A ‘Walrasian-Post Keynesian' Model? Resolving the paradox of Oskar Lange's 1938 theory of interest

This article investigates Oskar Lange’s 1938 article, ‘The rate of interest and the optimum propensity to consume’, with the intention of providing a thorough interpretation of this rather obscure work. I explore in depth Lange’s theory of interest and its relationship with both Keynes’s General Theory (1973a) and Hicks’s synthesis (1937), developing two graphical models that show the non-linearity of Lange’s investment function as well as the consequentiality of his equilibrium solution. Through an unedited manuscript, I also reconstruct Lange’s beliefs about the chronic sub-optimality of the capitalist economy and his scientific endorsement of the socialist economy. I conclude that the purposes of Lange’s article predate and are independent of the General Theory. They consisted of a theoretical generalisation and analysis of institutional data, intended to separate economic theory from the tacit assumption of a capitalist economy.