Prosperity and Depression.pdf

216 Ana!Jsis of Theories Part Iless on consumption (save), but direct the money simultaneouslY tothe purchase ofnew securities.It would appear from the foregoiPg discussion that Mr. KEYNES'views on the question of how the rate of interest is influenced bychanges in the propensity to consume (save)1 are not so radicallydifferent from the views of other authors as may at· first sightappear. In a very recent exposition of his theory, Mr. KEYNEShas .himself suggested this. 2 "The analysis which I gave in myGeneral Theory of Employment is the same as the' general theory' byDr. LANGE on page 18 ofhis article."8 On this page, Dr. LANGEstates that " the traditional statement that the rate of interestmoves in the opposite direction to the propensity to saveholds fully in our generalised theory ".tChanges inM and therate ofinterest.There remains one more case in respect of whichthe liquidity-preference theory seems to be atvariance with·the traditional views-viz., the effectof an increase in the quantity of money on therate of interest. It would seem that, accordingto Mr. KEYNES, such" an increase must always leadto a fall in the rate ofinterest. This is, however, not Mr. KEYNES'view, because in many cases, such an increase will, automatically anduno actu, raise the liquidity-preference schedule. "Suppose thatM consists of gold coins and that changes in M can only resultfrom increased returns to the activities of gold-miners.In this case, changes in M are, in the first instance, directly associatedwith changes in Y, since the new gold accrues as someone's1 Since the propensity to save is equal to I minus the propensity toconsume, any proposition regarding the propensity to save can be translatedinto a proposition regarding the propensity to consume and viceversa.2 See footnote I, page 321, in Economic Journal, June 1938.a Economica, February 1938.• Hence we must conclude that Dr. Lange is not right when he attributes,rather unqualifiedly, to Mr. Keynes, not bis general theory, buta special case of it-viz., that case where the U inter.est elasticity of thedemand for liquidity is infinite" (page 19). It seems fair to say thatMr. Keynes balds that this situation obtains under special circumstances-viz., in deep depressions. It is" depression economics" (as Dr. Hicks,loco cit' lsays) and not the" general theory". For further discussion oftbis special case, see the text below, page 218.