April 2023

Abstract
The secular decline in real interest rates has invoked a fierce debate on macro policy over the past
decade. The distinction between Keynesianism and Monetarism is no longer useful. It makes more
sense to distinguish between those who hold that the decline in interest rates is due to shifts in supply
and demand of capital (referred to as Neoclassicals) and those who hold central banks responsible
(referred to as Neo-Austrians). Paradoxically, where Neo-Austrians are viewed as the ultimate believers
in the blessings of free markets, their position requires a strong scepticism on efficacy of capital
markets. Both views have widely different policy implications, both for the past decade of QE as well as
for central banks’ subsequent response to the outburst of inflation since the fall of 2021. The confusion
in the public is partly due to the disciplines adherence in its teaching programs to the quantity theory
of money. This theory is inconsistent with today’s payment system that is no longer based on bank
notes but on credits on cash-accounts.