Interrogation #1.

Q. What is the difference between the Keynesian demand for money and the Classical?

A. The speculative demand for money.

Q. What is the speculative demand for money?

A. The impact of changes in the rate of interest on the capital value of long-term bonds held in investment portfolios. It is a question of interest and capital.

Q. Who was the world's best known expert on the relation between capital and interest in the first half of the 20th century?

A. Irving Fisher.

Q. So, Fisher must have adopted a Keynesian theory of the demand for money?

A. No, he was a pure classical quantity theorist.

Interrogation #2.

Q. Was Keynes a good empirical economist?

A. No, every empirical regularity he identified turned out to be a special case.

Q. Such as?

A. The best known is the relation between prices and output, or the impact of diminish¬ing returns leading to an inverse relation between changes in the level of employ¬ment and output on one hand and the level of real wages on the other. Dunlop, Tarshis and Kalecki all provided statistical evidence to the contrary. Fortunately, this had no major consequences for his theory.

Q. Is that all?

A. Well, he got the same thing wrong in a number of different ways. He also consid¬ered the positive relation between wholesale commodity prices and yields of British consols one of the most completely established facts in all of empirical economics.

Q. And it is not?

A. Not only does it appear to have no foundation, but Keynes fudged the figures in a way that would have made Milton Friedman proud.

Interrogation #3.

Q. If Keynes and Fisher disagreed about monetary theory they must have disagreed about most things in economics?

A. No, they agreed about the “Gibson Paradox”, that there was an unequivocal relation between prices and interest rates.

Q. Then they were both wrong?

A. No.

Q. No?

A. They had different explanations to explain the relationship that didn't exist. Fisher's was wrong. Keynes just had the right explanation for the wrong problem. He needed to find the right problem to explain.

Q. And that was?

A. The decision to hold money or hold bonds.

Q. And what was the difference?

A. You should have guessed by now. The impact of interest rates on capital values.