In this second part of the article the author takes up the question in terms of the monetary theory on which Keynes based his criticism of traditional theory.
First, he briefly examines Wicksell's monetary theory, which, because of its clarity and rigour, he chooses as an example of marginal analysis of the loan market. Keynes argued along similar lines, but arrived at conclusions different from Wicksell's, and the author shows that the origin of this divergence lies not in the assumption of rigid money wages, but in Keynes's rejection of the traditional theory of interest. Next, the author discusses the Keynesian criticism of that theory, and then goes on to consider the attempts to reinstate the traditional theory of interest and employment by assuming, in long-period analysis, either a sufficiently flexible monetary policy or sufficiently flexible money wages. These arguments, it is shown, rest on certain deficiencies in the Keynesian critique of the “orthodox” theory of interest, as well as on the weaknesses which a theory based on the propensity to hold liquid funds must have in long-period analysis. Both these deficiencies and these weaknesses are shown to be connected with the schedule of marginal efficiency of capital, which Keynes inherited from the traditional theory of production. At that point, the author takes up the results of his discussion of the concept of investment demand, in the first part of the article; he concludes that even in the long period investment must, in the normal situation, be regarded as independent of decisions to save. This applies up to the limit of saving to be expected in conditions of full employment for the economy's productive capacity - this upper limit itself, however, being fairly elastic in economies where there is any structural unemployment of labour.
