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.

Interest and Prices | Mises Institute

When a bank lends money to an entrepreneur, it literally expands the money supply. Banks create endogenous money Wicksell believed banks create purchasing power or endogenous money. His mother died when he was only six, and his father died when he was fifteen. It interestt the interaction between the bank rate of interest and the natural rate that determines price movementsthat is inflation or deflation. 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.

The aim of the post is to clearly explain why in times of falling interest rates there is often deflation. The Fed has simply manipulated rates and transfers money from the responsible to the irresponsible and to big to fail.

Knut Wicksell – Wikipedia

The profit rate is the rate of return businesses actually get on their capital. Volume 3, Issue 3, September Why is deflation and low interest rates are intrest 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.

His economic contributions would influence both the Keynesian and Austrian schools of economic thought. The real debt becomes larger. Wicksell died in while he was writing a final work on the theory of interest. Although he was sometimes identified as a socialisthis solution to the problem was decidedly Malthusian in advocating birth controlwhich he would defend to the end of prics life. He lost both his parents at a relatively early age. English translation New York Knut Wicksell on Poverty: There are many problems.


In this situation, people do not want to put their money in banks, real wivksell values go up, investments falls, demand is depressed etc. People draw conclusions based on the bank rate of interest. That is the rate of interest entrepreneurs or must pay on loaned capital. Recall that the start of the Quantity Theory’s mechanism is a helicopter drop of cash: Just like credit cards are issued by banks, so banks could issue money.

History of economic thought History of macroeconomic thought Economics Mainstream economics Heterodox economics Post-autistic economics Degrowth World-systems theory Economic systems. 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.

I currently am leaning towards ending the Federal Reserve.

Wicksell – Interest and Prices

However, the reason central bankers do not like deflation is they feel it can suppress demand. Instead, Wicksell posited, wealth created by growth would be distributed to those who had wealth in the first place. He desired to influence more than just the field of monetary economics. Encyclopedia of Law and Economics. 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.

Wicksell believed banks create purchasing power or endogenous money. 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.

Skip to content Why low rates of interest can cause deflation — an insight for today from Wicksell Intrrest aim of the post is to clearly explain why in times of falling interest rates there is often deflation.


Break up the to big to fail monsters and let banking be banking. The real rate of interest is the marginal productivity of capital.

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

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InWicksell received a scholarship to study on the Continent, where he heard lectures by the economist Carl Menger in Vienna.

Retrieved from ” https: Or at least exacerbated businesses cycles. At one lecture, he condemned drunkenness and prostitution as alienating, degrading, and impoverishing.

Interest And Prices

Schools of economic thought. No place is too exalted for the preaching of these doctrines.

That is our economy wickselll stuck in long-term low gear because of a negative real rate of interest, that does not respond to government action. If and when rates would finally rise as they should to reflect the real cost of money all this cash would flow back in. Wicksell’s theory would be a strong influence in Keynes’s ideas of growth and recession, in Gunnar Myrdal ‘s knuut concept Circular Cumulative Causation and also in Joseph Schumpeter ‘s ” creative destruction ” theory of the business cycle.

As a lecturer at Uppsala, Wicksell attracted attention because of his opinions about labour.

If the nad rate is beneath the natural rate, an economic expansion occurs, and prices, ceteris paribuswill rise. If you look at the Gini coefficient, which is a statistical measure of wealth distribution, the wealthy benefit from Fed action.