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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This is clear as it is observable and measurable.

It can be roughly considered to be equivalent to the marginal product of new capital. Here is the key point: There are many problems. If and when rates would finally rise as iinterest should to reflect the real cost of money all this cash would flow back in.

Wicksell’s process has its roots in that of Henry Thornton. That is recession or depression. He lost both his parents at a relatively early age. It is the interaction between the bank rate of interest and the natural rate that determines price movementsthat is inflation or deflation.

Interest and Prices | Mises Institute

After giving a lecture in satirising the Virgin birth of JesusWicksell was deemed guilty of blasphemy and imprisoned for two months. The supply and demand of money adjusts quickly and business cycles are averted or tempered. His mother died when he was only six, and his father died when he was fifteen.

Knut Wicksell on Poverty: At one lecture, he condemned drunkenness and prostitution as alienating, degrading, and impoverishing. 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.

Wicksell’s theory was considerably more complicated, beginning with interest rates in a system of changes in the real economy. I currently am leaning towards ending the Federal Reserve. His father’s considerable estate allowed him to enroll at the University of Uppsala in to study mathematics and physics.

The money supply is regulated by market forces and not government control over the money supply. Ancient schools Medieval Islamic Scholasticism. This gave an early theory of endogenous money — money created by the internal workings of the economy, rather than external factors, and various theories of endogenous money have since developed. Money rate of interest and the natural rate of interest The theory is simple. The aim of the post is to clearly explain why in times of falling interest rates there is often deflation.


There are actually two rates of interest. Wicksell died in while he was writing a final work on the theory of interest. Wicksell invented the key term natural rate of interest and defined it at that interest rate which is compatible with a stable price level. He desired to influence more than just the field of monetary economics.

Knut Wicksell – Wikipedia

Knut Wicksell was a 19th century Swedish economist wicksel attempted to explain the paradoxical relationship between low-interest wickse,l environments and deflation.

Accordingly, he returned to the University of Uppsala where he completed the usual four-year law degree course in two years, and he became an associate professor at that university in The real rate of interest is the marginal productivity of capital. 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.

If the interest rate is beneath the natural rate, an economic expansion occurs, and prices, ceteris paribuswill rise.

Previous Post Previous Is deflation bad? The money rate, in turn, is the loan rate, an entirely financial construction. 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. Nkut was the case in post Civil War America and the Great Depression, there is a point where no matter how far interest rates the bank rate mind you falls, deflation continues and the economy is not moving.

He received his first degree in two years, and he engaged in graduate studies untilwhen he received his doctorate in mathematics. The natural wwicksell is the return on capital — or the real profit rate. Wicksell also expressed his views on many social issues and was often a critic of the status quo. They simply reinvest it at higher rates around the world taking money of the US economy in the process and re-capitalizing them self with the spread courtesy of the Federal Reserve.


Forcing money to perpetuate malinvestment that would other wise be available is the best way to keep the recession from ending. In the following years, his interests began to shift toward the social sciences, particularly economics. I will explain it in terms of a simple model put forth in the economic theory of Knut Wicksell.

Interest And Prices

No place is too exalted for the preaching of these doctrines. This contribution, called the ” cumulative process ,” implied that if the natural rate of interest was not equal to the interest rate on loans, investment demand and savings would differ. The English translation Interest and Prices became available in ; a literal translation of the original title would read Money Interest and Commodity Prices.

Money is not a “veil” — agents do react to it and this is not due to some irrational “money illusion”. In inferest, he retired from his post at Lund and took a position at Stockholm advising the government on financial and banking issues.

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 the gold standard Woodford,p. One idea was something called free money. The real debt becomes larger. This theory was adopted by the Austrian Schoolwhich theorized that an economic boom happened when the pricea rate fell short of the natural rate.