Economics Dictionary of ArgumentsHome
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| Interest rates: Interest rates represent the cost of borrowing money or the return on invested funds over a specified time, usually expressed as a percentage. They influence borrowing and saving decisions, impacting economic activities like loans, mortgages, and savings accounts, set by central banks or influenced by market forces like supply and demand. See also Central Bank, Economy, Supply, Demand, Markets._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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John Maynard Keynes on Interest Rates - Dictionary of Arguments
Rothbard III 790 Interest rates/speculation/Keynes/Rothbard: Uncertainty: A demand for money to hold stems from the general uncertainty of the market. Keynesianism: Keynesians, however, attribute liquidity preference, not to general uncertainty, but to the specific uncertainty of future bond prices. RothbardVs: Surely this is a highly superficial and limiting view. In the first place, this cause of liquidity preference could occur only on a highly imperfect securities market. >Risks/Rothbard. LachmannVsKeynes: As Lachmann pointed out years ago in a neglected article, Keynes' causal pattern - "bearishness" causing "liquidity preference" (demand for cash) and high interest rates - could take place only in the absence of an organized forward orfutures market for securities. If such a market existed, both bears and bulls on the bond market „could express their expectations by forward transactions which do not require any cash. Where the market for securities is fully organized over time, the owner of 4% bonds who fears a rise in the rate of interest has no incentive to exchange them for cash, for he can always "hedge" by selling them forward.“(1) Rothbard III 792 Rothbard: Bearishness would cause a fall in forward bond prices, followed immediately by a fall in spot prices. Thus, speculative bearishness would, of course, cause at least a temporary rise in the rate of interest, but accompanied by no increase in the demand for cash. Hence, any attempted connection between liquidity preference, or demand for cash, and the rate of interest, falls to the ground. >Bonds/Rothbard. Security/interest/RothbardVsKeynes: The fact that such a securities market has not been organized indicates that traders are not nearly as worried about rising interest rates as Keynes believes. Ifthey were and this fear loomed as an important phenomenon, then surely a futures market would have developed in securities. Loans/Rothbard: Furthermore (…) interest rates on Ioans are merely a reflection of price spreads, so that a prediction of higher interest rates really means the expectation of Iower prices and, especially, Iower costs, resulting in a greater demand for money. And all speculation, on the free market, is self-correcting and speeds adjustment, rather than a cause of economic trouble. >Loans/Rothbard. 1. L.M. Lachmann, "Uncertainty and Liquidity Preference," Economica, August, 1937, p. 301. - - - Mause I 56 Interest Rates/Keynes: According to his liquidity preference theory, interest is a monetary phenomenon, not a real one as in Neoclassicism. >Neoclassical economics. Interest rates are therefore mainly determined by money supply and demand - less by real factors such as capital supply and demand. >Money supply, >Demand for money. For this reason, monetary policy can influence real variables (such as the level of investment) via the level of interest rates. On the other hand, as a result of nominal wage rigidity, the money supply and price levels have an impact on the level of real wages and thus on the level of employment. Unlike neoclassicism, Keynes' system cannot see real and monetary aspects of economic activity independently.(1) >Monetary policy, >Keynesianism. 1. Cf. .J. M. Keynes, The general theory of employment, interest and money. London 1936._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconKeyn I John Maynard Keynes The Economic Consequences of the Peace New York 1920 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 Mause I Karsten Mause Christian Müller Klaus Schubert, Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018 |
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> Counter arguments against Keynes
> Counter arguments in relation to Interest Rates
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