Edited by Robert W. Dimand and Harald Hagemann
Chapter 43: The finance motive
Keynes’s criticism of traditional theory argued not only that a priori saving was not a constraint on investment expenditures, but that savings did not provide the financing for investment expenditures. It was thus a critique of the “crowding out” hypothesis. The finance motive was advance to demonstrate that savings had no impact on interest rates, which were determined by liquidity preference, or on the ability of entrepreneurs to borrow, which was determined by the willingness of banks to expand their balance sheet by accepting business liabilities against the concession of new deposits.
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