Prosperity and Depression.pdf

2.06 AnalYsis of Theories Part Iflowever, as Professor ROBERTSON 1 and others have pointedout, one alternative would not seem to exclude the other : the rateof interest may well be regarded as a reward both for not-consumingand for not-hoarding. In order to earn interest, one mustnormally refrain not only from keeping money idle (from hoardingit), .but also from spending it for consumption. But the first(Mr. KEYNES') condition is, perhaps, less essential than the second.As everybody knows, banks sometimes pay interest on demanddeposits. If, then, hoarding takes the form of keeping idledeposits (rather than notes or coins), it does not preclude theirearning interest on the amount hoarded, and the rate of interestcannot be said to be the reward for not-hoarding. It is true that therate of interest on demand· deposits is usually lower than the rateon time deposits or the bond rate. But this is not necessarily so;we can easily conceive of a situation where we have the samerate for all kinds of assets, and there have been instances whenshort-term rates of interest have been higher than long-termrates. Hence, the deposit rate (reward for hoarding) may be higherthan, for instance, the bond rate (reward for parting with liquidity).About the definition of the rate of interest, there is no realdifference of opinion. Everybody means the same by " rate ofinterest" (at least, by the" explicit" rate of interest)-viz., " theprice of debt "2 or of a loan which is evidently the same as :l debt.'Disagreement arises only when it·comes to explaining the factorswhich determine the level ofand fluctuations in the rate ofinterest.1 Er;onomic Journal, 1937, page 431. "The fact that the rate ofinterest measures the marginal convenience of holding idle money neednot prevent it from measuring also the marginal inconvenience of abstainingfrem consumption. Decumulation, as well as keeping-hoarded, is analternative to keeping invested."• Keynes: General Theory, page 173, bottom.• Everybody means by " the rate of interest" tb.e rate of intereston money loans-money loans of different duration, security, etc. By amoney loan, we mean a loan which is expressed in terms of money.Interest and principal could be expressed in terms of other things thanmoney. But even if they are expressed in money, the loan need not bepaid out or repaid in money (cash). It may be given and repaid in kindand still be a money loan. Hence, what is needed is a numeraire andnot actual money of exchange.