CH. 13 THE GENERAL THEORY OF INTEREST 167

be a return to saving or waiting as such. For if a manhoards his savings in cash, he earns no interest, thoughhe saves just as much as before. On the contrary,the mere definition of the rate of interest tells us inso many words that the rate of interest is the rewardfor parting with liquidity for a specified period. Forthe rate of interest is, in itself, nothing more than theinverse proportion between a sum of money and whatcan be obtained for parting with control over the moneyin exchange for a debt 1 for a stated period of time .2

Thus the rate of interest at any time, being thereward for parting with liquidity, is a measure of theunwillingness of those who possess money to part withtheir liquid control over it. The rate of interest is notthe “price” which brings into equilibrium the demandfor resources to invest with the readiness to abstain frompresent consumption. It is the “price” which equili-brates the desire to hold wealth in the form of cash withthe available quantity of cash;—which implies that ifthe rate of interest were lower, i.e. if the reward forparting with cash were diminished, the aggregateamount of cash which the public would wish to holdwould exceed the available supply, and that if the rateof interest were raised, there would be a surplus ofcash which no one would be willing to hold. If thisexplanation is correct, the quantity of money is the

1 Without disturbance to this definition, we can draw the line between“money” and “debts” at whatever point is most convenient for handlinga particular problem. For example, we can treat as money any commandover general purchasing power which the owner has not parted with for aperiod in excess of three months, and as debt what cannot be recovered for alonger period than this; or we can substitute for “three months” one monthor three days or three hours or any other period; or we can exclude frommoney whatever is not legal tender on the spot. It is often convenient inpractice to include in money time-deposits with banks and, occasionally,even such instruments as ( e.g .) treasury bills. As a rule, I shall, as in myTreatise on Money , assume that money is co-extensive with bank deposits.

2 In general discussion, as distinct from specific problems where theperiod of the debt is expressly specified, it is convenient to mean by the rateof interest the complex of the various rates of interest current for differentperiods of time, i.e. for debts of different maturities.