Can (And Should) Monetary Policy Pursue a Zero Real Interest Rate, Permanently?

In the final chapter of the General Theory Keynes raises the possibility of instituting a permanent policy of very low interest rates, as part of his response to the deficiencies of mature capitalism. This paper examines the grounds for such a policy, in terms of both descriptive theory and normative principles. It then appraises the practicability of the policy in relation to three obstacles: the consequent need for an alternative policy instrument for targeting inflation; the possibility that cheap money might be a potent encouragement to speculation; and the constraints imposed on monetary policy choices by globally integrated financial markets.