Editing Interest (section)

===<span id=keynesinterest>Keynes's theory of the interest rate</span>===
{{See also|Robinson Crusoe economy#Money as the origin of interest}}
Interest is one of the main components of the economic theories developed in [[Keynes]]'s 1936 ''[[The General Theory of Employment, Interest and Money]]''. In his initial account of [[liquidity preference]] (the demand for money), this demand is solely a function of the interest rate; and since the supply is given and equilibrium is assumed, the interest rate is determined by the money supply. He later writes that interest cannot be separated from other economic variables and needs to be analysed together with them.

Keynes acknowledged that the German-Argentine economist [[Silvio Gesell]] developed some of the central elements of a precursor theory of interest, decades before he published ''The General Theory of Employment, Interest and Money'' in 1936.<ref name="keynes-on-gesell">{{cite book |last=Keynes |first=John Maynard |date=February 1936 |title=The General Theory of Employment, Interest and Money |url=https://userpage.fu-berlin.de/~roehrigw/keynes/engl.htm |location=London |publisher=Macmillan |via=Freie Universität Berlin |chapter=Book 6, Chapter 23: Notes on Mercantilism, The Usury Laws, Stamped Money and Theories Of Under-Consumption |isbn=978-0-230-00476-4 |access-date=30 April 2025 |quote=It is convenient to mention at this point the strange, unduly neglected prophet Silvio Gesell (1862-1930), whose work contains flashes of deep insight and who only just failed to reach down to the essence of the matter. In the post-war years his devotees bombarded me with copies of his works; yet, owing to certain palpable defects in the argument, I entirely failed to discover their merit. As is often the case with imperfectly analysed intuitions, their significance only became apparent after I had reached my own conclusions in my own way.}}</ref>
Gesell created a [[Robinson Crusoe economy]] [[thought experiment]] which showed that interest rates tend to exist in monetary economies while not existing in [[barter]] economies.<ref name="NEO-part-5-chap-1">{{Cite web |last=Gesell |first=Silvio |title=Die natürliche Wirtschaftsordnung durch Freiland und Freigeld |trans-title=The Natural Economic Order/Part V/A Story of Robinson Crusoe |date=1916 |location=Bern, Switzerland |translator-last=Pye |translator-first=Philip |via=The Anarchist Library |url=https://theanarchistlibrary.org/library/silvio-gesell-the-natural-economic-order#toc79 |archive-url=https://web.archive.org/web/20250317140424/https://theanarchistlibrary.org/library/silvio-gesell-the-natural-economic-order |archive-date=17 March 2025 |access-date=30 April 2025 |df=dmy-all |isbn=9781610330442}}</ref>
Gesell identified that interest rates are a purely monetary phenomenon,<ref name="sidman-lecture-6">{{cite AV media |last=Sidman |first=Josh |date=3 April 2024 |title="Silvio Gesell: Beyond Capitalism vs Socialism" Class #6 |url=https://www.youtube.com/watch?v=1GjX4PCcTlU |type=Video |language=English |publisher=Henry George School of Economics |access-date=30 April 2025}}</ref> but Keynes believed that Gesell's theory only amounted to "half a theory",<ref name="baynham-2023">{{cite web |url=https://www.noemamag.com/what-if-money-expired/ |title=What If Money Expired? |last=Baynham |first=Jacob |date=14 November 2023 |website=Noema Magazine |publisher=Berggruen Institute |access-date=26 April 2025}}</ref> since Gesell failed to discern the importance of liquidity.
Keynes improved upon Gesell's theory of interest by explicitly recognizing that money has the advantage of liquidity over commodities.