Richard Arena and Agnès Festre
“Money and capital: two routes from Wicksell to Schumpeter and Von Mises”

Wicksell’s theory of money and capital reveals a fundamental contradiction. On the one hand, Wicksell strongly contributed to the elaboration of the marginal theory of income distribution, introducing the concept of agregate quantity of capital and the assumption of the determination of the natural rate of interest by the marginal productivity of capital. On the other hand, Wicksell also built the foundations of a monetary theory which broke with the tradition of the quantity theory. He first defined an approach to economic activity based on the notion of circular flow, as it appears in pure credit economies, relating (in accordance with Graziani’s characterization) the decisions of three different groups of economic agents : entrepreneurs, wage-earners and bankers. He also described a monetary economy in which banks provide an endogeneous supply of means of payment and exert a substantial influence on the circulation of capital through the control of the long-run financial rate of interest.
Both Schumpeter and Von Mises, two among the most famous Austrian economists, tried to solve this contradiction differently opening two divergent routes. Schumpeter rejected Wicksell’s theory of capital, criticised Böhm-Bawerk’s conception and proposed a monetary theory of capital. He also extended the Wicksellian scheme of the circular flow, introducing a more sophisticated distinction between the circulation of income and the financial sphere and transforming the Wicksellian cumulative process into a theory of economic development.
On the contrary, if Von Mises also broke with the Wicksellian approach, he maintained the basic structure of the Böhm-bawerkian theory of capital and of the natural rate of interest and developed a dynamic scheme based on the concept of equilibrium and, therefore, introducing the idea of an upper turning point of the cycle.
Our paper describes and analyses this analytical evolution from Wicksell to Schumpeter and Von Mises and tries to point out its consequences on the present attempts to renovate modern economic theory.