The Keynes–Hawtrey Exchanges of February and March, 1936 in Volume 14 of the CWJMK: Keynes's Theory was NOT that the Supply and Demand for Money Alone Determined the Rate of Interest
27 Pages Posted: 12 Feb 2018
Date Written: February 7, 2018
Keynes was very clear in his reply to Hawtrey’s extensive letter of February 1st, 1936, that the demand and supply of money alone did not determine the rate of interest. It is completely unclear to this author how it came to pass that Keynes’s theory of the determination of the rate of interest in the General Theory in 1936 or in his 1937 Quarterly Journal of Economics reply article was portrayed as a completely monetary theory where the demand and supply of money alone determined the rate of interest except in the special case where the LP(LM) curve was completely elastic.
Hicks did not make the mistakes of Hawtrey, Robertson, or Joan Robinson in ascribing to Keynes a purely monetary theory of the rate of interest. Hicks’s error was in removing Keynes’s uncertainty analysis that underpinned his theory of liquidity preference. This occurred because Hicks did not understand the concept of the weight of the evidence.
Keywords: IS-LM, IS-LP(LM), Reddaway, Champernowne, Keynes, chapter 21, chapter 15, Keynes's views of math
JEL Classification: B10, B12, B14, B16, B20, B22
Suggested Citation: Suggested Citation