In the introduction of the English translation of the first volume of Wicksell’s Föreläsningar i Nationalekonomi, Robbins stressed that “much of the Economics of the fifty years after 1870 was what Wicksell calls a Kapitallose Wirtschaftstheorie—an economic theory of acapitalistic production. Considerations of capital theory proper, save of a more or less terminological nature, simply disappear from the picture” (Robbins 1934, xiv). Even though political economy used to emphasize the significance of the role played by the interest rate in the accumulation of capital, Knut Wicksell claims that “even from a theoretical perspective”, the “exact determination” of the interest rate’s level is one of the hardest determination political economy has to make (Wicksell 1898, 120). He depicts the rate of interest on capital – the natural rate – as “an expected rate of return on real capital”. This rate “is not fixed or unalterable in magnitude” (ibid, 106). To address this constant variability, I argue that understanding the fundamental properties and nature of “capital” is essential. Indeed, one has to properly distinguish between two issues: the existence of interest, and the level of the interest rate. There is no direct relation between them. On the one hand, since Böhm Bawerk’s works, the rate of interest appears as a consequence of the time embodied in the production period. On the other hand, the level of interest depends on several economic, social and political factors.

These past twenty years have witnessed a gain of interest for Wicksell’s thought and his legacy in the history of economic thought. Since the works of Woodford (2003), DSGE models use an interest rate close to Wicksell’s natural rate (Trautwein and Zouache 2009). Those models aim to determine the rate’s level while adopting a very narrow conception of what is “capital” (Laubach and Williams 2003; Mesonnier 2005; Couppey-Soubeyran 2016). They do not investigate the fundamental nature and properties of Wicksell’s capital and the role it have played in the development of macroeconomic analysis. In 2004, a collective work on Austrian and Swedish economics devotes an entire chapter on the theories of capital of those both “schools”. Jenn-Treyer (2004)stresses the Wicksell’s filiation with the Austrian tradition but limit Wicksell’s approach to the loanable funds theory. Malinvaud (2003) confines his analysis to a mathematical treatment of Wicksell’s different models of capital. Moreover, even though they separate Wicksell’s monetary and capital theories, the introduction of money changes “the very essence of capital” (Wicksell 1898, 135).

I show why an inquiry of the nature of capital allows understanding the fundamental instability of the capitalistic process of production. Entrepreneurs ground their expectations on their own evaluation of this rate. Hence wrong anticipations are frequent and discrepancies between ex ante investment and ex post actual production arise. In this article, I argue first that one must study the “period of investment” to understand the nature of capital as being fundamentally time-related. On the basis of the length of the period, Böhm Bawerk explains that interest is an agio between present and future. In other words, the existence of the interest rate is dependent on time. “Actually, the period of production is not only very different in different branches of production, but in any given branch it is variable” (Wicksell 1898, 136). In so far as the length is unsettled, any economic measurements of interest rate level seem unlikely. Most important, I show that there is no simple relation between the length of this period – provided that it can be measured – and the variations of the product. Indeed, since the production is staggered, the different lengths of the periods and their successive modifications cannot “possibly be put in a simple relationship with the variations in the net product” (Wicksell 1901, 270). Principally, because a distinction is made between the micro and macro analysis.

Second, I show that the nature of capital has to be reconsidered as being heterogeneous both in a quantitative and qualitative way. The concept of durability is introduced by Wicksell in order to give an estimation of the length of the investment period with different remunerations. Yet, Wicksell himself admits that this concept of durability is rather vague as the “the line of demarcation” between the two categories of capital is difficult to drawn (Wicksell 1893, 105, 1901, 184). The difference in remuneration implies that this distinction has to be known by the entrepreneurs to let them choose the best length of investment period in order to have the highest social product. And since, the heterogeneous nature of capital involves an almost infinite number of durability, there will be as many natural rate as there are capital goods (Sraffa 1932, 49). Wicksell constructs a “structure of capital” to ease the analysis if rather than simply showing the existence of interest, economists want to determine the level of interest (Wicksell 1898, 134). This concept of a structure is an analytical device to overcome the limits of the one of the length of the period since it is variable in any given branch.

Although Wicksell’s hypothesis of a stationary state seems to be at odds with his own definition of the nature of capital, the structure of capital is an analysis through time. Indeed, the hypothesis of the stationary could have relegated Wicksell’s approach to the timeless equilibrium analysis. Yet, the periodical study brings him to emphasize the role of time. I show it can be considered as a first attempt to introduce changes and to account for qualitatively different elements between the past, the present and the future. I argue that the marginal calculus Wicksell is giving can only work 1) for the free competition, 2) at stationary non-monetary equilibrium, 3) only ex ante at the individual level. Entrepreneurs are in the center of the theory of capital because of their anticipations and the driving force they have on the capitalistic process of production. They will always have to choose a level of investment to start the process of production on the basis of their estimation of the natural rate of interest on capital – while the levels of wages and rents are changing. But since there will be as many natural rates as there are capital goods, the anticipations of entrepreneurs in a constantly changing environment have to be studied.

Finally, I argue that once Wicksell’s monetary economy is reckoned, it sheds light on the unstable nature of the capitalistic production as the rate of interest derives mainly from psychological motives taking place in an uncertain world. As a matter of fact, Siven (1997, 213) stressed the lack of integration between Wicksell’s theory of capital and his monetary theory. Indeed, the wicksellian natural rate is mainly studied for the cumulative process with the first definition Wicksell gives in the Chapter 8 of his Interest and Prices (e.g. Patinkin 1952; Leijonhufvud 1979, 25–26; Woodford 2003, 41). Yet, Wicksell is stating that only for the barter and the simple credit economy, which “tells us very little” according to him (Wicksell 1898, 103). The society he is studying is characterized by advanced societies (Wicksell 1893, 31) with the modern system of credit and banking (Wicksell 1898, 63).

By using Wicksell’s political economy as a whole, I show that the formation of capital depends on investments decisions, and more broadly speaking, “on the prosperity level of the community, on security against uncertainty, the degree of civilization” etc. (Wicksell 1906, 205). The motives to invest have to be studied as “in reality, the amount of capital is not determined by physical conditions, but by the equilibrium between psychical forces” (Wicksell 1901, 202–3), mainly optimism and pessimism as the foundation of anticipations (Wicksell 1898, 104). Hence, I show that Wicksell is right when he explains that “the natural rate is not fixed or unalterable” and “constantly fluctuates” (Wicksell 1898, 106); which in turn stresses the fact that the capitalistic process of production is intrinsically unstable. Hence, Wicksell is right when he explains that “the natural rate is not fixed or unalterable” and “constantly fluctuates” (Wicksell 1898, 106); which in turn stresses the fact that the capitalistic process of production is intrinsically unstable.

In so far as the only way to have an idea of the level of the natural rate of interest in the Wicksellian framework is ex post, wrong anticipations are more likely to occur. This result can be used as a starting point to understand the solutions Wicksell proposes. He wants the implementation of new institutions to avoid the social instability which exacerbates the uncertainty (Wicksell 1896, 106). By reducing the inherent uncertainty of modern system, entrepreneurs’ anticipations are eased and the saving could adjust ex post to the level of investment. Incidentally, it could stabilize the process of production.

Couppey-Soubeyran, Jézabel. 2016. “Taux Négatif: Arme de Poing Ou Signal de Détresse?” Revue d’économie Financière, no. 1: 195–212.

Jenn-Treyer, Olivier. 2004. “10 The ‘Wicksell Connection’and the Austrian Theory of Capital.” In 10 The ‘Wicksell Connection’and the Austrian Theory of Capital, edited by Michel Bellet, Sandye Gloria-Palermo, and Abdallah Zouache. Routledge Studies in the History of Economics 70. London ; New York, NY: Routledge.

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Leijonhufvud, Axel. 1979. “The Wicksell Connection: Variations on a Theme.” UCLA Department of Economics.

Malinvaud, Edmond. 2003. “The Legacy of Knut Wicksell to Capital Theory.” The Scandinavian Journal of Economics 105 (4): 507–525.

Mesonnier, Jean-Stephane. 2005. “L’orientation de La Politique Monétaire à l’aune Du Taux d’intérêt «naturel»: Une Application à La Zone Euro.” Bulletin de La Banque de France 136: 41–57.

Patinkin, Don. 1952. “Wicksell’s ‘Cumulative Process.’” The Economic Journal 62 (248): 835–47.

Robbins, Lionel. 1934. Introduction in Lectures on Political Economy: Vol. I General Theory. Ludwig von Mises Institute.

Sraffa, Piero. 1932. “Dr. Hayek on Money and Capital.” The Economic Journal 42 (165): 42–53.

Trautwein, Hans-Michael, and Abdallah Zouache. 2009. “Natural Rates in the New Synthesis: Same Old Trouble?” Intervention-European Journal of Economics and Economic Policies 6 (2): 207–225.

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———. 1896. “A New Principle of Just Taxation.” In Classics in the Theory of Public Finance, 72–118. In: Musgrave R.A., Peacock A.T. (eds) International Economic Association Series. Palgrave Macmillan, London.

———. 1898. Interest and Prices (Geldzins and Güterpreise): A Study of the Causes Regulating the Value of Money. Ludwig von Mises Institute.

———. 1901. Lectures on Political Economy: Vol. I General Theory. Ludwig von Mises Institute.

———. 1906. Lectures on Political Economy: Vol. II Money. Ludwig von Mises Institute.

Woodford, Michael. 2003. Interest and Prices: Foundations of a Theory of Monetary Policy. Princeton, N.J. ; Woodstock, Oxfordshire [England]: Princeton University Press.