ABSTRACT
So far we have had no opportunity to consider the influence of money on the interest rate. Not all of the authors which we have considered up to now expressed their views on this problem, but those who did were far from denying the existence of such an influence. The reason they did not introduce the monetary factor into their own theories of interest was their conviction that the influence of money on the interest rate is only of a temporary character, a view which can be traced back to the English classical economists. Bohm-Bawerk expressed this as follows: "The level of the interest rate prevailing in a country does not in the long run depend on whether that country has a large volume of coins or other types of money, but on whether it is rich in real capital, in stored-up products available for productive investment or for lending. Nevertheless, the stock of money, taking this term quite literally, does exert a certain influence on the movements of the interest rate - an influence which, although not profound, is very conspicuous and therefore often overestimated, especially by the layman." 1Bohm-Bawerk goes on to explain the connexion between money and the interest rate by pointing out that, as a rule, the additional money flows initially into the banks, causing a reduction of the interest rate on bank credit. However, this effect will not be a lasting one, for "then the excess quantity of money, to the extent that it pours into the channels of the commodity markets, will in a well-known fashion reduce the purchasing power of money. Money prices of all commodities - and, thus, prices of real capital goods - will rise; and ultimately more units of money than previously will be required to transfer the same amount of real capital goods. Once matters have come to this point, the increased supply of money which initially pressed on the market as excess supply will be completely absorbed by the demand for 1 BOhm-Bawerk, art. 'Zins' in Handworterbuch der Staatswi~senschaften (3rd ed., Jena, 1911).
