Approaching a Fork in the Road
The committee that awards the Nobel Memorial Prize in Economic Sciences has a decision to make
It was a substantial responsibility the government of Sweden licensed when, in the 1960s, it gave its blessing to the creation of a prize in economic sciences in memory of Alfred Nobel, to be administered by Nobel Foundation and awarded by the Royal Swedish Academy of Sciences. That bold action wasn’t easy, but it was as easy as it would get.
The Cold War smoldered ominously between two very different systems, “capitalist” and “communist.” In the West, the prestige of the Keynesian revolution was at its height, compared by some historians of science to the Darwinian, Einsteinian, Freudian, and quantum revolutions. And the Science Academy possessed seventy-five years of experience as administrators of the physics and chemistry awards that were among the five prizes mandated by Nobel’s handwritten will.
Since 1969, when the first economics prize was awarded, the committee that oversees it has done pretty well, at least in the judgment of those who have followed the program closely. The Nobel system has imposed a narrative order on various developments since the 1940s in an otherwise fractious profession, often by recognizing its close neighbors. Goodness knows where we in the audience would be without it – still reading The Worldly Philosophers, perhaps, first published in 1953, as though nothing since had happened.
Now, however, the Nobel Prize in economic sciences is facing a crucial test. The authorities need to give a prize to clarify understanding inside and outside the profession of the events of 2008, when emergency lending and institutional restructuring by the world’s central banks halted a severe financial panic. What might have turned into a second Great Depression was thus averted. Governments’ responsibilities as lenders of last resort were the heart of the issue over which Keynesians and Monetarists jousted for seventy-five years after 1932.
Either the Swedes have something to say about what happened in 2008, not necessarily this year, but soon, or else they don’t. Their discussions are well underway. The credibility of the prize is at stake.