Fritz Machlup, “[Review of] Gunnar Myrdal: The Political Element in the Development of Economic Theory” (1955)

Fritz Machlup’s book review assesses the English translation of Gunnar Myrdal’s historical critique of economic theory, distinguishing its persuasive demand for explicit value judgments from its more contentious attacks on abstraction and proposals for reconstructing economics. The book originated in a polemic against Swedish economic liberals, appeared in Swedish in 1930 and German in 1932, and reached English readers in 1954 with a translation and supplementary discussion by Paul Streeten. Machlup follows its principal arguments before considering Myrdal’s revised methodological position and Streeten’s contribution. His governing distinction is between exposing concealed normative premises and treating economic theory itself as necessarily normative.

The chief aim was to expose the fallacy of deriving political applications from any theoretical system that failed to make explicit the value judgments on which it was based.

This formulation establishes the ground on which Machlup largely agrees with Myrdal: factual or otherwise nonevaluative premises cannot alone authorize political conclusions. Myrdal’s historical argument is that economists repeatedly smuggle valuations into analyses presented as objective. Natural-law theories provide an obvious instance, but utilitarianism allegedly preserves their underlying commitments in a more elaborate form. Despite acknowledging that utilitarianism protected economics from some objectionable alternatives, Myrdal rejects its doctrines of harmonious interests and an objectively identifiable social optimum.

The chapters on classical and neoclassical value theory extend this criticism to explanations of price through labor, costs, utility, and choice. Machlup questions how much this demonstration establishes: its persuasiveness depends on accepting Myrdal’s claim that familiar analytical terms carry valuations and that concepts such as utility, welfare, and real national income should be eliminated. He also identifies a shift from criticizing concealed normative content to dismissing subjective value theory as barren and abstract price theory as incapable of describing empirical facts. Such claims resemble institutionalist attacks on theory, yet Myrdal criticizes institutionalists themselves for retaining the general-welfare assumptions of classical economics.

Lest some reader wonders just what Myrdal wants economists to do if they are neither to be all-empirical nor abstract nor normative, we repeat that he wants them to make explicit the value judgments which must be hidden somewhere beneath their arguments and conclusions.

Machlup thus preserves the intelligible methodological demand while questioning the criticisms surrounding it. The discussion of liberalism supplies a substantive application. Myrdal challenges both the isolation of an economic sphere from political life and the separation of production and exchange from distribution. Even the relatively qualified claim that free markets maximize national income while intervention can improve its distribution depends on measuring income through prices already affected by that distribution. Myrdal also disputes the automatic assignment of the burden of proof to interventionists: where actual markets depart from free competition, intervention might move conditions either toward or away from the competitive ideal.

Machlup notes that these arguments emerge from detailed treatment of British economists, rather than from general denunciation alone. Nevertheless, Myrdal’s exemption of Austrian and Lausanne economics from direct political aims prompts the reviewer to question his omission of Ludwig von Mises’s anti-interventionist writings. Further chapters examine the economy conceived as a collective agent, theories of social value, and the especially loose normative premises of public finance, including those of Wicksell and Lindahl.

There can be no serious quarrel with Myrdal's main theses that "valuations should not be incorporated into economics by means of fallacious arguments," that "economic reasoning is often obscured by the fact that normative principles are not introduced explicitly," and that "the basic concepts are frequently charged with normative implications" (pp. 191-92).

Agreement with these propositions does not entail acceptance of Myrdal’s broader rejection of a purely economic standpoint for judging policy. Machlup regards that rejection as deserving serious consideration, but faults the book’s repetition, irrelevant extensions, and misleading remarks about unrealistic assumptions and abstract theories. His strongest objection concerns Myrdal’s proposed practical “technology of economics,” grounded in social attitudes rather than economic interests. This program requires distinguishing observable attitudes from those people would hold with adequate factual knowledge, while acknowledging that attitudes change and are susceptible to propaganda.

It is a mystery, at least to this reviewer, how such a keen critic of all harmony-of-interest doctrines manages to end up with a proposal that economics, theoretical and practical, be based on surveys and analyses of the (anything but harmonious) "attitudes" of the people.

The difficulty is therefore not merely empirical. Machlup doubts that surveying conflicting dispositions supplies a coherent basis for the theoretical and practical reconstruction Myrdal proposes. He then distinguishes the original book from its author’s 1954 retrospective position. Myrdal now retracts some earlier empiricism and recognizes that concepts and theories are indispensable to scientific facts. Yet he simultaneously extends the role of valuations to observation and concept formation themselves, treating the interests expressed in research questions as valuations.

Philosophers have often discussed this issue and have concluded that a pragmatic attitude in asking questions must not be confused with an evaluative or normative attitude in carrying out scientific research and analysis.

This distinction crystallizes Machlup’s methodological resistance: research can be directed by interests without its analytical conduct thereby becoming normative. The review closes more approvingly with Streeten’s appendix on recent welfare-economic controversies, which brings compensation principles and social welfare functions into view beyond the original book’s historical horizon. Machlup praises its organization and concision, and generally commends the translation while identifying errors, especially the rendering of pure choice logic as behaviorism. The review’s relevance lies in this sustained separation of three questions: whether policy requires valuations, whether economic concepts conceal them, and whether scientific inquiry is evaluative from its inception.