Knut Wicksell’s Contribution to Free-Market Economic Theory

Economists that support free & unencumbered markets whereby individuals are free to choose often champion great thinkers of the “Austrian” tradition. However, many are unaware that a Swedish economist, Knut Wicksell, belongs in their pantheon of intellectual heroes.

It is said that Wicksell was inspired to become an economist by being exposed to the work of Eugen Böhm–Bawerk who himself was a student of Carl Menger. But it was left to Wicksell to develop a monetary theory that both influenced mainstream economic thinking & was the theory of interest that inspired Ludwig von Mises.

For his part, Wicksell conceptualized how a central bank induces a “bank rate of interest” that differs from the “natural rate” leads to distortion (i.e., malinvestments) that undermine economic performance. As it is, discussions about the Austrian theory of interest must begin with Wicksell.

Wicksell also made an early contribution (1896) to the development of a tax theory that compared taxes to prices based on the microeconomics. In this regard, he greatly influenced James Buchanan & helped pave the way for Public Choice economics.

In turn, Wicksell provided guides for placing tax policy into the hands of individual citizens. As such, he began a tradition that was later the central concern of Austrian economists.

Knut Wicksell was also a great Classical Liberal & social reformer in the spirit of Bishop Francisco Marrouin of Guatemala whose humanitarian work inspired the founders of that great university. Not only was Wicksell an outstanding & original thinker in economics, he also excelled in mathematics.

It turns out Knut Wicksell’s name was recently added to a mural at UFM commemorating the intellectual giants that guide its mission: to provide education to support the development of a community of free & responsible individuals. (Look below & to left of image of Böhm–Bawerk.)

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About christopher

Content of "Natural Order" attempts to reflect the commitment of Universidad Francisco Marroquin to support the development of a society of free & responsible individuals. The principal commentator for this blog is Christopher Lingle.

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