The General Theory of the Rate of Interest
We have shown in chapter 11 that, whilst there are forces causing the rate of investment to rise or fall so as to keep the marginal efficiency of capital equal to the rate of interest, yet the marginal efficiency of capital is, in itself, a different thing from the ruling rate of interest. The schedule of the marginal efficiency of capital may be said to govern the terms on which loanable funds are demanded for the purpose of new investment; whilst the rate of interest governs the terms on which funds are being currently supplied. To complete our theory, therefore, we need to know what determines the rate of interest.
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