Knut Wicksell and Nordic Economy

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Johan Gustaf Knut Wicksell (December 20, 1851 May 3, 1926) was a leading
Swedish economist of the Stockholm school. His economic contributions would
influence both the Keynesian and Austrian schools of economic thought.
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Economist Knut Wicksell made his name among the Swedish public with a
series of provocative lectures on the causes of prostitution, drunkenness,
poverty, and overpopulation. A malthusian, the young Wicksell advocated
birth control as the cure for these social ills.

His image as a radical social reformer did much to attract the attention of the
press and the Young Socialists with whom he sympathized, but his rejection
of Marx and Marxism limited his popularity.

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Wicksell was not so much an innovator as a synthesizer. His integration and

refinement of existing microeconomic theories helped earn Wicksell
recognition as the economists economist;

In his 1893 book, Value, Capital, and Rent, Wicksell analyzed and praised the
Austrian theory of capital as elaborated by EUGEN VON BHM-BAWERK;

In the first volume of his Lectures on Political Economy Wicksell concluded

that Bhm-Bawerks idea of roundaboutness did not make sense, and agreed
with Irving Fisher that waiting was a sufficient explanation for interest rates.

Wicksell also laid out marginal productivity theory, the theory that the payment to
each factor of production equals that factors marginal product

Wicksell is best known for Interest and Prices, his contribution to the fledgling
field now called macroeconomics. In this book and in his 1906 Lectures in
Political Economy, volume 2, Wicksell sketched out his version of the quantity
theory of money (monetarism).

The standard view of the quantity theory before Wicksell was that increases
in the money supply have a direct effect on pricesmore money chasing the
same amount of goods;

The standard view of the quantity theory before Wicksell was that increases
in the money supply have a direct effect on pricesmore money chasing the
same amount of goods;

Wicksell focused on the indirect effect. In elaborating this effect, Wicksell

distinguished between the real rate of return on new capital (Wicksell called
this the natural rate of interest) and the actual market rate of interest;

He argued that if the banks reduced the rate of interest below the real rate of
return on capital, the amount of loan capital demanded would increase and
the amount of saving supplied would fall;

Investment, which equaled saving before the interest rate fell, would exceed
saving at the lower rate. The increase in investment would increase overall
spending, thus driving up prices. This cumulative process of inflation would
stop only when the banks reserves had fallen to their legal or desired limit,
whichever was higher;

In 1900, when Wicksell was forty-eight years old, he was granted his first
teaching position at the University of Lund, which he retained until his
retirement in 1916;

His quirky habits, friendly demeanor, and willingness to actively defend his
beliefs earned him respect and popularity among his students. Throughout
his lifetime Wicksell never lost his penchant for radicalism.

He forfeited a professorship by refusing to sign the application with the

conventional Your Majestys most obedient servant In 1910 he was jailed
for two months by the Swedish government for a satirical public lecture he
delivered on the Immaculate Conception;

In spite of his disdain for ceremony and fanfare, his common-law widow
consented to an extravagant funeral upon his death at age seventy-four.