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Keynes, Public Debt, And The Complex Of Interest Rates

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  • Aspromourgos, Tony

Abstract

John Maynard Keynes consistently offered qualified endorsement of Abba Lerner’s “functional finance” doctrine—the qualifications particularly turning on Keynes’s attentiveness to policy management of the psychology of the debt market. This article examines Keynes’s understanding of the possible influence of public debt on interest rates, from 1930 forward. With the multiplier a mechanism whereby debt-financed public investment generates matching private saving (net of private investment) plus public saving, it becomes possible for Keynes to conclude that increasing public debt need not place upward pressure on the level of interest rates, so long as policy can successfully manage the psychology of the debt market. This particularly concerns long interest rates and hence the term structure of rates. His theory of the term structure enables Keynes’s conviction that policy can manage and shape long rates. The conclusion considers also whether Keynes’s caution concerning public debt and interest rates retains relevance today.

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  • Aspromourgos, Tony, 2018. "Keynes, Public Debt, And The Complex Of Interest Rates," Journal of the History of Economic Thought, Cambridge University Press, vol. 40(4), pages 493-512, December.
    • Handle: RePEc:cup:jhisec:v:40:y:2018:i:04:p:493-512_00
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    Cited by:

    1. Tony Aspromourgos, 2019. "The Past and Future of Keynesian Economics: A Review Essay," History of Economics Review, Taylor & Francis Journals, vol. 72(1), pages 59-78, January.
    2. Kazi Musa & Kazi Sohag & Jamaliah Said & Farha Ghapar & Norli Ali, 2023. "Public Debt, Governance, and Growth in Developing Countries: An Application of Quantile via Moments," Mathematics, MDPI, vol. 11(3), pages 1-13, January.
    3. Biagio Bossone, 2021. "Exercising Economic Sovereignty in Today's Global Financial World: The Lessons from John Maynard Keynes," Working Papers PKWP2120, Post Keynesian Economics Society (PKES).
    4. Biagio Bossone, 2021. "Why MMT can’t work," International Journal of Economic Policy Studies, Springer, vol. 15(1), pages 157-181, February.
    5. Biagio Bossone, 2020. "Why MMT can’t work: A Keynesian Perspective," Working Papers PKWP2020, Post Keynesian Economics Society (PKES).
    6. BRILLANT, Lucy, 2024. "The origins of yield curve theory: Irving Fisher and John Maynard Keynes," SocArXiv 9hf8z, Center for Open Science.

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