On the monetary nature of the interest rate in a Keynes-Schumpeter perspective

Keynes in the General Theory, explains the monetary nature of the interest rate by means of the liquidity preference theory. The objective of this paper is twofold. First, to point out the limits of the liquidity preference theory. Second, to present a theory of the monetary nature of the interest rate based on two points: i) the arguments with which Keynes responded to the criticism levelled at the General Theory by supporters of the loanable funds theory such as Ohlin and Robertson; ii) Schumpeter’s analysis of the role of bank money in a capitalist economy. We will show that Schumpeter’s analysis of the relationship between bank money and innovations represents an effective theoretical scheme for the explanation of the monetary nature of the interest rate and of the Keynesian principle of effective demand.