ALTERNATIVE THEORIES OF THE RATE OFINTERESTI
a concealeddifference of opinion, whichisof verygreat importance, between myself andagroup of economists whoexpress themselves as agreeing withmeinabandoningthetheorythat therate of interestis(in Prof. Ohlin's words)"determinedbythe conditionthat itequalisesthesupplyofand thedemandforsaving, or,inotherwords, equalises savingand investment."The object of the first section of this article is to bring this differ-ence to a head.The liquidity-preference theory of the rate of interest whichIhave set forth in my General Theory of Employment,InterestandMoney makestherateofinterestto dependon thepresent supplyofmoneyand the demand schedule forapresent claim on moneyin terms of a deferred claim on money. This can be put brieflyby sayingthatthe rateof interestdependson the demandandsupplyofmoney; thoughthismaybemisleading,becauseitobscurestheanswer tothequestion, Demand for moneyintermsofwhat?Thealternativetheory held,Igather, by Prof. Ohlinandhis group of Swedish economists, by Mr. Robertson and Mr.Hicks,andprobably by many others, makesitto depend, putbriefly,on the demandandsupply of credit or, alternatively(meaningthesame thing), of loans,atdifferent rates of interest.Someofthewriters(aswillbeseen from thequotations givenbelow) believethatmy theory is on the whole the same as theirsand mainly amounts to expressing it in a somewhat different way.'Neverthelessthetheoriesare,Ibelieve, radically opposedtooneanother. The following quotations will explain the point atissue.Much thefullestaccountof thistheory has been given by Prof.Ohlin inthe articleprintedabove(p.
For convenience of
1Prof. Ohlin, as will be seen above (p. 227), indicatesadifference"in oneessential respect," but this is much subsequent to the point in his argumentwhere thedivergence I shall callattention tooccurs-which is, indeed, fromthevery outset.
SincethisarticleimmediatelysucceedsProf. Ohlin's, I oughttosay,toavoid misunderstanding, that it is not intended to discuss more than a smallpartofhis arguments, many of which I accept at least in part. In particular,Ihopetoreturn later to a discussion of what the Swedish school conveniently