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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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However, the reason central bankers do not like deflation is they feel it can suppress demand. From Wikipedia, the free encyclopedia. Savers lose income and responsible borrowers lose opportunities. This 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.

The money supply is regulated by market forces and not government control over the money supply. This rate will equilibrate the the supply and demand for loanable funds. Wicksell’s process has its roots in that of Henry Thornton.

The real rate of interest is the marginal productivity of capital. One idea was something called free money. The was a key point. Leave a Reply Cancel reply.

Knut Wicksell – Wikipedia

In short, inflation is a real phenomenon brought about by a rise in real aggregate demand over and above real aggregate supply. The natural rate interext the return on capital — or the real profit rate.

Michael Woodford has especially wlcksell 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.

When a bank lends money to an entrepreneur, it literally expands the money supply.

Although both economists concluded from their theories that at the heart of the business cycle and economic crisis was government monetary policy, their disagreement would not be solved in their lifetimes, and indeed, it was inherited by the policy debates between the Keynesians and monetarists beginning a half-century later. I will explain it in terms of a simple model put forth in the economic theory of Knut Wicksell. He lost both his parents at a relatively early age.


Recall that the start of the Quantity Theory’s mechanism is a helicopter drop of cash: Schools of economic thought. Wicksell influenced the field of constitutional political economy.

In this situation, people do not want to put their money in banks, real asset values go up, investments falls, demand is depressed etc.

This is an example of why in times of rising rates of interest there is often inflation pries falling rates of interest there is often deflation. From the great but forgotten Stockholm school of economics Knut Wicksell was a 19th century Swedish economist who attempted to explain the paradoxical relationship between low-interest rate environments and deflation.

Knut Wicksell

What is wrong with deflation? 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.

He questioned the institutions of rank, marriage, the church, the monarchy, and the military. 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.

Just like credit cards are issued by banks, so banks could issue money. No, it allows prices to adjust to their natural level in most cases.

Inhe published Studies in the theory of Public Finance and applied the ideas of marginalism to progressive taxationpublic goods wixksell other aspects of public policy, attracting considerably more interest.

Wicksell – Interest and Prices – Political Economy

Again the real rate of interest is below zero. That is recession or depression. Wicksell’s work on creating a synthetic economic theory earned him a reputation as an “economist’s economist. Wicksell’s theory was considerably more complicated, beginning with interest rates in a system of changes in the real economy. Finally, for Wicksell the endogenous creation of money, and how it leads to changes in the commodity market is fundamentally a knt of the Neoclassical tradition of a dichotomy between monetary and real sectors.


Knut Wicksell was a 19th century Swedish economist who attempted to explain the paradoxical relationship between low-interest rate environments pricess deflation. Ancient schools Medieval Islamic Scholasticism. Cameralism Mercantilism Physiocrats School of Salamanca. His economic contributions would influence both inerest Keynesian and Austrian schools of economic thought.

An alternative to government control of the money supply 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.

Money is not a “veil” — agents do react to it and this is not due to some irrational “money illusion”. There are many problems. His father was a relatively successful businessman and real estate broker. History of economic thought History of macroeconomic thought Economics Mainstream economics Heterodox economics Post-autistic economics Degrowth World-systems theory Economic systems.

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. The reason is there is only one observed interest rate, the bank rate. This has worked in the past, but in our modern economy it is only a libertarian pipe dream. Wicksell’s main 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.

Or at least exacerbated businesses cycles.