Wicksell's solution is to make investment independent of savings so aggregate demand is free to rise above or below a given aggregate supply. Wicksell's theory claims, indeed, that increases in the supply of money leads to rises in price levels, but the original increase is endogenous , created by the relative conditions of the financial and real sectors. The natural rate is the return on capital - or the real profit rate. It can be roughly considered to be equivalent to the marginal product of new capital, therefore let us simply call it r. The money rate, which we shall refer to as i, in turn, is the loan rate, an entirely financial construction.
Banks provide credit, after all, by creating deposits upon which borrowers can draw.
And for rendering this service to the farmer the bank charges him something called 'interest'. Our first impulse surely is to cry out on the whole proceeding as a piece of fraudulent legerdemain. Put simply, the finance demand for money is set by the difference between the money and natural rates of interest. In short, the marginal product of capital is greater than its cost. Consequently, it will be to the advantage of every entrepreneur to borrow funds from the bank and invest it in capital.