Interpretation of Chapter 17 of The General Theory and reconciliation between the endogenous money supply and the liquidity preference theory

Tosihiro Oka

Japanese Economy, 2021, vol. 47, issue 2-3, 261-280

Abstract: The arguments that totally denied Chapter 17 of Keynes’ General Theory (GT) and the arguments that found the core of Keynesian revolution in Chapter 17 are shown to have a common interpretation that the chapter describes the arbitrage equilibrating process through asset price adjustments, where demand and supply prices are identified with spot and future prices, with the definition of own-rate of interest as the money-rate of interest minus contango. It is shown that such an interpretation inevitably renders Keynes’ reasoning self-contradictory, and that if one intends to establish reconciliation between endogenous money supply and the liquidity preference theory, Chapter 17 should be interpreted as what Keynes presented, which means the chapter is in conformity with the previous chapters and with Keynes’ articles written after the GT.

Date: 2021
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DOI: 10.1080/2329194X.2021.1984253

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