Wicksell's theory of capital

Discipline: Economics

Also known as: Wicksell effect

The theory which holds that, in a perfect market, the marginal product of capital would be lower than interest rates, since the price of production factors might change due to changes in the interest rates.

Wicksell's theory of capital is named after the Swedish economics Knut Wicksell (1851-1926).

The theory is contrasted with the marginal productivity theory of capital, according to which, under perfect market conditions, the interest rates and the marginal product of capital will be equal.


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