Johan Gustaf Knut Wicksell (December 20, 1851 – May 3, 1926) was a Swedish economist of the Stockholm school. He was professor at Uppsala University and Lund University. He made contributions to theories of population, value, capital and money, as well as methodological contributions to econometrics. His economic contributions would influence both the Keynesian and Austrian schools of economic thought. He was married to the noted feminist Anna Bugge.
Early life Wicksell was born in Stockholm on December 20, 1851. His father was a relatively successful businessman and real estate broker. He lost both his parents at a relatively early age. His mother died when he was only six, and his father died when he was fifteen. His father's considerable estate allowed him to enroll at the University of Uppsala in 1869 to study mathematics, astronomy and physics.
Education He received his first degree in two years, and he engaged in graduate studies until 1885, when he received his doctorate in mathematics. In 1887, Wicksell received a scholarship to study on the Continent, where he heard lectures by the economist Carl Menger in Vienna. In the following years, his interests began to shift toward the social sciences, particularly economics.
Lecturer As a lecturer at Uppsala, Wicksell attracted attention because of his opinions about labour. At one lecture, he condemned drunkenness and prostitution as alienating, degrading, and impoverishing. Although he was sometimes identified as a socialist, his solution to the problem was decidedly Malthusian in advocating birth control, which he would defend to the end of his life. Wicksell has been described as an "ardent neo-Malthusian." His fiery ideas had attracted some attention, but his first work in economics, Value, Capital and Rent (1892), went largely unnoticed. In 1896, he published Studies in the Theory of Public Finance and applied the ideas of marginalism to progressive taxation, public goods and other aspects of public policy, attracting considerably more interest. 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. 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 1899. The next year, he became a full professor at Lund University, where he would undertake his most influential work.
Later life In 1916, he retired from his post at Lund and took a position at Stockholm advising the government on financial and banking issues. In Stockholm, Wicksell associated himself with other future great economists of the so-called "Stockholm School," such as Bertil Ohlin, Gunnar Myrdal and Erik Lindahl. He also taught a young Dag Hammarskjöld, the future Secretary-General of the United Nations. Wicksell died in 1926 while he was writing a final work on the theory of interest.
Work
Influences Wicksell was enamored with the theory of Léon Walras (the Lausanne school), Eugen von Böhm-Bawerk (the Austrian school), and David Ricardo, and sought a synthesis of the three theoretical visions of the economy. Wicksell's work on creating a synthetic economic theory earned him a reputation as an "economist's economist." For instance, although the marginal productivity theory – the idea that payments to factors of production equilibrate to their marginal productivity – had been laid out by others such as John Bates Clark, Wicksell presented a far simpler and more robust demonstration of the principle, and much of the present conception of that theory stems from Wicksell's model. Wicksell's (1898, 1906) theory of the "cumulative process" of inflation remains the first decisive swing at the idea of money as a "veil" as well as Say's law. Extending from Ricardo's investigation of income distribution, Wicksell concluded that even a totally unfettered economy was not destined to equalize wealth as a number of Wicksell's predecessors had predicted. Instead, Wicksell posited, wealth created by growth would be distributed to those who had wealth in the first place. From this, and from theories of marginalism, Wicksell defended a place for government intervention to improve national welfare. Wicksell influenced the field of constitutional political economy. His 1896 work on fiscal theory Finanztheoretische Untersuchungen called attention to the significance of the rules within which choices are made by political agents, and he recognized that efforts at reform must be directed toward changes in the rules for making decisions rather than trying to influence the behaviour of the actors.
Interest and Prices, 1898
Wicksell's most influential contribution was his theory of interest, originally published in German language as Geldzins und Güterpreise, in 1898. The English translation Interest and Prices became available in 1936; a literal translation of the original title would read Money Interest and Commodity Prices. Wicksell invented the key term natural rate of interest and defined it as that interest rate which is compatible with a stable price level. If the interest rate falls short of the natural rate, inflation is likely to arise; if the interest rate exceeds the natural rate, this will tend to produce deflation. An interest rate that coincides with the natural rate ensures equilibrium in the commodity market and produces price level stability. This theory was adopted and expanded upon by the Austrian School, which theorized that an economic boom happened when (due to monetary expansions) the spot interest rate fell below the natural, unhampered money market rate.
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