ABSTRACT OF PAPER
Title: The Keynes-Harrod Controversy on the Classical Theory of the Rate of Interest and the Interdependence of Markets
Author: DE BOYER DES ROCHES Jérôme
The aggregation of enterprises’ and households’ budget constraints allows us to put forward a new clarification of the controversy between Keynes and Harrod concerning the classical theory of the rate of interest. It appears that, contrary to the interpretation proposed by Milgate (1977), the critique of the classical theory that Keynes formulated does not presuppose the theory of liquidity preference. We show that this critique is logically founded and that it is based upon the absence of a labour market in the analysis of the interdependence existing between the markets for securities and for goods. Harrod did not appreciate this, and it explains how Keynes was able to employ, in opposition to the classical theory, the diagram which had been suggested to him by Harrod in defence of this theory. Our analysis is completed by an update of a lacuna in the model of the General Theory that Harrod (1937) proposed: we show that it lacks an equation and that the equilibrium (hence the rate of interest) is here indeterminate. Which is not the case in the article by Hicks (1937).
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