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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The real debt becomes larger. Wicksell died in while he was writing a final work on the theory of interest. The English translation Interest and Prices became available in ; a literal translation of the original title would read Money Interest and Commodity Prices.

Why is deflation and low interest rates are bad? It can be roughly considered to be equivalent to the marginal product of new capital.

This has worked in the past, but in our modern economy it is only a libertarian pipe dream. InWicksell received a scholarship to study on the Continent, where he heard lectures by the economist Carl Menger in Vienna.

Wicksell – Interest and Prices – Political Economy

Economics in Sweden at the time was taught as part of the law school, and Wicksell was unable to gain a chair until he was awarded a law degree. Knut Wicksell on Poverty: He desired to influence more than just the field of monetary economics.

That is the rate of interest entrepreneurs or must pay on loaned capital. They simply reinvest it at higher rates around the world an money of the US economy in the process and re-capitalizing them self with the spread courtesy of the Federal Reserve.

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. Wicksell’s wicksfll on creating a synthetic economic theory earned him a reputation as an “economist’s economist. 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.


Inhe retired from his post at Lund and took a position at Stockholm advising the government on financial and banking issues.

As a lecturer at Uppsala, Wicksell attracted attention because of his opinions about labour. Woodford calls his own framework ‘neo-Wicksellian’, and he titled his textbook on monetary policy in homage to Wicksell’s work. If and when rates would finally rise as they should to reflect the real cost of money all this cash would wickselk back in.

His mother died when he was only six, and his father died when he was fifteen. One idea was something called free money.

Wicksell was born in Stockholm on December 20, 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 natural rate is the return on capital — or the real profit rate.

Wicksell’s process has its roots in that of Henry Thornton. His fiery ideas had attracted some attention, but his first work in economics, Value, Capital and Rentwent largely unnoticed. They may try but this would involve making higher bids in the factor market which itself is supply-constrained — thus raising factor prices and hence the price of goods in general. Wicksell married Anna Bugge in From this, and from theories of marginalismWicksell defended a place for government intervention to improve national welfare.


Savers lose income and responsible borrowers lose opportunities. However, the real problem is this — disequilibrium in the supply and demand for money will cause disequilibrium in the real sector.

Wicksell – Interest and Prices

Elements of his public policy were taken strongly to heart by the Swedish government, including his price-level targeting rule during the s Jonung and his vision of a welfare state. Since deposits constitute part of real money balances, therefore the bank can, in essence, “create” money. If the interest rate is beneath the natural iinterest, an economic expansion occurs, and prices, ceteris paribuswill rise. Schools of economic thought.

The supply and demand of money adjusts quickly and business cycles are averted or tempered. Michael Woodford has especially praised Wicksell’s advocacy of using the interest rate to wicksdll price stability, noting that it was a remarkable insight when most monetary policy was based on the gold standard Woodford,p.

The aim of the post is to clearly explain why in times of falling interest rates there is often deflation. Wjcksell, the story of the Quantity Theory of Money, the long-run relationship between money and inflation, is kept in Wicksell. By using this site, you agree to the Terms of Use and Privacy Policy.

Skip to content Why low rates of interest can cause deflation — an insight for today from Prifes The aim of the post is to clearly explain why in times of falling interest rates there is often deflation. Cameralism Mercantilism Physiocrats School of Salamanca.

His economic contributions would influence both the Keynesian and Austrian schools of economic thought.