Setting the Pace of Capitalism - A Post-Keynesian Perspective on Interest and Profits as a Monetary Phenomenon

Financial markets turn all their attention towards the Federal Reserve Bank and the European Central Bank whenever there are the slightest rumors of a change in the policy rate of interest. But why is this rate so important and what is the theoretical basis of its existence in the first place? In modern economic literature theories of interest are rarely explicitly touched upon and interest is often simply taken for granted in most textbooks. This paper intends to show that there does not exist one single theory of interest. Although the history of economic thought and current central banking policy, demonstrates a clear tendency to view interest as a real phenomenon, there exists a large group of post-Keynesian economists who, instead, tend to view interest as a monetary phenomenon. By looking at lessons from actual experience this paper shows how the historical and contemporary post-Keynesian challenge to the consensus view potentially allows us to interpret interest as purely a monetary phenomenon. Furthermore, it attempts to show how this interpretation, if accepted, has far reaching consequences, not only regarding the understanding of interest, but also our understanding of profits and the distribution of income