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122 pages

English

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This antiquarian volume contains a fascinating treatise on interest-rates and prices in the late nineteenth century. Containing a wealth of interesting historic information on the state of the economy at this pivotal point in history, this is a text that will be of much value to those with an interest in the history and development of the modern economy, and is not to be missed by collectors of such literature. The chapters of this book include: 'Purchasing Power of Money and Average Prices', 'Relative Prices and Money Prices', 'The So-Called Cost of Production Theory of Money', 'The Quantity Theory and its Opponents', 'The Velocity of Circulation of Money', 'The Rate of Interest as Regulator of Commodity Prices', etcetera. This antiquarian book is being republished now in an affordable, modern edition complete with a new prefatory biography of the author. 'Interest and Prices' was first published in 1898.

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Publié par	Read Books Ltd.
Date de parution	23 mars 2011
Nombre de lectures	0
EAN13	9781446547328
Langue	English
Poids de l'ouvrage	1 Mo

Informations légales : prix de location à la page 0,0500€. Cette information est donnée uniquement à titre indicatif conformément à la législation en vigueur.

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INTEREST AND PRICES
( Geldzins und G terpreise )
A STUDY OF THE CAUSES
REGULATING THE VALUE OF MONEY
By
KNUT WICKSELL
Translated from the German by
R. F. KAHN
With an Introduction by
PROFESSOR BERTIL OHLIN
COPYRIGHT
PRINTED IN GREAT BRITAIN
BY R. R. CLARK, LIMITED, EDINBURGH
TRANSLATOR S NOTE
I HAVE to express my sincere thanks to Miss Anna Schwarzschild, who read a portion of the manuscript with great care, and to Dr. Eduard Rosenbaum, who helped me out of many difficulties. The Appendix consists of Wicksell s last published article, translated from the original Swedish by Mrs H. Norbcrg.
Wicksell s Geldzins und G terpreise was published at Jena by Gustav Fischer in 1898. Such footnotes as I have found it necessary to insert are enclosed in square brackets.
R. F. K.
CONTENTS
I NTRODUCTION BY P ROFESSOR B ERTIL O HLIN
A UTHOR S P REFACE
CHAPTER 1
I NTRODUCTORY
CHAPTER 2
P URCHASING P OWER OF M ONEY AND A VERAGE P RICES
CHAPTER 3
R ELATIVE P RICES AND M ONEY P RICES
CHAPTER 4
T HE S O-CALLED C OST OF P RODUCTION T HEORY OF M ONEY
CHAPTER 5
T HE Q UANTITY T HEORY AND ITS O PPONENTS
CHAPTER 6
T HE V ELOCITY OF C IRCULATION OF M ONEY :
A. A Pure Cash Economy
B. Simple Credit
C. An Organised Credit Economy
CHAPTER 7
T HE R ATE OF I NTEREST AS R EGULATOR OF C OMMODITY P RICES :
A. The Classical Theory and the School of Tooke
B. Simplest Hypothesis. Variations of the Rate of Interest when the Market Situation Remains otherwise Unaltered
CHAPTER 8
T HE N ATURAL R ATE OF I NTEREST ON C APITAL AND THE R ATE OF I NTEREST ON L OANS
CHAPTER 9
S YSTEMATIC E XPOSITION OF THE T HEORY:
A. The Causes which Determine the Natural Rate of Interest on Capital
B. The Use of Money
CHAPTER 10
I NTERNATIONAL P RICE R ELATIONSHIPS
CHAPTER 11
A CTUAL P RICE M OVEMENTS IN THE L IGHT OF THE P RECEDING T HEORY
CHAPTER 12
P RACTICAL P ROPOSALS FOR THE S TABILISATION OF THE V ALUE OF M ONEY
APPENDIX
T HE M ONETARY P ROBLEM OF THE S CANDINAVIAN C OUNTRIES
INTRODUCTION
To judge the character and importance of Knut Wicksell s monetary doctrines, it is necessary to view them against the background of the monetary controversy of the late nineties. For some decades the organisation of an international gold standard had been the outstanding problem. Hardly had this organisation won its victory in the seventies, when its position was threatened by the continued fall in wholesale prices. A violent propaganda for bimetallism set in almost everywhere. The character, working, advantages, and disadvantages of this system naturally became the central topic of discussion in the monetary field. The old debate between the currency and the banking schools had died out and the latter undoubtedly held the field. The quantity theory of money was discredited, even in the Anglo-Saxon countries. Most writers agreed that if credits were granted on adequate security in accordance with sound banking principles, the supply of means of payment could not exceed the requirements of the market . There was no discussion in that connection of the level of bank rate.
Two things seem to have caused Wicksell to adopt an entirely different attitude to monetary problems. First of all, he was a close student and admirer of the English classical school of economists, above all of Ricardo. To Wicksell s mathematical mind the quantity theory of money, as presented by Ricardo, made a much stronger appeal than the vague generalisations of the current banking discussions, which side-stepped the question Why do prices rise or fall? that Wicksell at an early stage came to regard as the main problem of monetary theory. The stress which the Ricardian school placed on the influence of discount policy on the quantity of money and on prices seemed to Wicksell entirely justified. On the other hand, he could not get round the fact that the rate of interest, as pointed out by Tooke, had on the whole been low during times of falling prices and high during times of rising prices, whereas the Ricardian doctrine seemed to suggest the opposite. The solution of this difficulty Wicksell found through his study and amplification of B hm-Bawerk s theory of interest. Must not the natural rate of interest, governed by the marginal productivity of capital, i.e. of the roundabout methods of production which would exist if money were not used, have some connection with the rate of interest as it actually appears on the capital market? There was only one possible answer. But what was this connection? These two rates of interest, the natural rate and the money rate which is quoted on the market, tend, of course, to coincide. If the former differs from the latter, money can no longer be said to be neutral , and monetary consequences in the shape of changes in prices are bound to ensue. If the money rate were kept below the natural rate prices would rise, if above they would fall.
Wicksell always insisted that this reasoning did not mean more than an amplification of the old quantity theory. 1 Moreover, he always regarded his own contribution as a doubtful hypothesis and never became as convinced of its tenability as did some of his pupils. He explicitly rejected the idea that his theory provided an explanation of the business cycle. He was critical of Mises idea that mistaken credit policy is the origin of the tendencies towards booms and depressions. A brief quotation will indicate his position: Our conclusion is, therefore, that although the changes in the purchasing power of money, caused by credit policy, are under present conditions intimately bound up with the business cycle and without any doubt also influence the latter, above all by giving rise to crises, yet it does not seem essential to assume that there is, by the nature of things, any necessary connection between these two phenomena. The main cause of the business cycle, and a sufficient cause, seems to be the fact that technical and commercial progress cannot by its very nature give rise to a series which proceeds as evenly as the growth in our time of human needs-due above all to the organic increase in population-but is now accelerated now retarded. In the former case . . . a mass of circulating capital is transformed into fixed capital, a process which, as I have said, accompanies every rising business cycle: it seems as a matter of fact to be the one really characteristic sign, or one in any case which it is impossible to conceive as being absent. 1 . . . If the banks already at the beginning of a rising period sufficiently raised their interest rates , but on the other hand reduced them energetically when the depression was about to set in , then the price level would probably remain stable, although raw materials for fixed capital would rise in price during periods of good trade and fall during times of bad trade. Under such circumstances the chief crises-causing factor would probably have disappeared, and what remained would be only a quiet wave movement between periods of accelerated formation of fixed capital and periods when the new capital assumed . . . other forms. . . . Increase in commodity stocks is probably the most important form of real investment during so-called bad trade. 2
Wicksell s opinion of the character of the business cycle is perhaps most clearly presented in his paper The Riddle of Crises . 3 Here he pointed out that there are two entirely different methods of explaining the comparatively regular ups and downs of business. One is to assume that some extraneous forces work intermittently and so cause oscillations. The other makes use of the hypothesis that the present economic system will, by its very nature, react in an oscillatory manner to any irregular forces which tend to make it move. It might be imagined to be like a rocking-horse. Wicksell undoubtedly inclined towards the latter view, while maintaining that intelligent credit policy-at least under most conditions-could prevent the rocking tendency from growing violent.
As Wicksell worked on monetary problems for almost three decades after the publication of the Geldzins , it may be worth while to say something here about the changes which his views underwent. These were not, as a matter of fact, considerable. Although he was always ready to question his own reasoning, his lively discussions with other Swedish economists do not seem to have left many traces on his theory. Take, for instance, his discussion with Professor Davidson. 1 In 1906 Davidson, whom Wicksell held in the highest esteem, suggested that during periods of rapid technical progress and increasing productive efficiency a greater stability of business would be ensured if commodity prices fell in proportion to the increase in output than if they remained stable. Davidson asserted that if the money rate of interest and business profits (Wicksell s natural rate) stood in a normal relation to one another before the increase in efficiency, then they would continue to do so if prices fell in proportion to the latter. There would be no need for a change in the money rate of interest. If it were reduced 2 to prevent a fall in the price-level, it would be too low in relation to profits, and a process of an inflationary character would start. To this Wicksell replied: In the case which Davidson has chosen it may appear that the increase in profits due to increased productivity and the reduction in profits due to the fall in prices, caused on his assumption by the former, would offset one another. But surely this would only happen if the price movement could be anticipated beforehand and estimated , or if it were so even and