Loanable Funds Theory Was Standard in Pre-Keynesian Macroeconomics

In Hayek’s theory, the interest rate clears the market for loanable funds, equating the quantity supplied (savings including the earnings retained by business firms) with the quantity demanded (principally for investment). Loanable funds theory was standard in pre-Keynesian macroeconomics, especially as developed by Keynes’s contemporary and critic Dennis H. Robertson (1890– 1963). A loanable funds diagram does appear in The General Theory – it is in fact the only diagram in the book – but only to indicate explicitly what Keynes was discarding from the standard toolbox. Keynes instead offered the “liquidity preference” theory in which the interest rate does not serve to coordinate saving and investment.

--Lawrence H. White, The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years (New York: Cambridge University Press, 2012), 138.