Wicksell,Ramsey and the theory of interest *

The article discusses Wicksell's assessment of the controversy between Böhm-Bawerk on one side, and Fisher and Bortkiewicz on the other, on the role of productivity (the ‘third reason’) in the determination of the rate of interest. It is shown that in the process of arguing out the third reason Wicksell came remarkably close to Frank Ramsey's view of the determinants of saving in economies with a positive subjective rate of discount. The similarities between Wicksell and Ramsey result from the fact that – in contrast with Fisher and Böhm-Bewerk – they assumed reinvestment, with the corollary that maximum permanent consumption will be reached at zero interest if the subjective rate discount of future utility is zero. Wicksell used his Ramsey–like saving rule to explain the interaction betwen Böhm–Bawerk's three reasons in either dynamic or stationary conditions, which enabled him to reformulate the third reason as the ‘marginal productivity of waiting’. Finally, the relevance of Wicksell's savings rule for the perennial debate on ‘Wicksell's missing equation' is considered in the last section of the article.