The Market Rate of Interest and its Economic Significance

An important conclusion follows from Keynes’s view of interest as a monetary phenomenon. That is, because the carrying-costs on money are negligible, the (nominal) rate of interest cannot in practice be negative.1 Or, as Hicks expressed it: ‘If the costs of holding money can be neglected, it will always be profitable to hold money rather than lend it out, if the rate of interest is not greater than zero.’2 In addition, however, ‘institutional and psychological factors are present which set a limit much above zero to the practicable decline in the rate of interest’.3