Theory of interest by Knut Wicksell

Abstract

The article concerns the theory of interest devised by the Swedish economist Knut Wicksell. Wicksell's theory was original and not derived from classical conceptions. It had a significant impact on the contemporary theory of economics, in particular on the theory of money and credit. The main goal of the article is to characterize the Wicksell's theory of interest. Even though a starting point of Wicksell's theory is the quantitative theory of money, Wicksell gives up his intention to develop it. He introduces a new approach to the monetary conceptions incorporating the theory of interest into the theory of money. The knowledge and comprehension of Wicksell's reconstruction in economic theory is the first step to revise the contemporary monetary policy both on internal and international level.