The case for a unified monetary theory of interest: Keynes and Schumpeter

Abstract

Abstract Keynes and Schumpeter developed two separate monetary theories of interest, the first arguing for the central role of liquidity and the second underlining the consequences of economic development, both agreeing on the fundamental monetary nature of the phenomenon. It is possible, however, to advance an essentialist interpretation of the two theories, making them consistent and allowing for the development of a unified monetary theory of interest to serve as a stepping stone toward further integration between current post-Keynesian and neo-Schumpeterian debates. Such interpretation relies on the acknowledgement of two shared assumptions: conscious uncertainty, navigated through conventional expectations, and the monetary nature of a decentralised economy. From this perspective, liquidity and the process of economic development follow from the idiosyncratic relationship between money and economic processes characterising capitalism—the common root of all monetary theories of interest.