A Study of Interest and Capital 1 1940

• Published in: Papers on Welfare and Growth pp. 13 - 39
• Main Author: Scitovsky, Tibor
• Format: Book Chapter
• Language: English
• Published: Routledge 1964
• Edition: 1
• Subjects: Security Prices; Good Life; Transaction Demand; Regressive Economy; Preference Scales; Long Term Securities; Violates; Short Period Equilibrium; Wheat Stocks; Rail Road; Consumption Good Industries; Secondhand Market; Marginal Utility; Yield Expectations; Investment Curve; Liquidity Preference; True Yield; Short Term Securities; Short Term Rates; Keynes's Liquidity Preference Theory; Stationary Marginal Productivity; Longer Currency; Marginal Productivity
• ISBN: 0415314100; 9780415314107; 9780415608206; 0415608201
• DOI: 10.4324/9780203708583-2

The aim of this paper is to study the determination and interdependence of the rates of interest yielded by different kinds of securities. The complexity of the subject makes it necessary to divide it into three parts. In Part I we make an attempt to determine the price and rate of output of securities in a general way; and as securities are a commodity of which large stocks are always extant, we shall begin with a short discussion on the general theory of supply and demand of commodities of which large stocks are usually held, and so derive the price of securities in analogy with ordinary supply and demand analysis. It will be seen that in this way we arrive at a theory of interest rates which is fundamentally a generalization of Mr Keynes's liquidity preference theory for any number of securities. In Part II we shall analyse the several criteria according to which securities differ from each other. This will lead us to a more complete understanding of the interdependence of different rates of interest and to a new explanation of the relative movements of long- and short-term rates. In Part III we shall restate the theory in a slightly different form and compare it with the 'real' theory of interest and capital.