Table Of ContentECONOMIC PLANNING STUDIES
INTERNA TIONAL STUDIES IN ECONOMICS AND ECONOMETRICS
VOLUME 8
ECONOMIC
PLANNING STUDIES
A Collection of Essays
by
RAGNAR FRISCH
Nobel Prizewinner
Selected, Introduced and Edited by
FRANK LONG
D. REIDEL PUBLISHING COMPANY
DORDRECHT:HOLLAND I BOSTON:U.S.A.
LONDON:ENGLAND
Library of Congress Cataloging in Publication Data
Frisch, Ragnar Anton Kittil, 1895-1973.
Economic planning studies.
(International studies in economics and econometrics; v. 8)
Bibliography: p.
Includes index.
1. Economic policy - Addresses, essays, lectures.
I. Title. II. Series.
HD82. F733 338.9 75-44219
ISBN-13: 978-90-277-1194-6 e-ISBN-13: 978-94-010-1895-1
DOl: 10.1007/978-94-010-1895-1
Published by D. Reidel Publishing Company,
P.O. Box 17, 3300 AA Dordrecht, Holland.
Sold and distributed in the U.S.A. and Canada
by Kluwer Boston Inc.,
190 Old Derby Street, Hingham, MA 02043, U.S.A.
In all other countries, sold and distributed
by Kluwer Academic Publishers Group,
P.O. Box 322, 3300 AH Dordrecht, Holland.
D. Reidel Publishing Company is a member of the Kluwer Group.
All Rights Reserved
Copyright © 1976 by D. Reidel Publishing Company, Dordrecht, Holland
and copyrightholders as specified on appropriate pages within
No part of the material protected by this copyright notice may be reproduced or
utilized in any form or by any means, electronic or mechanical,
including photocopying, recording or by any informational storage and
retrieval system, without written permission from the copyright owner
TABLE OF CONTENTS
PREFACE BY JAN TINBERGEN VII
INTRODUCTION IX
ACKNOWLEDGEMENTS XV
CHAPTER I: From Utopian Theory to Practical Applications: The
Case of Econometrics
CH A PT E R II: Co-operation between Politicians and Econometricians
on the Formalization of Political Preferences 41
CHAPTER III: Preface to the Oslo Channel Model 87
CHAPTER IV: An Implementation System for Optimal National Eco
nomic Planning without Detailed Quantity Fixation
from a Central Authority 129
CHAPTER V: Economic Planning and the Growth Problem in
Developing Countries 175
INDEX OF NAMES 197
PREFACE
It is probably true, as the editor of these essays and studies by Ragnar Frisch
points out, that the majority of economists are not well aware of the
contributions made to their discipline by Frisch. This certainly does not
apply, however, to econometricians. In fact, Frisch was one of the founding
fathers of the Econometric Society and, for the first decade of its existence,
its recognized leader in Europe. The annual European meetings were inspired
by his enthusiasm, his unprecedented didactic talents and his amazingly
diversified contributions. It is also clear that those members of the Swedish
Academy of Sciences who selected candidates for the Nobel Memorial Prize
in Economic Science, were fully aware of Ragnar Frisch's pathbreaking work
when they decided to award him that famous Prize. While much of Frisch's
earlier work has been published, in his later years of activity he harqly took
the time to shape the results of his work in an optimal way for wider
circulation.
Although an impressively lucid writer, he evidently gave priority to solu
tions of some of the planning problems he was involved in rather than to
formulating them in the characteristically crystal-clear and well-structured
expositions of earlier years.
I very much welcome, therefore, Dr Long's initiative to make available to a
wider public within the profession some of the few texts Frisch himself
produced, probably under pressure from his immediate friends and col
leagues. These texts reveal the main contributions to economic thinking made
by Frisch in an almost endless list of working papers for his Institute and for
the government agencies in Norway, Egypt and India - those countries to
which he devoted particular attention. These contributions occupy an im
portant place in twentieth century economic science particularly, and in the
history of economic ideas generally.
JAN TINBERGEN
INTRODUCTION
This book represents a collection of essays by the late Ragnar Frisch, in the field
of economic planning - an area of economic science which constantly engaged
his academic attention prior to his death a few years ago. The essays are in
essence slightly modified versions of sporadic works already published. But
this is by no means an exhaustive collection of Frisch's work in the area.
The undertaking draws its inspiration from the following sources:
(1) The spirit of the Nobel Prize Award in economic science. Frisch and
Tinbergen were the first to receive the Alfred Nobel Prize iT\ economics which
they jointly shared in 1969. Other eminent economists who subsequently
obtained the Award include Sir John Hicks, Paul Samuelson, W. Leontief, and
S. Kuznets, among others.
(2) The relative unfamiliarity of Frisch's contribution to economic
thought in general and in specific terms, his contribution to studies in
economic planning. An index of this state of affairs, was the initial surprise of
many learned economists at the fact that he became a recipient of the Award.
For many of them he was an unfamiliar dark horse enough to be a source of
mystery.
(3) The growing importance of economic planning in the world economy,
as a means of promoting a more satisfactory level of human welfare.
Therefore, in an effort to make a modest inroad into the promotion of
increased awareness of his contribution to economic science, and at the same
time to stimulate further advance in economic ideas, these studies have been
gathered together and made available in book form.
II
Born in Oslo, Norway on March 3rd 1895, Ragnar Frisch was the son of the
gold and silversmith Anton Frisch and his wife Ragna Fredrikke Kittilsen.
Initially it was Ragnar Frisch's intention to follow his father into the gold and
x INTRODUCTION
silversmith tradition and he underwent apprentice work in the area, at the
famous Norwegian firm based in Oslo, David Andersen, where he completed
his handicraftsman's probationary period as a goldsmith. At the insistence of
his mother Frisch later decided to opt for university studies at the completion
of his apprenticeship and decided to study economics at the University of
Oslo. He completed his first degree in 1919 and then went abroad for some
time studying economics and mathematics in France, Germany, Great Britain,
the U.S.A. and Italy. He obtained his doctorate degree in economics from the
University of Oslo in 1926, specializing in the area of mathematical statistics.
In 1928 he became associate professor at that university and three years later
he was appointed to the post of full professor. He later became director of
research of the newly established Economic Institute of the University of
Oslo.
In 1961 Frisch obtained the famous Antonio Feltrinelli Prize of the
Accademia Nazionale dei Lincei of Italy for his work in economic science.
And in 1969 he was awarded the Nobel Prize in economics. He died in 1973.
III
Planning is essentially a process. Two crucial but related aspects of economic
planning can, however, be identified as important areas of theoretical enquiry.
The first concerns methods of influencing the allocation of economic re
sources in order to improve the workability of a given economy. These
methods relate basically to the adoption of requisite policy instruments with
the aim of achieving certain broad goals such as growth, stability, reduced
unemployment and the like. The second explicitly concerns the achievement
of an optimal economic policy, in terms of maximizing an objective prefer
ence function of society at large. This is normally arrived at by some process
of formalization and aggregation under the assumption of certain prevailing
constraints, and is to a large extent an operational exercise.
These twin features of economic planning are relevant in centrally planned
economies where the planning process is highly integrated, systematized and
elaborate, and is regarded in principle as an important condition among
others for the functioning of such an economic system. They are equally
relevant, though perhaps to a lesser degree, to free market oriented economies
including developing countries.
In the latter economies, planning tends generally to take a narrow
INTRODUCTION XI
perspective in that the paramount consideration appears to be limited to ways
and means of influencing resource allocation in order to achieve certain broad
objectives, such as stimulating growth and economic stability, and main
taining balance of payments equilibrium, full employment and so forth. At
the same time, hardly any macro economic machinery exists in these
economies for dealing operationally with problems of maximizing the social
welfare or preference function of society at large.
Part of the problem lies in the difficulties pertaining to measurability and
aggregation of non-marketable aspects of such a function. Another relates to
an overriding faith in the price mechanism, in maximizing social welfare
largely on its own terms, subject to particular forms of state intervention.
Thus, the absence generally of quantitative and other operational
machinery in such economies, aimed at formalizing society's preference
function with a view to integrating it into the resource allocation aspect of a
planning process, has as an important final objective the maximizing of a
particular social preference function/functions in a given time period.
Certain exceptions exist to this rule. For example, in the case of Norw~y
and the Netherlands, both aspects of the planning process mentioned earlier
are combined with a fair measure of success, given the existence of a market
mechanism which is mainly responsible for solving the basic economic ques
tions. The planning machineries in these two countries have been heavily
influenced by Frisch (Norway) and Tinbergen (Netherlands), especially from
the operational perspective.
Frisch was to a large extent concerned with that part of the planning
process relevant to the formalization of society's preference function. Forma
lization of a preference function is a necessary operational condition for
attempting its maximization. This book presents his main ideas in this area.
We must, however, bear in mind the fact that although his ideas here are in
some respects pertinent to centrally planned economies, Frisch was essential
ly concerned with free market oriented economies, and especially developed
ones. The presentation is as follows: the first essay is 'From Utopian Theory
to Practical Applications: The Case of Econometrics', which was his lecture in
memory of Alfred Nobel and was given at the Nobel Prize Ceremony. In this
work Frisch is primarily painting, with a broad brush, the conception of
econometrics and its use in economic planning. The second essay, 'Co-opera
tion between Politicians and Econometricians on the Formalization of Politi
cal Preferences', is based on a seminar paper presented to the Federation of
XII INTRODUCTION
Swedish Industries in 1970. Here he is concerned with trying to create a
framework for co-operation between technocrats and the political machinery
in arriving at the preference function, which, he postulates, must underlie the
very concept of an optimal economic policy. The third essay is entitled
'Preface to the Oslo Channel Model'. It first appeared in Europe's Future in
Figures in 1962 and is basically a survey of differeht types of economic
forecasting and programming. The fourth essay is entitled 'An Implementa
tion System for Optimal National Economic Planning without Detailed
Quantity Fixation form a Central Authority'. It originally appeared as an
extract of the Conference Internationale de Recherche Operationelle in Oslo
1963, and represents an attempt to set up an overall national economic
planning framework without eliminating 'the effort releasing effect' (or
incentive inducing mechanism) of the free market mechanism. The final paper
is entitled 'Economic Planning and the Growth Proble,p1 in Developing Coun
tries'. It first appeared in Stats¢konomisk Tidsskrift 2/3 (1961), and re
p~esents a case for economic planning in such economies.
These works could also be found respectively in Reprint Series Nos. 70,
90, 15, 18, and (un-numbered, dated 1961) of the University of Oslo
Institute of Economics.
A number of limitations are present in these studies. We would like to
single out the following:
(1) Frisch's framework largely assumes a given socio-economic power
distribution in society. That is, the prevailing structure of society is held as a
constant.
(2) Conditions pertaining largely to developed western economies are
generally assumed so that their applicability to many developing countries is
limited in the light of factors such as data availability, technocratic
bottlenecks, literacy levels, lack of participative facilities, to name just a few.
(3) The discussion of developing economies takes a rather conventional
form. For example, certain structural constraints to development in the realm
of international political economy, such as dependency relations, the inter
national pricing and market structure, and the system of world division of
labour are assumed away.
(4) Another limitation inheres the very notion of planning itself. That is
to say, you cannot totally plan human behaviour.
(5) Frisch's framework, while trying to some extent to cope with the
political realities of the planning process, does not adequately deal with
Description:It is probably true, as the editor of these essays and studies by Ragnar Frisch points out, that the majority of economists are not well aware of the contributions made to their discipline by Frisch. This certainly does not apply, however, to econometricians. In fact, Frisch was one of the founding
