GERRIT GORTER
The present study of economics did not, of course, come out of thin air. Although thinkers in classical Greece already reflected on what we now call economics, it was largely in the eighteenth century that systematic thought on the subject began.
Two conceptual tools—the economic cycle and the idea of the invisible hand—date from that century and are still in use today, both in academic research and in education.
This site contains twenty-five portraits of important economists. Each offers a biographical sketch together with an indication of his (and, in one case, her) significance for the development of economic thought. They claim no more than to provide a first introduction to the lives and works of these pioneers.
These articles originally appeared in Dutch in the Tijdschrift voor het Economisch Onderwijs and were published on the website of Gerrit Gorter. The English translations are by Folkert Gorter.
Index
François Quesnay
Adam Smith
Thomas Robert Malthus
Jean-Baptiste Say
David Ricardo
Antoine Augustin Cournot
John Stuart Mill
Karl Marx
Walras
Carl Menger
Alfred Marshall
Vilfredo Pareto Eugen von Böhm-Bawerk
Knut Wicksell
Max Weber
Irving Fisher
Sam de Wolff
John Maynard Keynes
Joseph Alois Schumpeter
Joan Robinson
Jan Tinbergen
John Hicks
John Kenneth Galbraith
Milton Friedman
Paul Samuelson
Knut Wicksell
Sweden 1851–1926
Even among fellow economists, their Swedish colleague Knut Wicksell remains relatively unknown. And often, his rather bizarre life story is better known than his economic ideas. Economists are generally quiet and respectable people. The English economist John Stuart Mill may have had a long-running affair with a married woman, but you’d be hard-pressed to find anything more scandalous than that. In that respect, Wicksell was certainly a colorful character.
Wicksell was born in 1851 in Stockholm as the youngest of six children. He was orphaned at an early age and raised by an uncle and aunt in an environment steeped in religion. The story goes that he knew the church hymnal by heart, as well as many passages from the Bible, including the Sermon on the Mount. He went on to study at the University of Uppsala, initially focusing on mathematics and natural sciences. However, his interests quickly broadened to include a wide range of other subjects, such as Malthusianism, feminism, and politics; he even published a volume of poetry.
Meanwhile, he traveled around Sweden trying to convince his compatriots that the Swedish population needed to be cut in half, refused to marry his partner (and the mother of his two children), developed radical ideas about women’s emancipation, became a fierce opponent of the Christian religion, and ended up spending two months in jail after publicly mocking the Virgin Mary’s Immaculate Conception. In short, never a dull moment with Knut Wicksell. One might almost forget that he also made some significant contributions to economic theory.
His critical views on society eventually led him to economics. We’ll confine ourselves here to his monetary theory, though he contributed to many other areas as well. In 1898, he published Geldzins und Güterpreise (in German — no one read Swedish), usually referred to by its later English title, Interest and Prices. In it, as his contribution to business cycle theory, he distinguished between the natural rate of interest and the market rate. The natural rate refers to processes in the real economy. The demand for financial capital arises from the desire to invest; the supply of capital corresponds to savings — that is, the portion of a society’s income not consumed during a given period. The natural rate of interest adjusts in such a way that the demand for and supply of capital are in equilibrium.
The market rate of interest, however, is set by the banking system. Banks are able to create money — and do so regularly. Through money creation, additional funds become available for investment, over and above the capital made available by savers. The result is that the market rate falls below the natural rate, encouraging firms to invest more than the available savings would warrant. A process of general price increases will now set in. After all, the creation of money generates additional effective demand — to use Keynes’s term — but there is, for the time being, no additional production capacity to match it. Wicksell also saw no mechanism capable of putting an end to the inflation. As long as money creation continued, prices would keep rising.
These ideas shed entirely new light on the so-called Law of Say, also known as the law of markets. According to the French economist Jean-Baptiste Say (1767–1832), the income generated through production is exactly sufficient to purchase that same production. But once you take money creation into account, there is more purchasing power than there are goods to match it. The famous classical dichotomy was also, in passing, undermined. The classical dichotomy concerned the separation between the real and the monetary world. Monetary phenomena were not believed to exert an independent influence and were seen as a kind of veil — one that needed to be lifted in order to perceive the real world. Wicksell made it clear that money matters — as Milton Friedman would later assert as well.
Finally, a quote from The Making of Modern Economics by Mark Skousen: “Throughout his life, Wicksell rejected all academic and legal formalities, including official marriage and baptism ceremonies and accepting honorary degrees. He must have been turning over in his grave when his wife arranged an elaborate funeral following his death in 1926.”