The Debate between Keynes and the “Classics” on Interest Rate Determinants: A Big Waste of Time?
Abstract
This article presents the debate between Keynes and the Classics relative to
the determinants of the rate of interest, with the objective of analyze if there is any subject
theoretically relevant under discussion. We demonstrate that, contrary to what has been said
by many neoclassical scholars like Hicks, there is an important theoretical question being
discussed between Keynes and the Classics, that is the mechanism according to which the
plans 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 impact
of variations of saving and investment is over this variable. For Keynes, however, the immediate
impact of these variations will be over the level of income and employment. As a result
of 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, that
is the consideration of propensity to save as a financial restraint to investment decisions.
JEL Classification: E12; E43.
Keywords: Interest rate determination post-Keynesianism