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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.

Suggested Citation

  • Giancarlo Bertocco, 2009. "On Keynes’s criticism of the Loanable Funds Theory," Economics and Quantitative Methods qf0904, Department of Economics, University of Insubria.
  • Handle: RePEc:ins:quaeco:qf0904
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    1. Bindseil, Ulrich, 2004. "Monetary Policy Implementation: Theory, past, and present," OUP Catalogue, Oxford University Press, number 9780199274543.
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    Cited by:

    1. Marc Lavoie, 2014. "A comment on ‘Endogenous money and effective demand’: a revolution or a step backwards?," Review of Keynesian Economics, Edward Elgar Publishing, vol. 2(3), pages 321-332, July.
    2. Alberto Botta, 2011. "Fiscal Policy, Eurobonds and Economic Recovery: Some Heterodox Policy Recipes against Financial Instability and Sovereign Debt Crisis," Economics and Quantitative Methods qf1114, Department of Economics, University of Insubria.
    3. Faruk Ülgen, 2015. "From liberal finance inconsistency to relevant systemic regulation : an institutionalist analysis," Post-Print halshs-01166696, HAL.
    4. Pesenti, Amos, 2015. "The origin of inflation in a domestic bank-based payment system," FSES Working Papers 457, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    5. Kehrwald, Bernie, 2014. "The Excess Demand Theory of Money," MPRA Paper 57603, University Library of Munich, Germany.

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