Abstract
In the last chapter we touched on the relationship between Keynes’s Treatise on Money and the Wicksellian tradition of monetary theory. Keynes was first of all attracted to Wicksell’s clear statement that the transmission mechanism from money to the ‘real’ economy was via the influence of the money rate of interest on investment, and not on speculation. Second, Keynes took on board Wicksell’s distinction between the money rate of interest, set in financial markets with the participation of the central bank, and the natural rate of interest, determined by the profit rate on new uses of capital. If these rates are the same then money is neutral with respect to the price level. If they depart from each other, prices will rise or fall as the money rate is below or above the natural rate.
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