INTRODUCTION

Having acknowledged the difficulties associated with Wicksellian capital theory, most neoclassical theorists have opted for the neo- Walrasian approach to general equilibrium theory. From the perspective of monetary theory the difficulties associated with the Wicksellian real interest rate mechanism are thereby avoided. Instead of taking the value of capital as given, neo-Walrasian general equilibrium models treat the endowment of capital, and its distribution, as a given array of quantities, e.g. as an array of machines. The immediate implication of this step is that interest rates are not related in any way to the notion of a natural rate but are derived on the basis of an intertemporal specification of the model. To this end neo-Walrasian models employ the concept of time-dated commodities to derive own rates of interest for each commodity. In general the uniformity of rates which characterized Wicksellian long-period equilibrium is lost and, if imposed, renders the model over-determined unless one or more of the initial endowments are treated as endogenous. Moreover, although this latter step is logically and mathematically feasible, it does not appear to have any economic rationale. In particular, neo- Walrasian analysis has no theory of competition that may be used to explain the existence of uniform rates of interest on all commodities.