Keynes on banks in A Treatise, The General Theory and after

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Chapter 5 in Banks and Finance in Modern Macroeconomics, 2019, pp 90-113 from Edward Elgar Publishing

Abstract: In A Treatise, Keynes develops his analysis of the general price level by regarding banks as mere intermediaries between savers and borrowers, even though he had initially defined the nature of banks in a similar way to Wicksell, Schumpeter and Robertson. In The General Theory, banks virtually disappear. There are two reasons for this: i) the emphasis on the notion of liquidity preference as expressed by the demand for money; and ii) the adoption of an ‘equilibrium methodology’. In 1937, banks reappear (the ‘finance motive’), but there is no substantial change of Keynes’s position. Ohlin and Robertson criticized Keynes’s theory of the interest rate and proposed an alternative loanable funds theory, where the interest rate is determined by the supply and demand of credit. In his 1936 book, Keynes also carries out an analysis of financial markets in which conventions and speculative behaviour play a crucial role. This aspect of his theory went almost ignored by the mainstream for a long time.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2019
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