Gunnar Myrdal: Cumulative Causation and the Moral Mission of the Economist

The Economist America Invited to Explain Itself

In 1938, the Carnegie Corporation of New York faced a problem it had been circling for years: someone needed to produce a comprehensive, authoritative study of race relations in the United States, and that someone could not be American. The topic was too explosive, the domestic politics too entangled, for any American scholar — white or Black — to be trusted as impartial by all sides. The Corporation’s solution was to recruit a foreign scholar with no prior stake in American racial politics. They chose Gunnar Myrdal (1898–1987), a Swedish economist and Social Democrat, on the theory that a Scandinavian would bring both analytical rigor and the outsider’s clarity.

The resulting book, An American Dilemma: The Negro Problem and Modern Democracy (1944), was 1,500 pages long, drew on the work of dozens of researchers (including many Black scholars whose contributions were not always adequately credited at the time), and became one of the most influential works of social science published in the twentieth century. It was cited in the Supreme Court’s 1954 Brown v. Board of Education decision — the ruling that declared racial segregation in public schools unconstitutional. For a work of academic social science to reach that level of practical consequence is extraordinarily rare.

But Myrdal was more than the author of one famous book. He was an economic theorist who developed the concept of cumulative causation — the idea that advantages and disadvantages in economic life tend to compound rather than self-correct. He was a critic of mainstream economics who argued, decades before it became fashionable, that the pretense of value-free social science was intellectually dishonest and politically dangerous. He was a politician who helped design the Swedish welfare state. And he was a development economist who spent years studying poverty in Asia, producing a massive and largely unread work, Asian Drama (1968), that challenged the optimistic assumptions of modernization theory. Understanding Myrdal requires engaging with all of these roles, because they form a coherent intellectual project even when the results were uneven.

Myrdal was born in 1898 in the parish of Solvarbo in Dalarna, central Sweden. His background was rural and modest. He studied law and economics at Stockholm University, where he came under the influence of Knut Wicksell and the Stockholm School of economics — a group that, in the 1920s and 1930s, was developing ideas about monetary policy, expectations, and aggregate demand that paralleled and in some cases anticipated Keynes’s General Theory.

In 1924, Myrdal married Alva Myrdal, who would become a distinguished sociologist, diplomat, and Nobel Peace Prize laureate in her own right (1982). The marriage was a genuine intellectual partnership — they co-authored Crisis in the Population Question (1934), a book that reshaped Swedish social policy by arguing that declining birth rates were a consequence of economic insecurity and that the solution was not moral exhortation but material support: housing, childcare, health services. The book was a blueprint for the Swedish welfare state, and its influence was immediate and practical.

Jargon note: The Stockholm School refers to a group of Swedish economists (Myrdal, Erik Lindahl, Bertil Ohlin, Erik Lundberg, and others) who, in the interwar period, developed theories of saving, investment, and monetary equilibrium that have significant overlap with Keynesian macroeconomics. The question of who got there first — Stockholm or Cambridge — is a historiographic debate that generates more heat than light, but it is relevant because it establishes that Myrdal was not a follower of Keynes but an independent thinker working on similar problems from a different tradition.

Myrdal’s early academic work was in monetary and fiscal theory. His Monetary Equilibrium (1931, published in Swedish; English edition 1939) introduced the distinction between ex ante and ex post analysis — the difference between what economic actors plan to do before the fact and what actually happens after the fact. This distinction, which sounds almost trivially obvious, was in fact a significant methodological advance, because it clarified confusions in the saving-investment debate that were bedeviling economists on both sides of the Atlantic.

An American Dilemma: Seeing What Americans Could Not

Myrdal arrived in the United States in 1938 and spent the next several years traveling, reading, interviewing, and commissioning research. He visited the Deep South. He talked to sharecroppers, businessmen, politicians, and scholars. He read everything — sociological studies, census data, legal records, journalistic accounts. The research team he assembled included Ralph Bunche, E. Franklin Frazier, Kenneth Clark, and other scholars who were producing pathbreaking work on Black life in America.

The argument of An American Dilemma is built around a central paradox: Americans profess a creed of equality, liberty, and justice — the values enshrined in the Declaration of Independence and the Constitution — and yet they practice systematic racial discrimination. Myrdal called this the American Dilemma: the gap between the creed and the practice, and the psychological and institutional mechanisms that allow the gap to persist.

Crucially, Myrdal did not treat racial discrimination as a fixed feature of human nature or as a problem confined to the South. He saw it as a system — a set of interlocking economic, political, legal, and psychological mechanisms that reinforced each other. Poor education led to low-skill jobs, which led to low income, which led to segregated housing, which led to poor schools, which led to poor education — a vicious circle. This was the social application of what Myrdal would later formalize as cumulative causation.

The book was controversial from the moment it appeared. Some white Southern critics dismissed it as outside interference. Some Black intellectuals argued that Myrdal was too optimistic about the American creed’s capacity for self-correction and too focused on white attitudes rather than Black agency. The sociologist Oliver Cromwell Cox offered a Marxist critique: the problem was not a moral dilemma but a material structure of exploitation, and framing it as a dilemma obscured the economic interests that sustained racism. These criticisms have force, and modern scholarship has extended them. But the book’s central insight — that racial inequality is cumulative and systemic, not the product of isolated prejudices — has proven durable.

Cumulative Causation: The Theory Behind the Observation

Myrdal’s most important theoretical contribution, developed across several works but stated most clearly in Economic Theory and Under-Developed Regions (1957, also published as Rich Lands and Poor), is the concept of cumulative causation. The core idea is deceptively simple: in many social and economic processes, change in one direction tends to produce further change in the same direction, rather than triggering a self-correcting counter-movement.

Standard equilibrium economics assumes that deviations from equilibrium generate forces that push the system back. If wages rise above the equilibrium level, unemployment increases, which pushes wages back down. If a region experiences an economic shock, labor and capital will flow to where returns are higher, evening things out. Myrdal argued that this picture was systematically misleading for many real-world situations. When a region loses industry, it also loses tax revenue, skilled workers, demand for local services, and political influence — all of which make it harder to attract new industry, creating a downward spiral. Conversely, a region that gains industry attracts more workers, more services, more investment, and more political clout — an upward spiral.

Myrdal distinguished between spread effects (the positive spillovers from a growing region to its neighbors) and backwash effects (the negative consequences, as the growing region draws resources away from less dynamic areas). His argument was that, left to market forces alone, backwash effects tend to dominate, meaning that regional inequality — and by extension, international inequality — tends to increase over time, not decrease.

Jargon note: Cumulative causation is related to but distinct from the concept of path dependence in institutional economics and the concept of positive feedback in complexity theory. The family resemblance is real: all three describe situations where initial conditions and early events have lasting consequences. But Myrdal’s version is explicitly normative — he argues that cumulative processes are not just interesting theoretical phenomena but policy problems that require deliberate intervention to counteract.

Asian Drama: The Challenge of Development

In the 1960s, Myrdal turned his attention to South and Southeast Asia, producing Asian Drama: An Inquiry into the Poverty of Nations (1968), a three-volume, 2,200-page study that was even more ambitious than An American Dilemma. The book examined India, Pakistan, Indonesia, Burma, and other countries in the region, and its argument was deeply skeptical of the dominant development theories of the time.

Mainstream development economics in the 1950s and 1960s was broadly optimistic: poor countries could modernize by accumulating capital, adopting Western technology, and integrating into world markets. Myrdal argued that this optimism rested on a failure to take institutions seriously. Corruption, weak governance, rigid social hierarchies, inadequate education, and the legacy of colonialism were not mere “frictions” that would be swept away by economic growth — they were structural features of these societies that shaped how growth occurred and who benefited from it. Development, Myrdal insisted, required not just more investment but institutional transformation, and institutional transformation was a political and cultural process that economists’ models were not equipped to capture.

Asian Drama was respected but not widely read. It was too long, too detailed, and too pessimistic for a profession that preferred tractable models and optimistic policy prescriptions. In retrospect, many of Myrdal’s warnings — about the persistence of corruption, the limits of top-down planning, the importance of governance quality — have been vindicated by the subsequent experience of development in the region, though the specific predictions and prescriptions remain debatable.

The Critique of Value-Free Economics

Running through all of Myrdal’s work is a methodological argument that he considered at least as important as any of his substantive findings: the claim that value-free social science is impossible and that the pretense of value-freedom is dangerous.

Myrdal first stated this argument in The Political Element in the Development of Economic Theory (1930, Swedish; English 1953), a study of how political and ethical values had shaped economic theory from the physiocrats to the marginalists without being acknowledged. He returned to it in the methodological appendices of An American Dilemma and in Objectivity in Social Research (1969). The argument has several layers:

The choice of problems is value-laden. Deciding to study inflation rather than unemployment, or GDP growth rather than income distribution, reflects a judgment about what matters.
The concepts we use carry implicit valuations. “Efficiency,” “equilibrium,” “welfare” — these are not neutral descriptions but normative frames.
The assumptions we make (rational self-interest, perfect information, competitive markets) are not innocent simplifications but idealizations that privilege certain outcomes and institutions.
The solution is not to eliminate values — which is impossible — but to make them explicit. The honest economist states her value premises at the outset, so that the reader can assess how those premises have shaped the analysis.

This argument has been enormously influential in heterodox economics, in the sociology of knowledge, and in science studies. It has been less influential in mainstream economics, which has generally responded by acknowledging the point in theory and ignoring it in practice. Myrdal would not have been surprised.

The Nobel Prize: Myrdal and Hayek, 1974

In 1974, the Nobel Memorial Prize in Economic Sciences was awarded jointly to Gunnar Myrdal and Friedrich Hayek — a pairing that was either a masterstroke of Swedish irony or an act of institutional cowardice, depending on your perspective. Myrdal was a Social Democrat who believed in planning, redistribution, and the welfare state. Hayek was a classical liberal who believed that planning was the road to serfdom and that the market order was a spontaneous achievement that governments could only damage.

The official citation praised both for their work on the theory of money and economic fluctuations and for their “penetrating analysis of the interdependence of economic, social, and institutional phenomena.” This was broad enough to cover nearly anything. Myrdal himself was ambivalent about the prize; in later years he suggested that the economics Nobel should be abolished, on the grounds that it gave a false impression of scientific consensus in a field that was irreducibly value-laden and contested.

The pairing is worth dwelling on because it illuminates something about the state of economics in the 1970s. The postwar Keynesian consensus was cracking. Stagflation — the combination of high inflation and high unemployment — was confounding the standard models. The profession was splitting between those who wanted more state intervention (the post-Keynesian and institutional traditions, in which Myrdal was a major figure) and those who wanted less (the monetarist and Austrian traditions, in which Hayek was a major figure). The Nobel committee’s decision to honor both was a way of saying: we do not know who is right, and perhaps the question is badly framed.

Why Myrdal Is Largely Forgotten — and Why He Should Not Be

Myrdal’s relative obscurity in contemporary economics is not hard to explain. His books are long. His arguments are institutional, historical, and normative — qualities that do not translate easily into the formal models that dominate academic journals. He did not leave behind a school in the way that Keynes, Friedman, or Hayek did. The Swedish welfare state he helped build is often studied by political scientists and sociologists rather than economists. And his critique of value-free economics, while widely acknowledged as correct in principle, is inconvenient for a profession that derives much of its authority from the claim to be doing science rather than politics.

But the reasons for remembering Myrdal are at least as strong as the reasons for forgetting him. Cumulative causation is a better description of how regional and global inequality actually works than the equilibrium models that assume convergence. The insight that racism and poverty are systemic and self-reinforcing, not random or self-correcting, remains essential for understanding the United States and many other societies. The argument that economists should be explicit about their values is a standing rebuke to a profession that still too often presents contested political choices as the neutral findings of technical analysis.

And there is a biographical lesson. Myrdal was a man who took on enormous subjects — race in America, poverty in Asia, the methodology of social science — with a seriousness and a willingness to be wrong that is rare in any era. He did not always succeed. Asian Drama is unwieldy. His policy prescriptions for development were sometimes too confident in the capacity of state planning. His treatment of Black agency in An American Dilemma was, by modern standards, insufficient. But the ambition was real, and the core insights — that inequality compounds, that institutions matter, that economics cannot escape ethics — are more relevant now than they were when Myrdal first articulated them.

In a discipline that increasingly rewards technical virtuosity over substantive breadth, Myrdal’s example is a reminder that the most important questions in economics are not the ones that yield the cleanest models. They are the ones that force us to look at the world as it actually is — messy, historical, institutional, and morally charged — and to say what we think should be done about it, with our value premises on the table.