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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That means prices have a life of their own and get out of control in the direction they are moving.

Finally, for Wicksell the endogenous creation of money, and how it leads to changes in the commodity market is fundamentally a breakdown of the Neoclassical tradition of a dichotomy between monetary and real sectors. His father was a relatively successful businessman and real estate broker.

The English translation Interest and Prices became available in ; a literal translation of the original title would read Money Interest and Commodity Prices. 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.

Cameralism Mercantilism Physiocrats School of Salamanca. The reason is there is only one observed interest rate, the bank rate.

Wicksell’s contributions to economics have been described by some economists, including historian-of-economics Mark Blaugas fundamental to modern macroeconomics.

That is the rate of interest entrepreneurs or must pay on loaned capital. There are many problems. Wicksell’s main intellectual rival was the American economist Irving Fisherwho espoused a more succinct explanation of the quantity theory of moneyresting it almost exclusively on long run prices. Banks provide credit, after all, by creating deposits upon which borrowers can draw. This has worked in the past, but in our modern economy it is only a libertarian pipe dream. The Fed has simply manipulated rates and transfers money from the responsible to the irresponsible and to big to fail.


If they like banks could back it with real assets or not. His father’s considerable estate allowed him to enroll at the University of Uppsala in to study mathematics and physics. Knut Wicksell tried to explain this in theory. Wicksell’s work on creating a synthetic economic theory earned him a reputation as an “economist’s economist.

He questioned the institutions of rank, marriage, the church, the monarchy, and the military. Wicksell’s theory of the “cumulative process” of inflation remains the first decisive swing at the idea of money as a “veil”. 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.

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.

Credit, then, is perceived wickeell appropriately as “money”. The money supply is regulated by market forces and not wwicksell control over the money supply.

This seems so obvious once your read it, but if this is so, why interesh so wickselk economist tried to use complex verbose theories. The aim of the post is to clearly explain why in times of falling interest rates there is often deflation. Wicksell’s interset thesis, that disequilibrium engendered by real changes leads endogenously to an increase in the demand for money — and, simultaneously, its supply as banks try to accommodate it perfectly.

In the following years, his interests began to shift toward the social sciences, particularly economics. After giving a lecture in satirising the Virgin birth of JesusWicksell was deemed guilty of blasphemy and imprisoned for two months.

Wicksell’s theory was considerably more complicated, beginning with interest rates in a system of changes in the real economy. An interest rate that coincides with the natural rate ensures equilibrium in the commodity market and produces price level stability.


In short, inflation is a real phenomenon brought about by a rise in real aggregate demand over and above real aggregate supply.

Interest And Prices

He was married to the noted feminist Anna Bugge. This endogenous creation of money was manifest by the interest rate.

What is the solution? Michael Woodford has especially praised Wicksell’s advocacy of using the interest rate to maintain price stability, noting that it was a remarkable insight when most monetary policy was based on interesr gold standard Woodford,p.

He lost both his parents at a relatively early age. Forcing money to perpetuate malinvestment that would other wise be available is the best way to keep the recession from ending. Leave a Reply Cancel reply. At one lecture, he condemned drunkenness and prostitution as alienating, degrading, and impoverishing. What is wrong with deflation? That is recession or depression. The supply and demand of money adjusts quickly and business cycles are averted or tempered.

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

The profit rate is the rate of return businesses actually get on their capital. Schools of economic thought. Instead, Wicksell posited, wealth created by growth would be distributed to those who had pruces in the first place. Knut Wicksell was a 19th century Swedish economist who attempted to explain the paradoxical relationship between low-interest rate environments and deflation.

The real rate of interest if not directly observable. Previous Post Previous Is deflation bad? In other projects Wikimedia Commons Wikiquote Wikisource.