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Neoclassical economics on the edge: Fisher, Knight, and the theory of interest in the 1930s

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  • Rogério Arthmar
  • Juan Castañeda

Abstract

Irving Fisher and Frank Knight had a brief exchange on the former’s “The Theory of Interest”, published in 1930, which culminated in a full book review by Knight in 1931. We assess the episode by recasting Fisher’s interest theory as a maximisation under constraint calculation. After that, Knight’s objections to subjective time preference are examined, as well as his ensuing attack on the Austrian School’s definition of capital. Fisher’s and Knight’s reflections on business cycles, grounded on expectations, delays, and speculation, are assessed in sequence. We conclude by indicating some limitations of the theories of interest formulated by both economists.

Suggested Citation

  • Rogério Arthmar & Juan Castañeda, 2024. "Neoclassical economics on the edge: Fisher, Knight, and the theory of interest in the 1930s," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 31(4), pages 587-607, July.
    • Handle: RePEc:taf:eujhet:v:31:y:2024:i:4:p:587-607
    DOI: 10.1080/09672567.2024.2360480
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