G. L. S. Shackle, Économie et Intérêt (March 1949)

Shackle’s review of M. Allais’s 1947 Économie et Intérêt combines an exposition of the book’s explanation of positive interest with a critique of its reliance on perfect foresight. Its central question is whether a theory established for a moneyless, fully predictable economy can explain interest in a world governed by uncertainty and monetary choices.

The review begins by treating physically identical objects available at different dates as different goods. Interest, understood as a difference between their present prices, therefore requires no special justification merely for existing. What needs explanation is its sign:

The chief puzzle, then, is to account for this universal positiveness of the interest rate.

Shackle presents Allais’s two explanations. First, the desired ratio of wealth to income has an upper limit: sufficiently low returns induce owners to consume their capital. Because durable wealth cannot be rapidly consumed, attempted dissaving produces attempted asset sales, preventing the indefinitely rising asset prices associated with interest approaching zero. Second, money supplies valuable liquidity services without storage costs, so holders need not accept a negative return simply to transfer purchasing power into the future.

The review then challenges the move from theoretical possibility to real-world explanation. Allais demonstrates that interest could exist under perfect foresight, but Shackle denies that this establishes the causal primacy of time-preference and productive technique under uncertainty:

The fact that a gas-fire can make a room warm does not imply that a warm room must contain a gas-fire.

This analogy identifies the review’s core conceptual objection: a sufficient explanation within one model need not be the operative explanation elsewhere. Against Allais’s view that monetary forces merely obscure underlying long-run “real” determinants, Shackle proposes reverse causation. A persistently lower money rate might enlarge capital equipment and income, thereby altering time-preference itself. Monetary arrangements could shape the conditions that real-interest theory takes as governing forces.

Shackle consequently finds Allais’s treatment of liquidity-preference too focused on transactions and insufficiently attentive to speculation. He locates the book’s theoretical allegiance chiefly in Bohm-Bawerk and Fisher, despite its engagement with Keynes and Meade. His impatience with perfect foresight culminates in a pointed question:

Is not this rather like building a theory of the weather on the assumption that the earth has no atmosphere?

Yet Shackle immediately qualifies this criticism. Allais’s purpose is an encompassing investigation of interest across rival theories and numerous assumptions; abstraction belongs to that systematic undertaking. The review’s closing movement praises his erudition, mathematical incisiveness, and lucid exposition, singling out an explanation of why saving responds little to the interest rate. Although a shorter book would have made its original contributions and policy recommendations more visible, its scope commands respect. The review’s significance lies in this tension: Shackle admires Allais’s analytical achievement while insisting that uncertainty and money may transform, rather than merely complicate, the explanation of interest.