Wicksell’s most influential contribution was his theory of interest, originally published in German language as Geldzins. Wicksell was born on 20 December in Stockholm, the youngest of six children. His parents died while he was still young but left sufficient funds to secure. Interest and Prices (Geldzins und Guiterpreise): A Study of the Causes. Regulating the Value of Money. By KNUT WICKSELL. Translated from the German by.

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Views Read Edit View history. That is the rate of interest entrepreneurs or must pay on loaned capital. Knut Wicksell on Poverty: Therefore, the economy would have deflation.

Or at least exacerbated businesses cycles. Cameralism Mercantilism Physiocrats School of Wjcksell.

Interest And Prices : Wicksell,Knut. : Free Download, Borrow, and Streaming : Internet Archive

They simply reinvest it at higher rates around the world taking money of knht US economy in the process and re-capitalizing them self with the spread courtesy of the Federal Reserve.

An interest rate that coincides with the natural rate ensures equilibrium in the commodity market and produces price level stability. The natural rate is the return on capital — or the real profit rate. Namely, when real aggregate supply does constrain, inflation results because capital goods industries cannot meet new real demands for capital goods by entrepreneurs by increasing capacity.

The real rate of interest if not directly observable. Wicksell died in while he was writing a final work on the theory of interest. This seems so obvious once your read it, but if this is so, why have so many economist tried to use complex verbose wicosell.

Wicksell’s theory would be a strong influence in Keynes’s ideas of growth and recession, in Gunnar Myrdal ‘s key concept Circular Cumulative Causation and also in Joseph Schumpeter ‘s ” creative destruction ” theory of the business cycle. The money supply is regulated by market forces and not government control over the money supply.


Wicksell’s theory of the “cumulative process” of inflation remains the first decisive swing at the idea of money as a “veil”.

Ancient schools Medieval Islamic Scholasticism. He questioned the institutions of rank, marriage, the church, the monarchy, and the military. This is clear as it is observable and measurable. Take a look around and see if this is the case or not today, that is a long-term sluggish economy, despite low interest rates. At one lecture, he condemned drunkenness and prostitution as alienating, degrading, and impoverishing. Primarily, Say’s Law is violated and abandoned by the wayside.

The effect could be, no matter how much the government tried to prime the pump it will not work, because the real rate of interest is stuck below zero. I will explain it in terms of a simple model put forth in the economic theory of Knut Wicksell.

This theory was adopted by the Austrian Schoolwhich theorized that an economic boom happened when the interest rate fell short of the natural rate. English translation New York Wicksell’s theory claims, indeed, that increases in the supply of money leads to rises in price levels, but the original increase is endogenous, created by the relative conditions of the financial and real sectors.

The aim of the post is to clearly explain why in times of falling interest rates there is often deflation. However, we should remind ourselves that, pries Wicksell, in the long run, the Quantity Theory still holds: That means prices have a life of their own and get out of control in the direction they are moving. What if the bank rate of interest was zero or close to zero? The next year, he became a full professor at Lund Universitywhere he would undertake his most influential work.

Wicksell – Interest and Prices

Skip to content Why low rates of interest can cause deflation — an insight for today from Wicksell The aim of the post is to clearly explain why in times of falling interest rates there is often deflation. Recall that the start of the Quantity Theory’s mechanism is a helicopter drop of cash: The supply and demand of money adjusts quickly and business cycles are averted or tempered. Extending from Ricardo’s investigation of income distribution, Wicksell concluded that even a totally unfettered economy was not destined to equalize wealth as a number of Wicksell’s predecessors had predicted.


His work on fiscal theory Finanztheoretische Untersuchungen called attention to the significance of the rules within which choices are made by political agents, and he recognized that efforts at reform must be directed toward changes in the rules for making decisions rather than trying to influence the behaviour of the actors.

InWicksell received a scholarship to study on the Continent, where he heard lectures by the economist Carl Menger in Vienna. However, the real problem is this — disequilibrium in the supply and demand for money will cause disequilibrium in the real sector. One idea was something called free money.

Interest and Prices | Mises Institute

However, the reason central bankers do not like deflation is they feel it can suppress demand. Wicksell invented the key term natural rate of interest and defined it at that interest rate which is compatible with a stable price level. What is wrong with deflation? This rate will equilibrate the the supply and demand for loanable funds.

His economic contributions would influence both the Keynesian and Austrian schools of economic thought. Money rate of interest and the natural rate of interest The theory is simple. He lost both his parents at a relatively early age.

Encyclopedia of Law and Economics.