Volume: 2016

Issue: 01

Author(s):

Katarzyna Appelt

Article title:

Keynes' Theory of the Interest Rate: A Critical Approach

Journal:

Theory, Methodology, Practice

Pages:

3-8

Keywords:

interest rate; liquidity preference; demand for money; classical school, Keynes

JEL-code:

B41, B50, E43

DOI:

10.18096/TMP.2016.01.01

Abstract:

John M. Keynes – the author of General Theory of Employment, Interest and Money – assumed that the interest rate is the price which brings into equilibrium the desire to hold wealth in cash with the supply of cash resources, and the reward for parting with liquidity at the same time. He indicated liquidity preference as the key element of the theory of the demand for money, whereas the supply of money is a discretionary factor, i.e. depending on the policy pursued by monetary authorities. It has been proven that such an approach comes with at least three errors: inconsistency in defining the rate of interest, vicious circle in arguing and departure from the economics of value for functional adequacies.

Bibtex entry

{
@ARTICLE { TMP201601-3,
AUTHOR = {Katarzyna Appelt},
TITLE = {Keynes' Theory of the Interest Rate: A Critical Approach}
JOURNAL = {Theory, Methodology, Practice},
VOLUME = {12},
NUMBER = {01},
PAGES = {3-8},
YEAR = {2016}
}

License:

CC-BY
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