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Wicksell, Ramsey and the theory of interest

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  • Mauro Boianovsky

Abstract

The article discusses Wicksell's assessment of the controversy between Bohm-Bawerk on one side, and Fisher and Bortkiewicz on the other, on the role of productivity (the 'third reason') in the determination of the rate of interest. It is shown that in the process of arguing out the third reason Wicksell came remarkably close to Frank Ramsey's view of the determinants of saving in economies with a positive subjective rate of discount. The similarities between Wicksell and Ramsey result from the fact that - in contrast with Fisher and Bohm-Bewerk - they assumed reinvestment, with the corollary that maximum permanent consumption will be reached at zero interest if the subjective rate discount of future utility is zero. Wicksell used his Ramsey-like saving rule to explain the interaction betwen Bohm-Bawerk's three reasons in either dynamic or stationary conditions, which enabled him to reformulate the third reason as the 'marginal productivity of waiting'. Finally, the relevance of Wicksell's savings rule for the perennial debate on 'Wicksell's missing equation' is considered in the last section of the article.

Suggested Citation

  • Mauro Boianovsky, 1998. "Wicksell, Ramsey and the theory of interest," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 5(1), pages 140-168.
    • Handle: RePEc:taf:eujhet:v:5:y:1998:i:1:p:140-168
    DOI: 10.1080/10427719800000006
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    References listed on IDEAS

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    1. Klaus H. Hennings & Heinz D. Kurz, 1997. "The Austrian Theory of Value and Capital," Books, Edward Elgar Publishing, number 839.
    2. Joan Robinson, 1953. "The Production Function and the Theory of Capital," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 21(2), pages 81-106.
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    Cited by:

    1. Boianovsky, Mauro & Trautwein, Hans-Michael, 2001. "Wicksell's lecture notes on economic crises (1902/05)," Structural Change and Economic Dynamics, Elsevier, vol. 12(3), pages 343-366, September.
    2. Mauro BoianovskyBy, 2017. "Optimum saving and growth: Harrod on dynamic welfare economics," Oxford Economic Papers, Oxford University Press, vol. 69(4), pages 1120-1137.
    3. Marion Gaspard, 2005. "Individual Behaviors and Collective Welfare: Ramsey's " microfoundations " of " macro-equilibrium "," Post-Print halshs-01162036, HAL.
    4. Francis E. Raymond, 2024. "Connecting Classical and Early Neoclassical Views on Savings and Capital Formation to Modern Growth Theory Through the Lens of F. P. Ramsey," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 50(1), pages 54-78, January.

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