ABSTRACT
Much of the literature that was stimulated by Keynes' presentation of his liquidity preference theory of interest is found in the long-standing liquidity preference versus loanable funds debate. The controversy began immediately after the publication of the General Theory in 1936 and continued at a heavy pace into the late 1950s, by which time a resolution, of sorts, had been reached. The debate can be divided into two stages. In the first stage, Keynes argued with his contemporaries in the pages of the Economic Journal and in private correspondence. His principal foes were his colleague at Cambridge D.H. Robertson, the Swedish economist Bertil Ohlin, and the civil servant Ralph Hawtrey. Their position was that the liquidity preference theory was nothing more than the already established loanable funds theory, dressed up in different language and with a slightly different emphasis. They maintained that Keynes exaggerated the originality of his contribution, and that he was unable to sustain, on the basis of the theory he presented, his conclusions about the irrelevance of productivity and thrift. Keynes, for his part, denied that the theories were equivalent, insisted he was onto something radically new, and accused the loanable funds theorists of committing the same logical fallacy as the supply-of-saving-demand-for-investment interest rate theorists.
