade
, the Heckscher-Ohlin model
, which he developed together with Eli Heckscher
. He was jointly awarded the Nobel Memorial Prize in Economic Sciences
in 1977 together with the British economist James Meade
"for their pathbreaking contribution to the theory of international trade
and international capital movements".
1917, and his M.A. from Harvard University
in 1923, Ohlin received his doctorate from Stockholm University
in 1924. In 1925 he became a professor at the University of Copenhagen
. In 1929 he debated with John Maynard Keynes
, contradicting the latter's view on the consequences of the heavy war reparations
payments imposed on Germany
. (Keynes predicted a war caused by the burden of debt
, Ohlin thought that Germany
could afford the reparations.) Although Keynes was probably right, the debate was important in the modern theory of unilateral international payments.
In 1930 Ohlin succeeded Eli Heckscher
, his teacher, as a professor of economics
, at the Stockholm School of Economics
. In 1933 Ohlin published a work that made him world renowned, Interregional and International Trade. In this Ohlin built an economic theory of international trade from earlier work by Heckscher and his own doctoral thesis. It is now known as the Heckscher-Ohlin model
, one of the standard model economists use to debate trade theory
.
The model was a break-through because it showed how comparative advantage
might relate to general features of a country's capital
and labour, and how these features might change through time. The model provided a basis for later work on the effects of protection on real
wages, and has been fruitful in producing predictions and analysis; Ohlin himself used the model to derive the Heckscher-Ohlin theorem
, that nations would specialize in industries most able to utilize their mix of national resources efficiently. Today, the theory has been largely disproved, yet it is still a useful framework by which to understand international trade.
Later, Ohlin and other members of the "Stockholm school" extended Knut Wicksell
's economic analysis to produce a theory of the macroeconomy anticipating Keynesianism.
Ohlin was party leader of the liberal
Liberal People's Party
from 1944 to 1967, the main opposition party to the Social Democrat Governments of the era, and from '44 to '45 was minister of commerce in the wartime government. His daughter Anne Wibble
, representing the same party, served as Minister of Finance in 1991-1994.
of international trade, states: trade between countries is in proportion to their relative amounts of capital and labor. In countries with an abundance of capital, wage rates tend to be high; therefore, labor-intensive products, e.g. textiles, simple electronics, etc., are more costly to produce internally. In contrast, capital-intensive products, e.g. automobiles, chemicals, etc., are less costly to produce internally. Countries with large amounts of capital will export capital-intensive products and import labor-intensive products with the proceeds. Countries with high amounts of labor will do the reverse.
The following conditions must be true:
The theory does not depend on total amounts of capital or labor, but on the amounts per worker. This allows small countries to trade with large countries by specializing in production of products that use the factors which are more available than its trading partner. The key assumption is that capital and labor are not available in the same proportions in the two countries. That leads to specialization, which in turn benefits the country’s economic welfare. The greater the difference between the two countries, the greater the gain from specialization.
Wassily Leontief
made a study of the theory that seemed to invalidate it. He noted that the United States had a lot of capital; therefore, it should export capital-intensive products and import labor-intensive products. Instead, he found that it exported products that used more labor than the products it imported. This finding is known as the Leontief paradox
.
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
and politician
Politician
A politician, political leader, or political figure is an individual who is involved in influencing public policy and decision making...
. He was a professor of economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
at the Stockholm School of Economics
Stockholm School of Economics
The Stockholm School of Economics or Handelshögskolan i Stockholm is one of Northern Europe's leading business schools. Its Masters in Management program is ranked no. 2 in Northern Europe and no. 13 in Europe by the Financial Times...
from 1929 to 1965. He was also leader of the People's Party
Liberal People's Party (Sweden)
The Liberal People's Party is a political party in Sweden. The party advocates social liberalism and is part of the governing centre-right coalition The Alliance, which achieved a majority in the general election of 17 September 2006...
, a social-liberal
Social liberalism
Social liberalism is the belief that liberalism should include social justice. It differs from classical liberalism in that it believes the legitimate role of the state includes addressing economic and social issues such as unemployment, health care, and education while simultaneously expanding...
party which at the time was the largest party in opposition to the governing Social Democratic Party
Swedish Social Democratic Party
The Swedish Social Democratic Workers' Party, , contesting elections as 'the Workers' Party – the Social Democrats' , or sometimes referred to just as 'the Social Democrats' and most commonly as Sossarna ; is the oldest and largest political party in Sweden. The party was founded in 1889...
, from 1944 to 1967. He served briefly as Minister for Trade from 1944 to 1945 in the Swedish coalition government during World War II
Third cabinet of Per Albin Hansson
The third cabinet of Per Albin Hansson was the cabinet of Sweden between 13 December 1939 and 31 July 1945. It consisted of members from the Social Democratic Party, the Farmers' League, the People's Party and the National Organization of the Right....
.
Ohlin's name lives on in one of the standard mathematical model
Mathematical model
A mathematical model is a description of a system using mathematical concepts and language. The process of developing a mathematical model is termed mathematical modeling. Mathematical models are used not only in the natural sciences and engineering disciplines A mathematical model is a...
of international free trade
Free trade
Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...
, the Heckscher-Ohlin model
Heckscher-Ohlin model
The Heckscher–Ohlin model is a general equilibrium mathematical model of international trade, developed by Eli Heckscher and Bertil Ohlin at the Stockholm School of Economics. It builds on David Ricardo's theory of comparative advantage by predicting patterns of commerce and production based...
, which he developed together with Eli Heckscher
Eli Heckscher
Eli Filip Heckscher was a Swedish political economist and economic historian.-Biography:...
. He was jointly awarded the Nobel Memorial Prize in Economic Sciences
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel , is an award for outstanding contributions to the field of economics, generally regarded as one of the...
in 1977 together with the British economist James Meade
James Meade
James Edward Meade CB, FBA was a British economist and winner of the 1977 Nobel Memorial Prize in Economic Sciences jointly with the Swedish economist Bertil Ohlin for their "Pathbreaking contribution to the theory of international trade and international capital movements."Meade was born in...
"for their pathbreaking contribution to the theory of international trade
International trade
International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...
and international capital movements".
Biography
Having received his B.A. from Lund UniversityLund University
Lund University , located in the city of Lund in the province of Scania, Sweden, is one of northern Europe's most prestigious universities and one of Scandinavia's largest institutions for education and research, frequently ranked among the world's top 100 universities...
1917, and his M.A. from Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...
in 1923, Ohlin received his doctorate from Stockholm University
Stockholm University
Stockholm University is a state university in Stockholm, Sweden. It has over 28,000 students at four faculties, making it one of the largest universities in Scandinavia. The institution is also frequently regarded as one of the top 100 universities in the world...
in 1924. In 1925 he became a professor at the University of Copenhagen
University of Copenhagen
The University of Copenhagen is the oldest and largest university and research institution in Denmark. Founded in 1479, it has more than 37,000 students, the majority of whom are female , and more than 7,000 employees. The university has several campuses located in and around Copenhagen, with the...
. In 1929 he debated with John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
, contradicting the latter's view on the consequences of the heavy war reparations
World War I reparations
World War I reparations refers to the payments and transfers of property and equipment that Germany was forced to make under the Treaty of Versailles following its defeat during World War I...
payments imposed on Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
. (Keynes predicted a war caused by the burden of debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
, Ohlin thought that Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
could afford the reparations.) Although Keynes was probably right, the debate was important in the modern theory of unilateral international payments.
In 1930 Ohlin succeeded Eli Heckscher
Eli Heckscher
Eli Filip Heckscher was a Swedish political economist and economic historian.-Biography:...
, his teacher, as a professor of economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, at the Stockholm School of Economics
Stockholm School of Economics
The Stockholm School of Economics or Handelshögskolan i Stockholm is one of Northern Europe's leading business schools. Its Masters in Management program is ranked no. 2 in Northern Europe and no. 13 in Europe by the Financial Times...
. In 1933 Ohlin published a work that made him world renowned, Interregional and International Trade. In this Ohlin built an economic theory of international trade from earlier work by Heckscher and his own doctoral thesis. It is now known as the Heckscher-Ohlin model
Heckscher-Ohlin model
The Heckscher–Ohlin model is a general equilibrium mathematical model of international trade, developed by Eli Heckscher and Bertil Ohlin at the Stockholm School of Economics. It builds on David Ricardo's theory of comparative advantage by predicting patterns of commerce and production based...
, one of the standard model economists use to debate trade theory
Free trade
Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...
.
The model was a break-through because it showed how comparative advantage
Comparative advantage
In economics, the law of comparative advantage says that two countries will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods...
might relate to general features of a country's capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
and labour, and how these features might change through time. The model provided a basis for later work on the effects of protection on real
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
wages, and has been fruitful in producing predictions and analysis; Ohlin himself used the model to derive the Heckscher-Ohlin theorem
Heckscher-Ohlin theorem
The Heckscher–Ohlin theorem is one of the four critical theorems of the Heckscher–Ohlin model. It states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively...
, that nations would specialize in industries most able to utilize their mix of national resources efficiently. Today, the theory has been largely disproved, yet it is still a useful framework by which to understand international trade.
Later, Ohlin and other members of the "Stockholm school" extended Knut Wicksell
Knut Wicksell
Johan Gustaf Knut Wicksell was a leading Swedish economist of the Stockholm school. His economic contributions would influence both the Keynesian and Austrian schools of economic thought....
's economic analysis to produce a theory of the macroeconomy anticipating Keynesianism.
Ohlin was party leader of the liberal
Liberalism
Liberalism is the belief in the importance of liberty and equal rights. Liberals espouse a wide array of views depending on their understanding of these principles, but generally, liberals support ideas such as constitutionalism, liberal democracy, free and fair elections, human rights,...
Liberal People's Party
Liberal People's Party (Sweden)
The Liberal People's Party is a political party in Sweden. The party advocates social liberalism and is part of the governing centre-right coalition The Alliance, which achieved a majority in the general election of 17 September 2006...
from 1944 to 1967, the main opposition party to the Social Democrat Governments of the era, and from '44 to '45 was minister of commerce in the wartime government. His daughter Anne Wibble
Anne Wibble
Anne Wibble was a Swedish politician . From 1991 to 1994 she served as Minister for Finance. She was the daughter of Bertil Ohlin, a Nobel laureate....
, representing the same party, served as Minister of Finance in 1991-1994.
Heckscher-Ohlin theorem
The Heckscher-Ohlin Theorem, which is concluded from the Heckscher-Ohlin modelHeckscher-Ohlin model
The Heckscher–Ohlin model is a general equilibrium mathematical model of international trade, developed by Eli Heckscher and Bertil Ohlin at the Stockholm School of Economics. It builds on David Ricardo's theory of comparative advantage by predicting patterns of commerce and production based...
of international trade, states: trade between countries is in proportion to their relative amounts of capital and labor. In countries with an abundance of capital, wage rates tend to be high; therefore, labor-intensive products, e.g. textiles, simple electronics, etc., are more costly to produce internally. In contrast, capital-intensive products, e.g. automobiles, chemicals, etc., are less costly to produce internally. Countries with large amounts of capital will export capital-intensive products and import labor-intensive products with the proceeds. Countries with high amounts of labor will do the reverse.
The following conditions must be true:
- The major factors of production, namely labor and capital, are not available in the same proportion in both countries.
- The two goods produced either require more capital or more labor.
- Labor and capital do not move between the two countries.
- There are no costs associated with transporting the goods between countries.
- The citizens of the two trading countries have the same needs.
The theory does not depend on total amounts of capital or labor, but on the amounts per worker. This allows small countries to trade with large countries by specializing in production of products that use the factors which are more available than its trading partner. The key assumption is that capital and labor are not available in the same proportions in the two countries. That leads to specialization, which in turn benefits the country’s economic welfare. The greater the difference between the two countries, the greater the gain from specialization.
Wassily Leontief
Wassily Leontief
Wassily Wassilyovich Leontief , was a Russian-American economist notable for his research on how changes in one economic sector may have an effect on other sectors. Leontief won the Nobel Committee's Nobel Memorial Prize in Economic Sciences in 1973, and three of his doctoral students have also...
made a study of the theory that seemed to invalidate it. He noted that the United States had a lot of capital; therefore, it should export capital-intensive products and import labor-intensive products. Instead, he found that it exported products that used more labor than the products it imported. This finding is known as the Leontief paradox
Leontief paradox
Leontief's paradox in economics is that the country with the world's highest capital-per worker has a lower capital/labor ratio in exports than in imports....
.
See also
- Contributions to liberal theoryContributions to liberal theoryIndividual contributors to classical liberalism and political liberalism are associated with philosophers of the Enlightenment. Liberalism as a specifically named ideology begins in the late 18th century as a movement towards self-government and away from aristocracy...
- Ohlin ReportOhlin ReportThe Ohlin Report was a report drafted by a group of experts of the International Labour Organization led by Bertil Ohlin in 1956. Together with the Spaak Report it provided the basis for the Treaty of Rome on the common market in 1957 and the creation of the European Economic Community in...
(1956) - Faustman-Ohlin theorem
Significant Publications
- The German Reparations Problem, 1930
- Interregional and International Trade, 1933
- Mechanisms and Objectives of Exchange Controls, 1937