Gunnar Myrdal {{PD-US}}
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Gunnar Myrdal: Life, Contributions, and the Theory of Circular and Cumulative Causation in Development Economics

Gunnar Myrdal, a distinguished Nobel Laureate in Economics (1974), was a multifaceted Swedish economist and sociologist. His work spanned critical areas like the welfare state, monetary equilibrium, and profoundly, development economics.

Myrdal's most influential contribution in development is the theory of Circular and Cumulative Causation. This theory posits that economic and social forces interact in a way that poor regions or groups face a reinforcing downward spiral ("backwash effects"), while wealthy regions benefit from self-reinforcing growth ("spread effects").

His extensive research, notably in An American Dilemma and Asian Drama, provided rigorous case studies and policy prescriptions, underscoring his lasting impact on understanding inequality and economic development.

Introduction
1.1 Overview of Gunnar Myrdal
1.2 Purpose and Scope of the Essay
Early Life, Education, and Career
2.1 Birth and Family Background
2.2 Education and Academic Influences
2.3 Professional Career and Roles
Major Contributions to Economics
3.1 Monetary Equilibrium and Price Formation
3.2 Critique of Economic Theory as Value-Neutral
3.3 Circular and Cumulative Causation
3.4 Welfare State Theory and Social Policy
3.5 Methodological Innovations
3.6 Race Relations and Inequalities
3.7 International Trade, Underdevelopment, and Global Inequality
Main Theory: Circular and Cumulative Causation
4.1 Concept Overview
4.2 Logical Structure of the Theory
4.2.1 Initial Conditions
4.2.2 Multiple Interconnected Factors
4.2.3 Feedback Mechanisms
4.2.4 Non-Linear Growth and Divergence
4.2.5 Institutional, Cultural, Social, Historical Dimensions
4.2.6 Role of Expectations and Uncertainty
4.2.7 Rejection of Stable Equilibrium Models
4.3 Key Applications
4.4 Implications for Policy and Development
4.5 Criticisms and Counterpoints
4.6 Comparison with Other Economic Theories
Other Theoretical Components
5.1 Ex Ante and Ex Post Savings-Investment
5.2 Monetary Disequilibrium
5.3 Methodology and Value Judgments
5.4 Welfare State and Social Policy
Life Achievements and Recognition
6.1 Nobel Prize in Economic Sciences (1974)
6.2 Major Published Works
Conclusion
Case Studies
8.1 Race Relations in the United States
8.2 Underdevelopment in South Asia / Asia
8.3 Regional Inequality within Countries
8.4 Welfare State and the Scandinavian Model

Gunnar Myrdal
{{PD-US}}
Uppsala-Bild / Upplandsmuseet,
Public domain, via
Wikimedia Commons

Introduction

Gunnar Myrdal (1898–1987) was a Swedish economist and sociologist whose work spanned many of the most important debates of the twentieth century: monetary theory, social policy, development, welfare states, race relations, and methodological issues in economics.

Awarded the Nobel Prize in Economics in 1974, Myrdal remains a major figure for his insistence that economics cannot be divorced from social, institutional, cultural, and political forces.

This essay narrates Myrdal’s life briefly, details his contributions to economics, explains his main theoretical construct—circular and cumulative causation—in depth, and reflects on its implications.

Early Life, Education, and Career

Born on 6 December 1898 in Skattungbyn, Sweden, Gunnar Myrdal earned a law degree in 1923 and a doctorate in economics in 1927 from Stockholm University. Early academic influences included Gustav Cassel and the broader Stockholm School, which focused on savings-investment dynamics, price formation, expectations, and the relationship between demand, supply, and monetary phenomena.

Over his career, Myrdal held academic posts, served in public policy and governmental roles (including in Sweden’s Parliament), and worked with international bodies such as the United Nations Economic Commission for Europe.

Gunnar Myrdal
{{PD-US}}
Uppsala-Bild / Upplandsmuseet,
Public domain, via
Wikimedia Commons

Major Contributions to Economics

Monetary Equilibrium and Price Formation
Myrdal introduced distinctions between ex ante (planned) and ex post (actual) savings and investment, highlighting the impact of expectations, uncertainty, and interest rates on economic equilibrium.
Critique of Economic Theory as Value-Neutral
In works like The Political Element in the Development of Economic Theory, Myrdal argued that economic theories are not independent of moral, political, or ideological assumptions. Economists should explicitly state value judgments rather than pretending to objectivity.
Circular and Cumulative Causation
His most influential theory, circular and cumulative causation, posits that development and underdevelopment involve feedback loops. Small advantages or disadvantages in one domain reinforce themselves through multiple mechanisms, creating cumulative divergence rather than convergence.
Welfare State Theory and Social Policy
Myrdal was deeply involved in ideas and practice of welfare state formation in Sweden, advocating government intervention to promote social justice, equality, and public services such as education and health.
Methodological Innovations
Myrdal emphasized interdisciplinarity: economics, sociology, political science, and history. He questioned orthodox equilibrium models and focused on disequilibrium, uncertainty, and dynamic change.
Race Relations and Inequalities
His work An American Dilemma: The Negro Problem and Modern Democracy examined how policy, public opinion, social norms, prejudice, and institutional discrimination interlink to perpetuate inequality.
International Trade, Underdevelopment, and Global Inequality
In works such as Asian Drama: An Inquiry into the Poverty of Nations and Economic Theory and Underdeveloped Regions, Myrdal extended his theory of cumulative causation globally, analyzing why some nations remain poor, considering institutions, colonial history, trade patterns, and technological diffusion.

Gunnar Myrdal
{{PD-US}}
Uppsala-Bild / Upplandsmuseet,
Public domain, via
Wikimedia Commons

Main Theory: Circular and Cumulative Causation

Concept Overview

Circular causation: Changes in one domain generate further changes in others, reinforcing the original change. Cause and effect are mutually reinforcing, not linear.
Cumulative causation: These loops tend to accumulate over time; small advantages or disadvantages build upon themselves, magnifying initial conditions. Divergence is likely unless policy counteracts it.

Logical Structure

Initial Conditions: Regions or countries start with varying endowments—geography, resources, human capital, institutions, culture, infrastructure, or colonial history.
Multiple Interconnected Factors: Initial endowments affect productivity, health, education, social organization, investment, and trade.
Feedback Mechanisms:
- Positive: Strong institutions → better governance → public investment → improved infrastructure → higher productivity → higher incomes → stronger institutions.
- Negative: Weak institutions → inefficient investment → poor infrastructure → low productivity → weak institutions.
Non-Linear Growth / Divergence: Feedback amplifies differences over time. Initial advantages or disadvantages can lead to large divergences in development outcomes.
Institutional, Cultural, Social, Historical Dimensions: Non-economic variables—culture, norms, history, gender, demography—play a central role. Policy, state capacity, and external relations further influence outcomes.
Role of Expectations and Uncertainty: Ex ante (planned) versus ex post (realized) savings and investment reflect uncertainty about the future, political stability, and institutional reliability.
Rejecting Stable Equilibrium Models: Markets are not guaranteed to self-correct. Systems may have multiple equilibria, path-dependence, and lock-in of poverty or inequality.

Key Applications

Economic Theory and Underdeveloped Regions: Explains why underdevelopment persists without holistic policy.
An American Dilemma: Applies theory to racial discrimination in the U.S., highlighting feedback loops between social norms and economic outcomes.
Monetary Equilibrium: Examines the effect of expectations, uncertainty, and monetary factors on disequilibrium.

Implications

Holistic policy is essential: growth alone is insufficient. Education, health, infrastructure, and institutional reform must be addressed together.
The state has a central role in correcting inequalities, building institutions, and providing public goods.
International relations, trade, and historical factors matter for development.
Policies must account for path-dependence and entrenched disadvantage.

Gunnar Myrdal
{{PD-US}}
Uppsala-Bild / Upplandsmuseet,
Public domain, via
Wikimedia Commons

Criticisms

Some argue the theory is pessimistic, overemphasizing negative feedback.
Evidence of catch-up (e.g., East Asia) challenges the inevitability of divergence.
Implementation of holistic policy is difficult due to governance limitations.
Measuring non-economic factors and establishing causality is complex.

Comparison with Other Theories

Unlike neoclassical growth models, Myrdal emphasizes institutional and non-economic factors.
Overlaps with Keynesianism on expectations and disequilibrium but adds sociological dimensions.
Anticipates ideas in institutional economics, structuralist, and dependency theory.

Other Theoretical Components

Ex Ante and Ex Post Savings-Investment: Planned vs realized investments and savings can lead to disequilibrium and cycles.
Monetary Disequilibrium: Markets may fail to reach equilibrium due to interest rate, money supply, or price-level mismatches.
Methodology and Value Judgments: Economics is never value-neutral; ignoring ethical and political dimensions creates blind spots.
Welfare State and Social Policy: Policies must respond to social problems and inequalities.

Life Achievements & Recognition

Nobel Prize in Economic Sciences (1974): Shared with Friedrich Hayek for analysis of interdependence of economic, social, and institutional phenomena.
Major works: Monetary Equilibrium, An American Dilemma, Economic Theory and Underdeveloped Regions, Asian Drama: An Inquiry into the Poverty of Nations.

Conclusion

Gunnar Myrdal’s work integrates economics with sociology, political science, and history. His theory of circular and cumulative causation highlights that inequality, underdevelopment, and poverty are self-reinforcing without intervention. His holistic approach remains highly relevant to understanding global development, regional disparities, and social policy today.

Case Studies

Case Study	Context	Myrdal’s Theory Applied	Outcome / Insight
Race Relations in the United States	Mid-20th century African Americans facing segregation and economic discrimination	Feedback loops between policy, norms, and institutions perpetuate disadvantage	Informed civil rights policy; showed institutional and social reforms are both needed
Underdevelopment in South Asia / Asia	Post-colonial countries with weak institutions, infrastructure, and human capital	Weak institutions → low investment → low productivity → cumulative disadvantage	Countries that implemented holistic reforms (East Asia) succeeded; others lagged
Regional Inequality within Countries	Some regions lag in education, infrastructure, industrialization	Initial disadvantages reinforced through outmigration, weak investment, low public resources	Targeted state policies required to break negative cycles
Welfare State and Scandinavian Model	Sweden 20th century building universal health, education, and social security	Positive feedback: welfare policies build citizen trust, enabling further reforms