CH. 14 THE CLASSICAL THEORY OF INTEREST 183

with the theory of money. They have seemed un-disturbed by the conflict and have made no attempt,so far as I know, to build a bridge between the twotheories. The classical school proper, that is to say;since it is the attempt to build a bridge on the part ofthe neo-classical school which has led to the worstmuddles of all. For the latter have inferred that theremust be two sources of supply to meet the investmentdemand-schedule; namely, savings proper, which arethe savings dealt with by the classical school, plus thesum made available by any increase in the quantity ofmoney (this being balanced by some species of levy onthe public, called “forced saving” or the like). Thisleads on to the idea that there is a “natural” or “neutral”1or “equilibrium” rate of interest, namely, that rate ofinterest which equates investment to classical savingsproper without any addition from “forced savings”;and finally to what, assuming they are on the right trackat the start, is the most obvious solution of all, namely,that, if the quantity of money could only be keptconstant in all circumstances, none of these complica-tions would arise, since the evils supposed to resultfrom the supposed excess of investment over savingsproper would cease to be possible. But at this pointwe are in deep water. “The wild duck has dived downto the bottom—as deep as she can get—and bitten fasthold of the weed and tangle and all the rubbish thatis down there, and it would need an extraordinarilyclever dog to dive after and fish her up again.”

Thus the traditional analysis is faulty because ithas failed to isolate correctly the independent variablesof the system. Saving and Investment are the deter-minates of the system, not the determinants. They arethe twin results of the system’s determinants, namely,the propensity to consume, the schedule of the marginal

1 The “neutral” rate of interest of contemporary economists is differentboth from the “natural” rate of Bohm-Bawerk and from the “natural” rateof Wicksell.