Further Reflections on the Rate of Interest (1930–5)

Abstract

It is necessary now to make explicit the theoretical consequences of the extension of the analysis of the demand for money beyond income deposits on the theory of interest Keynes took over from Marshall. In his well-known parable of the banana growers Keynes describes the consequences of a thrift campaign in what was formerly an Eden of stability and full employment. Consumers reduce their expenditures. This has the effect of occasioning losses to the manufacturers of consumption-goods. These producers then try to meet their losses by selling part of the stock of existing securities they keep as a class of assets or means of holding their wealth. By the sale of these securities they can maintain their payments to the factors of production.