The Theoretical Contributions of Knut Wicksell

The possible anticipation of the General Theory by the “Stockholm School” is a much-debated question in the history of modern macroeconomic theory. In order to deal with it, the distinctive analytical characteristic of the General Theory must first be defined. This is defined as the assignment of an equilibrating role to variations in output. The writings of Wicksell, Lindahl, Myrdal and Ohlin prior to 1934 are then examined, and it is shown that they do not contain such an analysis. Since Keynes developed the General Theory by the fall of 1933 at the latest, it is concluded that the “Stockholm School” did not anticipate him.

The part of Frisch’s work during the thirties which is best known is his econometric and methodological research. But he also participated actively in the Norwegian debate on the economic depression. Partly inspired by this debate, Frisch made some studies in macroeconomics and monetary theory which may still be of interest. Some of these studies were influenced by Wicksell. This paper constitutes a survey of some aspects of Frisch’s macroeconomic thinking and traces the influence of Wicksell, primarily in order to elucidate Frisch’s research from this period. Frisch’s interpretation of the cumulative process is also presented.

“There is probably no other economist who has had so much influence on my thinking, at least not in monetary theory” Frisch on Wicksell; Frisch (1951), p. 2.

This article aims at drawing attention to Wicksell’s last important contribution to economic theory, namely his model for bilateral monopoly.¹ This aspect of Wicksell’s work has not received its proper attention, mainly because the model that should have been called the Wicksell model is known in the literature as the Bowley model. For half a century this model—implying a determinate solution of the bilateral monopoly problem—has competed with models implying that this problem is indeterminable on economic grounds, at least as regards price. The most recent research in this area, however, has given at least partial support to the Wicksellian idea that bilateral monopoly has a determinate solution, in that a completely determinate solution can be established on the basis of economic factors alone for many situations.

The difficulties in traditional capital theory, which have recently given rise to the reswitching of technique debate, are traced back to Knut Wicksell’s analysis of capital accumulation and to his discussions with Gustaf Åkerman. Some of the later discussions on the “Wicksell effect” are reviewed. It is shown that the separation of price changes from physical changes—which was proposed by David Champernowne and Trevor Swan in a polemical argument with Joan Robinson—is not possible, in general. It is concluded that Wicksell’s original arguments were correct, although incomplete. When “by the last portion of capital is meant an increase in social capital”, then not only is the marginal productivity of capital unrelated to the rate of profit in any predictable way—as Wicksell pointed out; it no longer has any useful role to play.

By the use of a simple form of catastrophe theory, an attempt is made to develop an abstract, qualitative analysis of the pure theory of population. The model is constructed in such a way as to emphasize the importance of the problem posed by a very large population subsisting on non-renewable resources. Far from being outmoded, the concerns of Malthus and Wicksell are shown to be potentially present in an acute and special form—overshoot.

According to Knut Wicksell, two important factors which prevent the rate of profit from declining towards zero in an economy with positive saving are labor growth and technical progress. This paper analyzes the effect of these factors and the economy’s saving propensity on the long-run rate of profit in an economy with a scarce non-renewable natural resource. The existence of natural resource scarcity depresses the long-run rate of profit. However, the sensitivity of this rate of profit to labor growth and technical progress is the same for economies without and with natural resource scarcity.

In his search for a positive theory of the value of money Wicksell found the Quantity Theory and, even more so, the Banking Principle, quite inadequate. It is argued in this paper that Wicksell may have underestimated the theoretical value of the Banking Principle and that this principle is not incompatible with Wicksell’s own “Positive Solution”.

The income velocity of money in several countries such as Sweden, the United States and Great Britain, displays a U-shaped pattern for the last one hundred years. This paper proposes an explanation of this secular behavior based on an extension of Wicksell’s work on velocity emphasizing the influence of institutional changes. The secular fall in velocity in the last half of the 19th century and the first part of the 20th century is regarded as the outcome of a process of monetization encompassing (1) a growing use of money at the expense of a decline in barter and payment in kind, and (2) an increase in the activity of commercial banks with respect to supplying notes and bank deposits to the public. The secular rise in velocity is viewed as the result of two developments, increasing financial sophistication and growing economic security and stability. The explanation suggested here is confronted with some relevant empirical evidence. The paper, being exploratory in character, deals primarily with the Swedish record.

“Theoretically, therefore, the concept of velocity of circulation is a very simple one. But in practice its investigation is one of the most difficult problems in economics”, K. Wicksell, Lectures II, p. 60.

In our preparations for the Arne Ryde Symposium on the Theoretical Contributions of Knut Wicksell, we made a search for interesting works of Wicksell which had not previously been published or translated into English. In spite of the very large amount of printed notes, articles and books by Knut Wicksell—the bibliography by E. J. Knudtzon and T. Hedlund-Nyström Knut Wicksells tryckta skrifter 1868–1950 (The Publications of Knut Wicksell, 1868–1950)^1,2 contains more than 800 items—the archives at the Lund University Library were found to hide many largely unknown, handwritten manuscripts of Wicksell, mostly fairly complete notes to courses or lectures. The mimeographed publication which we presented at the symposium² contains Wicksell’s notes to his lectures in Uppsala in 1919 on “The World War: An Economist’s View” (Världskriget ur ekonomisk synpunkt), and his notes to a series of lectures in Stockholm in 1889, “On Value, Capital and Interest according to Modern Economic Theories”. We also included a translated version of the first chapter of the first edition (1901) of Wicksell’s “Lectures on Political Economy”, which for some particular reason had never been translated into English.

In 1919, the University of Uppsala resumed its summer courses which had been cancelled during the war years. The newspapers, which during the summer carried advertisements for these courses, also contained news about the final terms for peace offered by the Allied Powers to Austria, the discovery of a corpse believed to be that of Rosa Luxemburg, the downfall of Bela Kun, a battle between the British and bolshevik navies in the Gulf of Finland, as well as warnings to the Swedish public to be wary of false banknotes, forged by the bolshevik regime. At the same time the newspapers had to make significant reductions in their editions because a wave of strikes had hit them, begun by a typographers’ strike.

The study of economic phenomena during the world war contains a gold mine for future economists. The most remarkable item is the war itself as an economic accomplishment—a fact unforseen by economists despite Lord Kitchener’s (The British Minister of War) prediction of a duration of at least three years.^l

Wicksell’s “The Theory of Population, its Composition and Changes” is published here for the first time in English. It was originally the first chapter in the first Swedish edition of his Lectures on Political Economy, Volume I (1901). Wicksell was of the express opinion that a standard textbook on political economy should begin with a chapter on population.¹ Moreover, Wicksell’s interest in this field was indeed very strong; he considered the problem of population to be “the most important and at the same time the most neglected of all social problems”.

This essay originally constituted the first chapter of my published lectures on political economy. As I am presently about to prepare a new edition of Volume I of these lectures, I have with great pleasure accepted an old request from the committee for the pamphlet series of the Verdandi association to publish the first chapter, duly revised, as a pamphlet. The revision concerns mainly the statistical material in the first part of the essay, which has been revised throughout and thus brought up to date as far as possible in conjunction with available statistical publications. Unfortunately, I am not an expert in this field, but since most of the data are taken from official publications, I dare hope that they are largely correct. The latter half of the essay, which contains the real scientific (Malthusian) theory of population, has not been altered, with the exception that several objections to the Malthusian theory have been briefly answered.