Interest and Prices

It was Interest and Prices, by Swedish economist Knut Wicksell, that drew Ludwig von Mises's attention to the effects of interest-rate manipulation on the capital structure. Wicksell was both an admirer of Böhm-Bawerk's and an important critic of the quantity theory of money.

This pioneering analysis was the first to present the idea of the natural rate of interest, which, Wicksell argued, can be different from the prevailing rate on the market. The natural rate is equal to the return on capital in an imaginary economy without money. Mises took that idea and made it a central component of his business-cycle theory. Simply put, without Wicksell the Austrian School would be without one of its most important models.

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