Knut Wicksell and the original error

With the existence of credit money, Wicksell claimed, two interest rates prevail: the "natural" rate and the "money" rate. The natural rate is the return on capital - or the real profit rate. It can be considered to be equivalent to the marginal product of new capital. The money rate, in turn, is the loan rate, an entirely financial construction. Credit, then, is perceived quite appropriately as "money". Banks provide credit, after all, by creating deposits upon which borrowers can draw. Since deposits constitute part of real money balances, therefore the bank can, in essence, "create" money.

Completely wrong. The rate is not a scalar, rates should be considered a probability distribution. He neglects the monopoly effects of a central bank. And what he calls money is still encumbered by a counterbalancing loan. And he negelcts that the central bank is generally owned by the central government, another monopoly.

Inflation has been declining, but still positive since the 1980s. The disinflation is a price suppression by the monopoly bank dominating the short end of the curve and driving out competitive banking.  The net flow of money is from the economy to government, which accumulates inefficient capital goods. This is disinflation, or a long term Fisher debt deflation. We have a name for this, the secular stagnations.

The ultimate cause is the lack of proportional democracy, in our situation. The lack of democracy ultimately leaves us vulnerable to suddenly hatched plots by large regional political establishments, like New York and California. It is simply too costly for the economy to wait for whatever bonehead move Pelosi and Perez have hatched in California, or to wait out the mortgage boom in bust in Florida and California. A queuing problem, we, and the central bank, now have to deal with an additional five years of slow, recessionary times while California and New York figure out Obamacare. The economy will contract, otherwise known as dropping the rank of the distribution network, and wait out the political process in California.

Economists and the real rate

They use something called the real interest rate in their equations, as a scalar.  The closest thing the economy has to that real rate is the integral under the curve where the monopoly fiat banker operates, and right not that integral goes from a term of one month to a term of one year. That integral is the inverse of the measurement term.  The larger that number is, the smaller the economy can measure transactions and the slower the pricing mechanism operates, over all a slow economy results from an imposing monopoly central banker. That number is the Bandwidth/Channel capacity, in Shannon terms;  or the value per transaction. When that number is small, the economy contracts, it does not inflate prices. Put in other terms, an imposing central bank creates noise, the economic transaction rate drops, the economy contracts to adapt to the noise.
The mechanism is:

• 1) Lower borrowing rates yields lower business costs and lower prices.
• 2) Lower prices compress in relative price distance. 
• 3) The economy reduces items sold to re-establish certainty in relative prices.

From entropy considerations, this is an increase in banking noise results in a decrease in transaction rate to compensate. From a queuing perspective, this is reducing the variety of goods so as to reduce the queue length at the check out counter.

Economists mistake queue length with price increases.  By the time consumer inflation shows up, the economy has long since begun the adaptation. Queue length results in a smaller variety goods, larger transaction size and slower transaction rate.