Economic Quarterly

Gustav Cassel (1866-1945) deserves credit for establishing quantity-theoretic foundations for Knut Wicksell's (1851-1926) cashless-society version of the cumulative inflationary process and the price-stabilizing policy rule. Wicksell's ambiguities and inconsistencies regarding those foundations left his writings open to anti-quantity theory interpretations. Cassel showed conclusively that endogenous, loan-created changes in the stock of bank money were necessary to translate interest rate differentials into price level changes. Likewise, he showed that central bank interest rate adjustments work through money stock changes to stabilize the price level.