Knut Wicksell and Gustav Cassel on the Cumulative Process and the Price-Stabilizing Policy Rule

I n economics as in anthropology, old artifacts spur continuing debates. A case in point is Knut Wicksell’s celebrated 1898 analysis of the cumulative process of price inflation in pure credit, cashless economies. Some economists view Wicksell’s model as a milestone in the evolution of quantitytheoretic monetary analysis inasmuch as it constitutes the seminal rigorous explanation of how loan-created stocks of bank money translate interest rate differentials into price level changes. Others, however, dispute this point and instead argue that money plays no role in determining price level changes in Wicksell’s model. Unfortunately, Wicksell’s own writings do little to resolve the debate. Ambiguous in the extreme as to whether the cashless society version of the cumulative process has quantity-theoretic roots, his writings support quantityand anti-quantity theory interpretations alike. One person who could have resolved the debate was Wicksell’s countryman and contemporary, the Swedish economist Gustav Cassel. In a 1928 journal article Cassel provided an extremely clear, compelling articulation of the quantity-theoretic foundations of the cumulative process. He then demonstrated the far-reaching significance of that articulation by extending it to more generalized considerations, including an analysis of the business cycle and