An Early Manuscript by Knut Wicksell on the Bank Rate of Interest

In 1898 Knut Wicksell published his Geldzins und Güterpreise, a landmark contribution to monetary theory, translated by Richard F. Kahn in 1936 as Interest and Prices. Yet it was probably already in 1889 that Wicksell had written a draft that carried the message of his classic book in a nutshell. The manuscript, titled “Der Bankzins als Regulator der Warenpreise” and now held in the Wicksell archives (Lund University Library), was never published. In 1897 Wicksell presented an article with the same title in Conrads Jahrbücher (as it was popularly known) as conveying the “main ideas” of his forthcoming Geldzins (see Wicksell 1897, 228). Although similar in several ways, the 1889 manuscript, the 1897 article, and the 1898 book differ from each other significantly enough to warrant translation and publication of the early draft (see table 1). As we shall see in the rest of this introduction to the translation presented below, the manuscript sheds new light on the origins and evolution of Wicksell's monetary thought.

Dating the Manuscript

In dating the paper as written in 1889, we are following the date suggested by the late Torun Hedlund-Nyström on a card she had attached to Wicksell's manuscript.¹ Unfortunately, that card does not provide any explanation of the dating. The main piece of evidence supporting a date of 1889 is a diagram drawn by Wicksell and attached to the paper. The diagram (figure 1) shows Augustus Sauerbeck's and Adolf Soetbeer's annual price index numbers for England and Germany, respectively, for the period 1851–88. As noted by Hedlund-Nyström, Wicksell included a similar diagram in his Geldzins (1898, chart facing p. 174), with additions up to 1896.²

It is possible, of course, that Wicksell wrote the manuscript sometime after 1889 and still made use of price data up to 1888 only. However, this is very unlikely, since price index numbers were readily available at the time. Sauerbeck's price series came out for the first time in the Journal of the Statistical Society in 1886 (see Sauerbeck 1886) and, after that, every year in the same journal. At about the same time, Soetbeer (1886) published the second edition of his Materialien with a series of Hamburg prices, which were continuously updated by Johannes Conrad in his Jahrbücher für Nationalökonomie und Statistik and complemented with a number of articles and notes by Soetbeer himself in that same journal. It is worth noting that the 1888 final report of the well-known English Gold and Silver Commission included a diagram much like the one used by Wicksell in the manuscript.³ Similar diagrams can be found in other studies as well, usually in connection with the discussion of the causes and effects of the fall of the price level since the early 1870s.⁴

Further indirect evidence for dating the manuscript at 1889 is the fact that Wicksell did not mention any book or article published after 1888. If he had written the draft after 1889, he would certainly have used the data in Soetbeer 1890 and in Sauerbeck's annual price series in the Journal of the Statistical Society.⁵ In the draft, Wicksell referred to three works only: David Ricardo's High Price of Bullion (1810), something by Thomas Tooke,⁶ and Erwin Nasse's “Das Sinken der Warenpreise” (1888), whereas his 1897 article contains references to Fisher 1896, which also appears in Interest and Prices (166) along with other articles from the 1890s. The reference to Nasse is especially relevant, since Wicksell's manuscript, as we shall see presently, can be interpreted as a reaction to the points raised by the German economist in his long and famous 1888 article.⁷ On the whole, we conclude that we can label the draft...