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On the monetary nature of the interest rate in Keynes’s thought

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  • Giancarlo Bertocco

    (Department of Economics, University of Insubria, Italy)

Abstract

Keynes in the General Theory, explains the monetary nature of the interest rate by means of the liquidity preference theory. The objective of this paper is twofold. Fist, to point out the limits of an explanation of the monetary nature of the interest rate and thus of the non-neutrality of money based on the liquidity preference theory. Second, to present a different explanation of the monetary nature of the interest rate based on the arguments with which Keynes, following the General Theory, responded to the criticism levelled at the liquidity preference theory by supporters of the loanable funds theory such as Ohlin and Robertson. It is shown that this explanation is consistent with the definition of the non-neutrality of money that Keynes presented in his 1933 works in which he underlines the need to elaborate a monetary theory of production in order to explain the phenomena of the crisis and the fluctuations in income and employment

Suggested Citation

  • Giancarlo Bertocco, 2011. "On the monetary nature of the interest rate in Keynes’s thought," Economics and Quantitative Methods qf1102, Department of Economics, University of Insubria.
    • Handle: RePEc:ins:quaeco:qf1102
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    File URL: https://www.eco.uninsubria.it/RePEc/pdf/QF2011_02.pdf
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