Gustav Cassel was a professor at the University of Stockholm from 1903 to 1936. He is best known for his theory of exchange rates which is now known as purchasing power parity. According to this theory, the prices of traded goods should be the s ame everywhere, after adjustment for duties and cost of transportation. (Domestic price=foreign price/foreign exchange rate). According to Cassel, if PPP didn't exist, either the exchange rate or the purchasing power would adjust untill PPP did exist . Economists now realize that Purchasing Power Parity exists only if all of a country's goods were traded on the international market. In reality, most goods are not traded internationally, yet PPP is still an important concept used by economists as a starting point for predicting exchange rate changes.
Works by Gustav Cassel:
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