Wicksell on the American Crisis of 1907

Abstract

The paper brings to light an article by Knut Wicksell published in Swedish in 1908 about the American crisis of 1907. Wicksell explicitly distinguished, apparently for the first time in the literature, three features of a healthy banking system: Solvency, liquidity, and versatility. The paper compares Wicksell's account of the 1907 crisis to the contemporary literature (Sprague, Fisher etc) and to Bagehot's classic approach to the working of the banking system in periods of instability. Wicksell emphasized the interaction between insolvency and illiquidity, and pointed out the key role of "versatility" in the form of macroeconomic stabilization policy.

Keywords: 1907 American crisis, Knut Wicksell, solvency, liquidity, versatility

JEL Classification: B13, B31, N11, N21