The Debate between Keynes and the “Classics” on Interest Rate Determinants: A Big Waste of Time?

ABSTRACT This article presents the debate between Keynes and the Classics relative to the determinants of the rate of interest, with the objective of analyze if there is any subject theoretically relevant under discussion. We demonstrate that, contrary to what has been said by many neoclassical scholars like Hicks, there is an important theoretical question being discussed between Keynes and the Classics, that is the mechanism according to which the plans of saving and investment have influence over the rate of interest. For the “Classics” these decisions have immediate influence over the rate of interest, i.e. the immediate impact of variations of saving and investment is over this variable. For Keynes, however, the immediate impact of these variations will be over the level of income and employment. As a result of this effect there will be a change in the level of interest rate. This same question reappears on the debate between Asimakopulos, Kregel and Davidson; but in a different context, that is the consideration of propensity to save as a financial restraint to investment decisions.