Why Interest Remains Positive even in Static Equilibrium: Another Anti-Schumpeterian View

Abstract

There are three things which should be regarded as the major issues in theoretical economics. One is the question of prices, second the question of interest, and the third the dynamics of the economy, in particular the question of trade cycles. However, as Schumpeter pointed out, while there exists a broad unanimity of opinion regarding the question of price, supply is the most unclear part of economic theory when we come to look at the details. There is a range of conflicting opinions regarding duopoly pricing, and there continue to be opposing views regarding marginal productivity theory as well. However, as far as the general position is concerned, things can be said to be fairly settled on general equilibrium theory as the form, and marginal utility theory as the content. The question of the dynamics of the economy is, as it were, virgin soil, and although many theories from the classical school onwards have dealt with it, it cannot be said that we have ended up with any clear statement regarding the issue. In recent years trade cycles have become a topic of investigation, and it has even become a topic of discussion whether or not such investigation should as a result form a part of economic theory. The development of dynamic theory is something for which we must look to the future. By contrast the question of interest has been explored since long ago. However the situation is one of a confusion of different views with no unity between them. It is not that scholars have not concentrated their efforts on this area. Indeed, scholars such as Böhm-Bawerk devoted their very considerable abilities to investigating the problem. Scholars such as Fisher (1907), Landry and Knight (1934) left behind major works on the subject. The same can hardly be said for the theory of value and price. Nevertheless, such a confusion of different views has resulted from the complexity of the phenomenon, that it makes the problem very difficult.