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The Debate between Keynes and the “Classics” on Interest Rate Determinants: A Big Waste of Time?

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  • José Luís Oreiro

Abstract

This article presents the debate between Keynes and the Classics relative tothe determinants of the rate of interest, with the objective of analyze if there is any subjecttheoretically relevant under discussion. We demonstrate that, contrary to what has been saidby many neoclassical scholars like Hicks, there is an important theoretical question beingdiscussed between Keynes and the Classics, that is the mechanism according to which theplans of saving and investment have influence over the rate of interest. For the “Classics”these decisions have immediate influence over the rate of interest, i.e. the immediate impactof variations of saving and investment is over this variable. For Keynes, however, the immediateimpact of these variations will be over the level of income and employment. As a resultof this effect there will be a change in the level of interest rate. This same question reappears on the debate between Asimakopulos, Kregel and Davidson; but in a different context, thatis the consideration of propensity to save as a financial restraint to investment decisions. JEL Classification: E12; E43.

Suggested Citation

  • José Luís Oreiro, 2000. "The Debate between Keynes and the “Classics” on Interest Rate Determinants: A Big Waste of Time?," Brazilian Journal of Political Economy, Center of Political Economy, vol. 20(2), pages 287-311.
    • Handle: RePEc:ekm:repojs:v:20:y:2000:i:2:p:287-311:id:1028
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    Keywords

    Interest rate determination; post-Keynesianism;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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