The Transformation of the Natural Rate of Interest into The General Theory's State of Long-Term Expectations

W B Gaynor

Cambridge Journal of Economics, 1992, vol. 16, issue 1, 55-68

Abstract: The long-period view of the General Theory harbors a confusion generated by not recognizing that "classical" monetary theory's natural rate of interest, a product of stationary- or steady-state reasoning, has been transformed in Keynes (1936) into the precarious states of long-term expectations and confidence. In the General Theory, stability of the level of investment, given the interest rate and the state of confidence in financial markets, depends on the state of long-term expectations. "Long-period employment" and "long-period equilibrium" are purely hypothetical short-period states that do not harbor the General Theory's message. Copyright 1992 by Oxford University Press.

Date: 1992
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