A Note on Robertson and Tsiang versus Keynes

This paper examines the Robertson/Tsiang explanation of the Savings-Investment/Loanable-Funds theory of interest that is used by mainstream economists to justify the use of this theory to analyze, predict, or explain economic behavior. It is demonstrated that, contrary to what is generally assumed, Tsiang does not reconcile the Robertson/Keynes controversy in Robertson’s favor in that Tsiang was confused as to what Keynes actually said with regard to this controversy. It is further demonstrated that Tsiang did not understand the nature of his own model in that the Loanable-Funds theory as specified by Tsiang implies that the rate of interest is a purely monetary phenomenon, determined directly by the supply and demand for the stock of money in his model, not by the flow of loanable funds or the flow of savings and investment. It is argued that the fundamental difference between Robertson and Keynes that led to the confusion that exists to this day is that Robertson’s method of analysis was comparative static while Keynes’ method of analysis was causal and dynamic. It is further argued that while comparative static analysis has proven to be an extremely valuable analytic tool in economics when it is used in conjunction with the kind of causal/dynamic analysis employed by Keynes to explain how and why the static equilibrium values are obtained, when it is not used in this way the result is the kind of arguments employed by those who defend the loanable-funds theory, namely, arguments that are, at best, semantic and, at worst, border on ideological sophistry.