Cassel, Karl Gustav

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Cassel, Karl Gustav



Karl Gustav Cassel (1866–1945), Swedish economist, was born in Stockholm. He received a doctor’s degree in mathematics from the University of Uppsala in 1895, but after teaching mathematics and physics in schools in Stockholm for several years, he became interested in economics. Since at that time no economic training was available at the University of Stockholm, he went to Germany to study. He stayed there for many years, but basically his theoretical economics shows little German influence.

His first economic publications were essays on English classical economics, in particular Ricardian economics. He also wrote a programmatic theoretical article, “Grundriss einer elementaren Preislehre” (1899), which was to remain the basis of all his later work on price theory. Within a few years he had published a great many papers on social and economic questions, all of which were merged into a grand theoretical system, The Theory of Social Economy (1918).

This textbook gained a wide distribution and was translated into many languages (English, French, Japanese, Spanish, and Swedish). Its success seems to derive primarily from its pedagogical merits: without extensive theoretical detail, it develops a synthesis of the economic universe, illustrated by well-chosen, empirical examples. The relative lack of theoretical rigor is particularly apparent when Cassel’s book is compared to the neoclassical textbooks of standing, for example, those of Alfred Marshall or Knut Wicksell. Cassel dismissed the marginalist approach: instead of using the principles of marginal utility and marginal productivity theory to explain the equilibrium of prices, he deduced (relative) prices with the help of the “principle of scarcity,” which he used to bring consumption into agreement with scarce resources. In addition to the principle of scarcity, no less than four “supplementary principles” are required by Cassel’s system, as well as the assumption that the conditions of production (given by the “technological coefficient”) are fixed in the short run.

To explain money (or absolute) prices, Cassel generally used the quantity theory of money, a theory he considered confirmed by statistical evidence. Although he developed this theory primarily for stationary (and closed) economies, he believed that it could easily be turned into a dynamic theory for the so-called uniformly progressive society. Cassel stipulated that for equilibrium to be established the rates of exchange among countries must be in the same relation as their general price levels. In other words, he expounded the purchasing power parity theory, a theory that is still being given some consideration.

Writing on capital theory, Cassel dismissed the theories founded upon the work of Eugen von Böhm-Bawerk and instead based his writings on earlier economists, among them Nassau Senior. For Cassel, the purpose of capital theory is to explain the price of “capital disposition” or “waiting.”

In general, Cassel’s theoretical framework can be characterized as emanating from the neoclassical school, although certain “archaic” traits are still present. In the spirit of the neoclassical writers, he endeavored to put his work on a firm quantitative foundation, but he rejected their marginal apparatus. Fundamental to his system is the Walrasian method of considering all prices and incomes as constituting a closed model that can be described by a system of simultaneous equations. Cassel’s work is weakened, however, by the fact that he did not analyze his particular functions with respect to derivatives of different orders and the solvability of the system.

Cassel’s international reputation was enhanced after World War i by his participation in the discussions about German indemnity payments and the restoration of the gold standard. At this time, he wrote many books on foreign exchange and monetary policy. He was also actively engaged in writing on Swedish economic problems, concentrating at first on monetary and fiscal aspects. With the beginning of unemployment in the 1920s, he considered possible cures for it, harshly rejecting those based on directly increasing purchasing power, undertaking public works, or increasing relief payments. He rejected Keynesian economics and wrote a strongly negative review of Keynes’ General Theory in the International Labour Review (1937).

Karl Gustav Landgren

[For the historical context of Cassel’s work, seeEconomic equilibrium; International monetary economics; and the biography ofSenior.]


1899 Grundriss einer elementaren Preislehre. Zeitschrift für die gesamte Staatswissenschaft 55:395–458.

1900 Das Recht auf den vollen Arbeitsertrag: Eine Einführung in die theoretische Ökonomie. Göttingen (Germany): Vanderhoeck & Ruprecht.

(1902) 1923 Socialpolitik. Stockholm: Geber.

1903 The Nature and Necessity of Interest. London and New York: Macmillan.

(1918) 1932 The Theory of Social Economy. New rev. ed. New York: Harcourt. Translated from the fifth edition of Theoretische Sozialökonomie.

1921 The World’s Monetary Problems. London: Constable. → Contains two memoranda originally written for the League of Nations.

1937 Keynes’ General Theory. International Labour Review 36:437–445.


Kromphardt, Wilhelm 1927 Die Systemidee im Aufbau der Casselschen Theorie. Leipzig: Quelle & Meyer.

Myrdal, Gunnar 1945 Gustav Cassel in memoriam. Ekonomisk revy 2:3–13.

Schams, Ewald 1927 Die Casselschen Gleichungen und die mathematische Wirtschaftstheorie. Jahrbücher für Nationalökonomie und Statistik 127:385–400.

Wicksell, Knut (1919) 1951 Professor Cassel’s System of Economics. Appendix no. 1, pages 219–257 in Knut Wicksell, Lectures on Political Economy. Volume 1: General Theory. London: Routledge. → Translated from the third Swedish edition.