356 THE GENERAL THEORY OF EMPLOYMENT bk. vi

which do involve carrying charges, in fact yield areturn because of the standard set by money. Hecites the comparative stability of the rate of interestthroughout the ages as evidence that it cannot dependon purely physical characters, inasmuch as the variationof the latter from one epoch to another must have beenincalculably greater than the observed changes in therate of interest; i.e. (in my terminology) the rate ofinterest, which depends on constant psychological char-acters, has remained stable, whilst the widely fluctuat-ing characters, which primarily determine the scheduleof the marginal efficiency of capital, have determinednot the rate of interest but the rate at which the (moreor less) given rate of interest allows the stock of realcapital to grow.

But there is a great defect in Gesell’s theory. Heshows how it is only the existence of a rate of moneyinterest which allows a yield to be obtained from lend-ing out stocks of commodities. His dialogue betweenRobinson Crusoe and a stranger 1 is a most excellenteconomic parable—as good as anything of the kindthat has been written—to demonstrate this point. But,having given the reason why the money-rate of interestunlike most commodity rates of interest cannot benegative, he altogether overlooks the need of an ex-planation why the money-rate of interest is positive,and he fails to explain why the money-rate of interestis not governed (as the classical school maintains) bythe standard set by the yield on productive capital.This is because the notion of liquidity-preference hadescaped him. He has constructed only half a theoryof the rate of interest.

The incompleteness of his theory is doubtless theexplanation of his work having suffered neglect at thehands of the academic world. Nevertheless he hadcarried his theory far enough to lead him to a practicalrecommendation, which may carry with it the essence

1 The Natural Economic Order, pp. 297 et seq.