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On Keynes’s criticism of the Loanable Funds Theory

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  • Giancarlo Bertocco

    ()
    (Department of Economics, University of Insubria, Italy)

Abstract

Contemporary monetary theory, by accepting the theses of the Loanable funds theory, distances itself from Keynes, who considered the rate of interest as an exclusively monetary phenomenon, and overlooks the arguments Keynes used, following publication of the General Theory, to respond to the criticism of supporters of the Loanable funds theory such as Ohlin and Robertson. This paper aims to assert that the explicit consideration of the role of banks in financing firms‘ investments connected with the specification of the finance motive does not imply acceptance of the LFT, which holds that the interest rate is a real phenomenon determined by saving decisions, but makes it possible to elaborate a theory of credit alternative to the LFT and a sounder theory of the non neutrality of money than the one based on the liquidity preference theory.

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Bibliographic Info

Paper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf0904.

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Length: 36 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:ins:quaeco:qf0904

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Cited by:
  1. alberto, botta, 2011. "Fiscal policy, eurobonds and economic recovery: some heterodox policy recipes against financial instability and sovereign debt crisis," MPRA Paper 33860, University Library of Munich, Germany.

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