A Critique of the Orthodox Interpretation

In Wicksell’s ‘scientific programme’ a vision of the economic system seems to emerge which precludes reading economic phenomena either in terms of ‘equilibrium’ or as a mere transitory phase; this should be understood in the sense that these phenomena can neither possess any precise meaning nor operate in unequivocal direction without at the same time making reference to the institutional and political relationships existing in the economic system considered. So the money rate of interest, for example, is not the outcome of ‘free play’ between demand and supply — as it would be in a primitive system of exchange taking place among individuals; it it fixed by the banks. The fact that the latter may afterwards change their decision is both possible and probable; this, however, will essentially depend upon ‘external conditions’ (Wicksell, 1906, p. 461), certainly not on automatic mechanisms already contained inside the system. There emerges then a new attitude towards economic problems. The kernel made up by the set of ‘economic relationships’ seems to be broken by the introduction of ‘power relationships’. This remark is of a crucial importance not only for Wicksell’s monetary theory but also for economic theory in general.