Knut Wicksell: Selected Essays in Economics - Vol. 2

By Knut Wicksell; Bo Sandelin | Go to book overview

17

THE MONEY RATE OF INTEREST AND COMMODITY PRICES

Although I very much fear that the majority of Ekonomisk Tidskrift’s readers lack the requisite interest in protracted theoretical disputes, I nevertheless beg to make a brief response to a few of the criticisms set forth by Professor Davidson in the previous issue [1908] with regard to my theory or hypothesis about the regulation of prices by means of the money rate of interest. For it seems to me as if Prof. Davidson has in part misunderstood what I mean, and since a similar misunderstanding has found expression in a recently published work by a younger Swedish economist, 1 I am obliged to assume that the source of the error is some obscurity on my part, which I should very much like to clear up. And, indeed, I find that in my previous response (1908, no. 4) I did not express myself with sufficient rigour throughout—the subject is not terribly easy, and if one fails to keep all its details in mind at all times, one runs a certain risk of losing the logical thread.

However, on one point Prof. Davidson and I are in perfect agreement and since it provides common ground, I shall choose this point—which occurs at the very end of his essay, incidentally—as the point of departure for my remarks.

What is at issue is the influence that a rise in productivity that is not accompanied by a corresponding rise in the loan rate of interest would exercise on the prices of goods; in my opinion, it would always bring in its train a continuous rise in commodity prices. Professor Davidson grants that I am right in some cases, but not in all. It is these various cases that I want to examine here.

We therefore assume, first, that the increase in production is accompanied by an equally large increase in the stock of gold. In such a case, even in the very beginning, there would not necessarily be any fall in prices as a result of the increased turnover of goods, and since the extra profits the entrepreneurs made would entice them to expand their business and demand more

Originally published as ‘Penningränta och varupris’, Ekonomisk Tidskrift, 1909.

-40-

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