Thursday, July 29, 2021

Lars P. Syll — Why MMT rejects the loanable funds theory

The loanable funds theory is in many regards nothing but an approach where the ruling rate of interest in society is — pure and simple — conceived as nothing else than the price of loans or credit, determined by supply and demand — as Bertil Ohlin put it — “in the same way as the price of eggs and strawberries on a village market.”

In the traditional loanable funds theory — as presented in mainstream macroeconomics textbooks — the amount of loans and credit available for financing investment is constrained by how much saving is available. Saving is the supply of loanable funds, investment is the demand for loanable funds and assumed to be negatively related to the interest rate.

As argued by Kelton, there are many problems with the standard presentation and formalization of the loanable funds theory. And more can be added to the list:
Lars P. Syll’s Blog
Why MMT rejects the loanable funds theory
Lars P. Syll | Professor, Malmo University


Ralph Musgrave said...

I left a comment after Syll's article.

Matt Franko said...

Yeah that’s why the Fed now has RRP over $1T daily… because there is a dearth of “loanable funds!”…

Where btw are the MMT people on this?

They don’t understand it…

Where is Bill? Where is Warren? Where is Prof. SK?

RRP now over$1T daily… what say MMT?