by Wicksell
[Introduction by Joseph Schumpeter: The Legacy of Knut Wicksell]: Joseph Schumpeter introduces Knut Wicksell's final work, providing a comprehensive evaluation of Wicksell's character and scientific contributions. He emphasizes Wicksell's intellectual honesty, his synthesis of the Austrian and Lausanne schools, and his pioneering work in monetary theory (specifically the relationship between interest rates and prices). Schumpeter also defends marginal utility theory against charges of social apologetics by pointing to Wicksell's own radical social views and discusses the necessity of mathematical training for modern economic analysis. [Schumpeter's Critique of Bowley and Wicksell's Analysis]: Schumpeter transitions to a technical review of A.L. Bowley's 'Mathematical Groundwork of Economics', which Wicksell's essay discusses. He critiques Bowley's treatment of increasing returns and the 'indifference curve' approach, which he attributes to Pareto rather than Edgeworth. A significant portion of the segment is dedicated to the problem of 'multiple monopoly' (oligopoly) and bilateral monopoly; Schumpeter argues that Wicksell's analysis of duopoly is the most important contribution to the subject since Cournot, and he offers his own thoughts on how 'correspection' (mutual awareness) can lead to a determinate equilibrium even in cases of bilateral monopoly like labor negotiations. [Mathematical Economics: Utility and Methodology]: Knut Wicksell begins his essay by defending the use of mathematical methods in economics as a tool for clarity and rigor rather than a replacement for thought. He provides examples of how mathematical notation prevents logical fallacies, such as confusing the part with the whole or failing to account for the number of unknowns versus equations in distribution theory. He specifically illustrates the necessity of mathematics in understanding monopoly pricing and the effects of taxation on monopoly goods, noting that common-sense intuition often fails where mathematical deduction succeeds. [Review of Bowley's Mathematical Groundwork: Exchange and Production]: Wicksell reviews A.L. Bowley's textbook, praising its attempt to standardize terminology while critiquing its brevity. He explains the concept of indifference lines and 'offer curves', clarifying the transition from individual exchange to general market equilibrium. Wicksell critiques Bowley's treatment of capital and production factors, specifically discussing the law of diminishing returns and Pigou's concept of 'marginal supply prices'. He uses an example of Irish agriculture and linen production to discuss how state intervention might increase national dividend in cases where free competition does not reach a social optimum. [The Theory of Multiple and Complementary Monopolies]: Wicksell provides a deep dive into Cournot's theories of duopoly and complementary monopolies. He uses linear equations to demonstrate how two monopolists selling identical goods will reach an equilibrium where prices are lower than a single monopoly but higher than free competition. Conversely, he shows that monopolists of complementary goods (like copper and zinc for brass) will drive prices higher and quantities lower than a unified monopoly would, harming both themselves and consumers. Wicksell defends Cournot against the critiques of Bertrand and Edgeworth, arguing that Cournot's equilibrium is a valid stable state under specific behavioral assumptions. [Bilateral Monopoly and Technical Corrections to Bowley]: In the final section, Wicksell addresses the problem of bilateral monopoly, using the example of a specialized worker and an employer (the 'doll's eye' example). He demonstrates mathematically how a worker with a monopoly on labor can maximize their income relative to the employer's profit. The segment concludes with a detailed list of errata and technical corrections for Bowley's book, covering errors in formulas, definitions of demand elasticity, and graphical representations of supply curves. Wicksell emphasizes that while these are 'small things', they unnecessarily hinder the reader's understanding of complex mathematical economics.
Joseph Schumpeter introduces Knut Wicksell's final work, providing a comprehensive evaluation of Wicksell's character and scientific contributions. He emphasizes Wicksell's intellectual honesty, his synthesis of the Austrian and Lausanne schools, and his pioneering work in monetary theory (specifically the relationship between interest rates and prices). Schumpeter also defends marginal utility theory against charges of social apologetics by pointing to Wicksell's own radical social views and discusses the necessity of mathematical training for modern economic analysis.
Read full textSchumpeter transitions to a technical review of A.L. Bowley's 'Mathematical Groundwork of Economics', which Wicksell's essay discusses. He critiques Bowley's treatment of increasing returns and the 'indifference curve' approach, which he attributes to Pareto rather than Edgeworth. A significant portion of the segment is dedicated to the problem of 'multiple monopoly' (oligopoly) and bilateral monopoly; Schumpeter argues that Wicksell's analysis of duopoly is the most important contribution to the subject since Cournot, and he offers his own thoughts on how 'correspection' (mutual awareness) can lead to a determinate equilibrium even in cases of bilateral monopoly like labor negotiations.
Read full textKnut Wicksell begins his essay by defending the use of mathematical methods in economics as a tool for clarity and rigor rather than a replacement for thought. He provides examples of how mathematical notation prevents logical fallacies, such as confusing the part with the whole or failing to account for the number of unknowns versus equations in distribution theory. He specifically illustrates the necessity of mathematics in understanding monopoly pricing and the effects of taxation on monopoly goods, noting that common-sense intuition often fails where mathematical deduction succeeds.
Read full textWicksell reviews A.L. Bowley's textbook, praising its attempt to standardize terminology while critiquing its brevity. He explains the concept of indifference lines and 'offer curves', clarifying the transition from individual exchange to general market equilibrium. Wicksell critiques Bowley's treatment of capital and production factors, specifically discussing the law of diminishing returns and Pigou's concept of 'marginal supply prices'. He uses an example of Irish agriculture and linen production to discuss how state intervention might increase national dividend in cases where free competition does not reach a social optimum.
Read full textWicksell provides a deep dive into Cournot's theories of duopoly and complementary monopolies. He uses linear equations to demonstrate how two monopolists selling identical goods will reach an equilibrium where prices are lower than a single monopoly but higher than free competition. Conversely, he shows that monopolists of complementary goods (like copper and zinc for brass) will drive prices higher and quantities lower than a unified monopoly would, harming both themselves and consumers. Wicksell defends Cournot against the critiques of Bertrand and Edgeworth, arguing that Cournot's equilibrium is a valid stable state under specific behavioral assumptions.
Read full textIn the final section, Wicksell addresses the problem of bilateral monopoly, using the example of a specialized worker and an employer (the 'doll's eye' example). He demonstrates mathematically how a worker with a monopoly on labor can maximize their income relative to the employer's profit. The segment concludes with a detailed list of errata and technical corrections for Bowley's book, covering errors in formulas, definitions of demand elasticity, and graphical representations of supply curves. Wicksell emphasizes that while these are 'small things', they unnecessarily hinder the reader's understanding of complex mathematical economics.
Read full text