Posted by: Dirk | February 3, 2008

Theories of the interest rate (II): Knut Wicksell

This is the definition made by Knut Wicksell in his classic Interest and Prices (1898), at the beginning of chapter 8:

THERE is a certain rate of interest on loans which is neutral
in respect to commodity prices, and tends neither to raise
nor to lower them . This is necessarily the same as the rate
of interest which would be determined by supply and demand
if no use were made of money and all lending were
effected in the form of real capital goods. It comes to much
the same thing to describe it as the current value of the
natural rate of interest on capital.

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