Wicksell's Two Real Cumulative Processes Described a Real Cycle

Wicksell’s cumulative process (CP) was a ‘real’, not simply a monetary theory. Interest and Prices and later writings described two CP’S, one with constant real income, the cumulative inflationary process (CIP) and one with falling real income, the cumulative deflationary process (CDP). But, they both, not just the latter, should be regarded as part of a real cycle theory. Most interpreters, neglecting the cdp, emphasized only increases in the price level or the rate of inflation for the CIP, as a purely monetary process. But, it also involved changing industrial realignment and income distribution between simultaneously expanding and contracting sectors, thus making the apparent price cycle real. An added implication was that welfare would worsen, as competition for expected increased profits caused some firms in the expanding sectors to be more successful than others, the idea of the ‘super-entrepreneur.’ The cdp eliminated the ‘center stage’ assumption of full employment and was even more clearly a real (downward) cycle. Followers of Wicksell also emphasized the CP when trying to explain the fluctuations of the 1920’s and 30’s and developed it into more of a real cycle theory with changing relative prices.