Abstract

Keynes's theory of interest is central to his broader argument. However, short‐run policy, which takes the so‐called normal rate of interest as given and aims at affecting the prevailing rate, must be distinguished from long‐run reform, which aims at changing the normal rate. The low demand that Keynes associated with high interest was believed to be inherent in a decentralized, consumption‐oriented economy. Consequently, he advocated reform in the direction of central control. Despite his “moral and philosophical” agreement with Hayek's Road to Serfdom, Keynes differed fundamentally from Hayek in terms of their contrasting perceptions of the market's shortcomings and their judgments about the government's potential for improving the economy's performance.