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LIMITS TO ARBITRAGE AND INTEREST RATES: A DEBATE AMONG KEYNES, HAWTREY, AND HICKS

Published online by Cambridge University Press:  08 August 2018

Lucy Brillant
Lucy Brillant*
Affiliation:
LEDi, University of Bourgogne-Franche-Comte and PHARE, University of Paris1 Pantheon-Sorbonne.
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Abstract

This paper deals with a debate among Ralph George Hawtrey, John Richard Hicks, and John Maynard Keynes concerning the capacity of the central bank to influence the short-term and the long-term rates of interest. Both Hawtrey and Keynes considered the central bank’s ability to influence short-term rates of interest. However, they do not put the same emphasis on the study of the long-term rates of interest. According to Keynes, long-term rates are influenced by future expected short-term rates (1930, 1936), whereas for Hawtrey ([1932] 1962, 1937, 1938), long-term rates are more dependent on the business cycle. Short-term rates do not have much effect on long-term rates, according to Hawtrey. In 1939, Hicks enters the controversy, giving credit to both Hawtrey’s and Keynes’s theories, and also introducing limits to the operations of arbitrage. He thus presented a nuanced view.

Type
Articles
Information
Journal of the History of Economic Thought , Volume 40 , Issue 3 , September 2018 , pp. 335 - 351
Copyright
Copyright © The History of Economics Society 2018 

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Footnotes

I would like to thank Jérôme de Boyer des Roches for his support, and also the two anonymous reviewers and Stephen Meardon, editor of the Journal for the History of Economic Thought (JHET). I also thank Noah Finberg, who proofread this paper. They all helped me significantly to improve this paper, thanks to their insightful remarks. An earlier draft of this research was presented on five occasions. I would like to thank all the participants of the “risk seminar” organized by Dauphine University and the Leda SDFI (November 29, 2013); I thank also the participant of the “money market seminar” (Paris, March 15, 2014), the participants to the session during the ESHET International Conference (Lausanne, May 28–30, 2014), the participants at the Charles Gide Conference (Lyon, June 1–3, 2014), and the participants at the session of the Summer School in History of Economic Thought (Zaragozza, Spain, September 1–7, 2014). Last, a warm thanks to the organizers of the Conference on the Relevance of Keynes to the Contemporary World (Torino, October 13–15, 2016).

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