Knut Wicksell occupies a significant place in the history of monetary economics as the developer of the "cumulative process" by which deviations between the market and "natural" rates of interest cause the price level to change persistently. A more accurate version of the same argument is a part of classical monetary analysis but there the process originates from a change in base money or central bank credit while Wicksell's version may be initiated by banks capriciously setting their lending rates. Wicksell's version arises from his difficulties in correctly interpreting the classical quantity theory of money and interest rate determination from Hume down to Marshall, but has not been so noted in the literature.

As Ahiakpor points out further in his introduction:

Indeed, the cumulative process argument typically attributed to Wicksell is part and parcel of classi

Gootzeit, Michael J., "WICKSELL VS THE CLASSICS ON THE MECHANICS OF THE QUANTITY THEORY: A COMMENT ON AHIAKPOR," American Journal of Economics & Sociology 58 (Jul 1999)

But none of these bases for Wicksell's criticism of the classical quantity theory is valid.

In terms of relevance to a real economy, the classical theories score high above Wicksell's, dealing as they do with financial intermediation by banks involving both cash and credit instruments. One does not have to assume a cash-less economy, only circulating capital goods, imagine "capitalists" as those who possess consumption goods, or that factor incomes are paid before production begins, as Wicksell's formal model does, to derive his principal conclusions.

Ahiakpor in his essay goes onto the review of the classical theories of money, credit, interest and price level determination. After asserting the main issues of the classics such as: David Hume, Adam Smith, Henry Thornton, David Ricardo and others, he goes on by discussing Wicksell's reactions to classical theories and his deviation from the Classics.

But Let us now turn to the replies for this essay and other writings on Wicksell. Most of the replies credit him with well stated explanation on money, credit, interest and price level. Richard Ebeling states in his reply: "I would suggest, that Wicksell's arguments in Interest and Prices (1898) should be understood." On Wicksell quantity theory Robert Ekelund and Robert Hebert state: "Despite his innovations, Wicksell's monetary analysis did not depart from that of classical economists. He set out, in fact, to defend the quantity theory against its critics, and this he did for the long-run variant of that theory. Yet he elaborated a process of adjustment better than anyone had done before."

Humphrey, Thomas M., "EXONERATING WICKSELL: A COMMENT ON AHIAKPOR," American Journal of Economics & Sociology 58 (Jul 1999)

Ekelund, Robert B. Jr., Hebert, Robert F., "A History of Economic Theory and Method," 4th ed, (The McGraw-Hill Companies, Inc., 1997)

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Approximate Word count = 1958
Approximate Pages = 8 (250 words per page double spaced)