Loanable funds, liquidity preference: structure, past and present

Abstract

We appraise the canonical RobertsonKeynes discussion from the structural axis of exogeneity/endogeneity of the interest rate. The interest rate is shown to be an exogenous variable. It is only with Keynes' contribution of liquidity preference and, specifically, the introduction of the liquidity preference of banks that no more than the possibility of endogenising the interest rate arises. Given the tenuousness of the resolution, we pose the ethical question: should the rate of interest be endogenised? On the other hand, Keynes' theorem that the rate of interest is a monetary variable is validated. Both money and the rate of interest are codetermined in a capitalist economy.