Tuesday, September 16, 2014

Lars P. Syll on how wrong Krugman & Mankiw are on loanable funds

By Lars P. Syll
Earlier this autumn yours truly was invited to participate in the New York Rethinking Economics conference. A busy schedule didn’t allow me to “go over there.” Fortunately some of the debates and presentations have been made available on the web, as for example here. Listening a couple of minutes into that video one can hear Paul Krugman strongly defending the loanable funds theory. Unfortunately this is not an exception among “New Keynesian” economists. Neglecting anything resembling a real-world finance system, Greg Mankiw — in the 8th edition of his intermediate textbook Macroeconomics — has appended a new chapter to the other nineteen chapters where finance more or less is equated to the neoclassical thought-construction of a “market for loanable funds."
Read rest here.

For an explication and presentation of the extent to which LFT is derivative of modern neo-Wicksellian macroeconomics, see here.


  1. I'm intrigued by the illustration you have chosen for this post.

    This seems to show a loanable funds market as a simple restatement of the bond market. The x-axis is presumably the same. P on the y-axis of the bond market maps to r on the y-axis of LF market. Demand for bonds maps to supply of LF and supply of bonds to demand for LF. They are really just the same thing stated in different ways.

    What do you think of this? Would you say that this is the correct characterisation of what the LF market is supposed to be? What are your views on drawing demand and supply curves for bonds?

    1. Not sure why David chose that graph. Personally, I don't think it's the best way to represent the LFT. My presentation and graph here http://nakedkeynesianism.blogspot.com/2011/11/neo-wicksellian-macroeconomics.html

    2. No intention with the graph, just randomly chose it for aesthetic appeal. I shouldn't have been so careless. oh well.

    3. Thanks.

      I'd agree this isn't really what LFT is about. If it were, it would seem rather less controversial.


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