Wicksell, Cassel, and the Idea of Involuntary Unemployment

The concept of "involuntary" unemployment, as well as the controversies surrounding it, became part and parcel of macroeconomic theory with the publication of John Maynard Keynes's General Theory in 1936. Yet the connection between unemployment and involuntary action had been made by economists before Keynes made it one of the central ideas of his book. Two of those economists were Knut Wicksell (1851–1926) and Gustav Cassel (1866–1944).¹ Indeed, as we shall demonstrate in this essay, the notion of involuntary unemployment (and its attendant analytical problems) figured prominently in their interpretations of unemployment phenomena and, therefore, in their discussion of the business cycle and macroeconomics in general.

Wicksell and Cassel were contemporaries living in the same country (Sweden), and thus their interpretations of involuntary unemployment came out of the same historical-political-intellectual milieu. The two put forward their classifications of unemployment in a series of public lectures given between 1901 and 1907. Cassel's lectures, all delivered to the Liberal Club, the Stock Exchange Society, and the Workers' Institute in Gothenburg in 1902, were published under the title Socialpolitik (Cassel 1902b); the book was reprinted in 1908 and 1922. Wicksell's unemployment lectures, which were addressed to workers' associations of Malmö in 1901 and of Copenhagen in 1907, were never published, but Wicksell's notes for both lectures have survived, and a report of his Malmö lecture was published in the workers' newspaper Arbetet (22 March 1901). Those lectures are the only sources of use of the phrase involuntary (ofrivillig) (or forced [tvungen]) unemployment in Wicksell and Cassel. Nevertheless, the concept played an important role in the development of their macroeconomic theories.

The literature on the history of macroeconomics usually disregards the discussion of involuntary unemployment that occurred before Keynes's General Theory. Our paper, by delving into the conversation thirty years before Keynes's great work, represents a much-needed departure from the usual practice.

Wicksell and Cassel dealt with at least three topics that were not generally addressed by their contemporaries: the analytical distinction between voluntary and involuntary unemployment; the concept of "normal" unemployment as an equilibrium rate; and the compatibility (or not) between unemployment phenomena and the "law of free goods." Given the fact that Milton Friedman (1968) coined the term natural rate of unemployment as an explicit analogy to Wicksell's notion of the natural rate of interest, and that Cassel is often described as a propagator of the belief that the power of trade unions is the main cause of unemployment, one might easily associate the names of Wicksell and Cassel with the view that unemployment is essentially voluntary. The picture that emerges from this essay is quite different and more complex.

1. The Context of Wicksell's and Cassel's Ideas

In considering the context of Wicksell's and Cassel's ideas about involuntary unemployment, three things must be emphasized. First, they used the qualifier involuntary in explicit contradistinction to its opposite, voluntary. Indeed—and this is the second important thing—the notion of involuntary unemployment only makes sense in Wicksell and Cassel (and in Keynes, for that matter) if it is compared to the voluntary form. And third, the two economists' concept of involuntary unemployment takes into account the notion of "normal" or frictional unemployment. We will consider these three matters in turn.

1.1 The Notion of Unemployment in the Contemporary Literature

The distinction Wicksell and Cassel made between involuntary and voluntary unemployment was not an idle one. British and American economists writing before Keynes's General Theory—and who at the time had come to dominate economics—defined unemployment only as "involuntary" or "enforced" idleness. To write about "voluntary" unemployment, as Wicksell and Cassel did, would have been, to their English-speaking contemporaries, a contradiction in terms (see Keyssar 1993, 61; Keyssar 1986, 4–5; and Piore 1987, 1838).

The British and American...