The high price of money1996

This elegantly written book argues against the conventional wisdom that prevails in academic and official circles. According to this essentially neo-classical theory, the rate of interest depends solely on the amount of savings with respect to investment needs. It is implied that the high level of interest rates is not an economic policy problem but a fact of 'nature' - unpleasant, perhaps, but unalterable in the short term without heavy costs. The alternative perspective offered in this book is a Keynesian one, in which the explanation of economic facts can never be separated from the role of economic policy. This view posits interest rates as a 'conventional' phenomenon, rooted in the perceptions and expectations of a now global financial market. That is, they are self-fulfilling rather than inescapable costs. The essential economic facts of the last twenty years bear out the truth of this Keynesian approach to interest rates, and are at odds with neo-classical (Fisher-Wicksell) theory. The implication, then, is that the world is not condemned to a high rate of interest, with the risk of low investment, rising public indebtedness, stagnation, and unemployment. Conscious economic policies, coordinated at the international level, are capable of turning this largely conventional price towards non-inflationary growth.