Re: pop quiz time

[Gil Skillman <gskillman@xxxxxxxxxxxxxxxxx>]

It sounds like Keynes, except he would have criticized "(neo)classical
economics" rather than "mainstream economists"; the latter phrasing sounds
more recent.  For what it's worth, mainstream theory suggests another
possible explanation for positive interest rates besides time (and possibly
risk) preference, although it is not one that is typically
emphasized:  interest represents a scarcity rent for capital.  This latter
explanation is both plausible and consistent with the now much-reinforced
empirical finding of interest-inelastic savings.  Gil



> [who said it?]
>
> "...confusion forces practical economists to explain the determination of
> interest by opportunity cost reasoning - a particular rate of interest
> being set by the 'pure' rate yielded by the riskless government bonds,
> with inflation, risk, and administrative cost premia added. But there is
> no watertight justification for the perpetual existence of this 'pure'
> rate. Interest exists because it is there; it is still held up by its own
> theoretical bootstraps. The failure of mainstream economics to explain
> adequately the existence of interest betrays the fact that it is merely a
> theoretical concept with no true basis in reality. It is a figment of our
> collective imaginations."