Critical Assessments of The General Theory
Edited by L. Randall Wray and Matthew Forstater
Chapter 17: Keynes’s ‘Revolving Fund of Finance’ and Transactions in the Circuit
17. Keynes’s ‘revolving fund of ﬁnance’ and transactions in the circuit Steve Keen INTRODUCTION Keynes’s primary motivation in writing ‘Alternative theories of the rate of interest’ (1937b) and ‘The “ex-ante” theory of the rate of interest’ (1937c) was to counter attempts by Bertil Ohlin and others to recast his liquidity preference theory as no more than a supply and demand model of the determination of the rate of interest. This rearguard action was ultimately unsuccessful, given the profession’s ultimate acceptance of Hicks’s IS–LM analysis as a summary of The General Theory. However, it also had a positive outcome, as tussling with Ohlin’s arguments led Keynes to propose that investment ﬁnance was ‘an additional demand for money’ (Keynes 1937b: 247) to The General Theory’s triumvirate of transactions, precautionary and speculative demands. Keynes’s musings on the interplay between ﬁrms who wish to borrow to ﬁnance investment, and banks that provide that ﬁnance, is prescient of, and of course partly inspired, the circuitist school’s later contribution. But Keynes’s less formal logic also reached some conclusions contrary to current circuitist belief. Keynes was correct on these points, while recent circuitist literature is in error. Notwithstanding this however, the contributions of Graziani and others on the nature of a monetary economy are essential to the develoment of a proper model of Keynes’s ‘revolving fund of liquid ﬁnance’ (Keynes 1937c: 666). THE REVOLVING FUND Keynes identiﬁes three sources of confusion between himself and Ohlin, John Hicks and Dennis Robertson (Keynes 1937b: 241–6); the...
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