A ‘Walrasian post-Keynesian’ model? Resolving the paradox of Oskar Lange’s 1938 theory of interest

Roberto Lampa

Cambridge Journal of Economics, 2014, vol. 38, issue 1, 63-86

Abstract: This article investigates Oskar Lange’s 1938 article, ‘The rate of interest and the optimum propensity to consume’, with the intention of providing a thorough interpretation of this rather obscure work. I explore in depth Lange’s theory of interest and its relationship with both Keynes’s General Theory (1973a) and Hicks’s synthesis (1937), developing two graphical models that show the non-linearity of Lange’s investment function as well as the consequentiality of his equilibrium solution. Through an unedited manuscript, I also reconstruct Lange’s beliefs about the chronic sub-optimality of the capitalist economy and his scientific endorsement of the socialist economy. I conclude that the purposes of Lange’s article predate and are independent of the General Theory. They consisted of a theoretical generalisation and analysis of institutional data, intended to separate economic theory from the tacit assumption of a capitalist economy.

Date: 2014
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