Paul Krugman has mentioned Knut Wicksell from Sweden twice recently.  Dirk Ehnts on Econoblog thinks Krugman misunderstood the master.  Wicksell was very influential; Keynes before his General Theory was building his work on Wicksellian theory. Here is  Wicksell’s Natural Rate of Interest

Among Wicksell’s points that are easy to misunderstand: Krugman defended the idea of loanable funds, whereas Steve Keen holds the idea of endogenous money. Loanable funds theory says that banks have to have savings (deposits, alternatively reserves) before being able to lend, whereas the idea of endogenous money says that banks lend without having to collect savings (deposits) first. If reserves are required, they will be acquired later. What is interesting is that Wicksell is firmly rooted in the endogenous money camp, and might even be called the grandfather of endogenous money.

Dirk Ehnts further points out:  Banks do not act as intermediaries, Wicksell indirectly writes, but ‘no matter what amount of money may be demanded from the banks, that is the amount which they are in a position to lend…’. Banks ‘have merely to enter a figure in the borrower’s account to represent a credit granted or a deposit created’. So, banks do not collect savings from those that have too much money in order to lend those loanable funds to those that need money.

Knut Wicksell deserves to be lifted from obscurity. The crisis of economics is the crisis of non-Wicksellian economics. In Wicksell, as in Keynes, we look at a monetary circuit and inter-temporal problems. In non-Wicksellian economics, we are always in inter-temporal equilibrium and hence there are no financial no defaults and not even assets or liabilities nor are banks modeled.