Keynes on the Interest Rate

Abstract

This chapter deals with Keynes’s writings on the interest rate. It examines the development of his thought during the period from the publication of the Treatise on Money to that of the General Theory. This was a period that saw a remarkable change in Keynes’s attitude towards the traditional neoclassical or marginalist theory of money and its links with the theory of value, distribution and the level of output. He developed a critical attitude towards this theory and tried to reverse the traditional causal relation between monetary and real variables, so as to establish a theoretical analysis where monetary factors affect both the level of output and the distribution of income through the determination of interest rates. A study of this period is, therefore, extremely useful in order to derive the analytical conditions allowing the establishment of a view which tries to reverse the causal links between the rates of interest and profits.