ABSTRACT OF PAPER
Title: Natural Interest Rate and Monetary Dynamics: a critical view from the Hayek-Sraffa controversy
Author: de Magalhães Rodrigo
This paper reconstructs the Hayek-Sraffa controversy in the light of the wicksellian tradition of the natural interest rate and its role in the marginalist approach to full employment. For early marginalists authors, a rigorous theory of capital, based on the conpcets of roundbouness and the time-consumption of the available methods of production, was a necessary condition to demonstrate the existence of natural rate of interest and how the market mechanism reaches full employment. In the post-wicksellian tradition, the tendency toward aggregates supply and demand equilibrium at full employment becomes progressively lousy, as more importance is increasingly given to short-run fluctuation of the market interest rate, putting long-run full employment as a theoretical construction without much prominence. Hayek's business cycle theory can be interpreted as an attempt to establish the long run natural equilibrium interest rate based on the theory of capital, given short-run deviations and, as a consequence, the business cycle itself. Placed on the right context, this paper argues that the devastating Sraffa´s critique of the Hayek´s theory was also a critique of the marginalist concept of the natural interest rate and the full employment tendencies of the market mechanism. Sraffa´s criticism is based on the ideia that "involuntary saving" was not permanent and incompatible with the preferences of the agents and, second, the possibility of defining the “own rates of interest” of each commodities during the monetary disequilibrium. Therefore, the whole wicksellian tradition and the belief in the capacity of markets economies to converge to full employment were shaken, even though no theory at the time was available to substitute the marginalist full employment schema. The paper is organized as the following: after a brief introduction, the first section, the concept of capital as time and the natural interest rate accordingly to Bohm-Bawerk theory is introduced. The second section explores the wicksellian tradition and the alternatives closures in the monetary analysis of some post-wickellian authors. The third section exposes Hayek´s business cycle theory and the critiques made by Sraffa, focusing on the implicit critique of the natural interest rate. In the last section, the main argument is summed up in order to point out the possible influence of the controversy on the evolution of Keynes´s thoughts in the route to the creation of the Principle of Effective Demand and his distancing from the natural rate concept.
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