Was Wicksell a Quantity Theorist?

Abstract

Knut Wicksell’s work was seminal to intellectual developments that, later in the century, were to discredit the quantity theory of money among the majority of academic economists. The dynamic economics of the Stockholm School started from Wicksell’s analysis of inflation as a cumulative process; so did the Austrian business cycle theory of Ludwig von Mises, Friedrich von Hayek and Lionel Robbins; and Keynes’s Treatise on Money betrays an explicitly acknowledged Wicksellian influence, which also marks the General Theory. And yet Wicksell himself, in Bertil Ohlin’s (1936) words, “always insisted that this reasoning [the cumulative process model of inflation] did not mean more than an amplification of the old quantity theory” (p. viii). Furthermore, the amplified version of the quantity theory which Wicksell developed differs at first sight only slightly from, say, Marshall’s; but if we view it with hindsight informed by knowledge of the above-mentioned subsequent developments in monetary economics, the differences between Wicksell and his contemporaries turn out to be more important.

I am grateful to Arie Arnon, Haim Barkai, Peter Howitt, Lars Jonung and Don Patinkin for comments, Tony Bernardo and Horst Raff for research assistance, and to the SSHRCC for financial support.