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Interest rate, liquidity preference and loan funds: a critical analysis of attempts to demonstrate equivalence between the theory of loan funds and preference for liquidity

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  • José Luís Oreiro

Abstract

This article presents the attempts to demonstrate the equivalence between loanable funds and liquidity preference theories of interest rate done by Hicks, Lerner, Tsiang and Patinkin in order to show that these attempts were not succeed. That is so because these attempts had started from wrong conceptions about what are the issues under discussion in the debate between loanable funds and liquidity preference theories or because they had misrepresented one or another of both theories. ln fact, the attempts done by Hicks and Patinkin disconsider the fact that what was essential in this debate was the mechanism by which saving and investment decisions have influence in the determination of interest rate. On the other hand, the attempts of Lerner and Tsiang misrepresent the relation between saving and investment and the finance motive of demand for money that is supposed by both theories. JEL Classification: B22; E12.

Suggested Citation

  • José Luís Oreiro, 2001. "Interest rate, liquidity preference and loan funds: a critical analysis of attempts to demonstrate equivalence between the theory of loan funds and preference for liquidity," Brazilian Journal of Political Economy, Center of Political Economy, vol. 21(2), pages 304-321.
    • Handle: RePEc:ekm:repojs:v:21:y:2001:i:2:p:304-321:id:978
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    More about this item

    Keywords

    Keynesianism; interest rate; history of economic thought; liquidity preference;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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