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The Natural Rate of Interest Is Positive

Abstract

The Natural Rate of Interest was defined by Wicksell as the real rate of interest on the capital market which equates saving and investment under conditions of prosperity (full employment) and absent public debt. Preceding Wicksell Eugen von Böhm-Bawerk gave three facts of life, which together induce a positive natural rate of interest. He was right for his time (1889). But this time is long ago. Due to changed demographics the propensity to save has substantially increased. Thus the roundaboutness of production has reached its productivity maximizing level. Were it not for substantial public debt the equilibrium level of interest would be strongly negative. Thus the natural rate of interest is negative.

Keywords

  • Capital Market
  • Marginal Productivity
  • Public Debt
  • Natural Rate
  • Real Rate

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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von Weizsäcker, C.C. (2017). The Natural Rate of Interest Is Positive. In: Frey, B., Iselin, D. (eds) Economic Ideas You Should Forget. Springer, Cham. https://doi.org/10.1007/978-3-319-47458-8_67

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