LK shares a passage from Colin Rogers on the subject and concludes with "Perhaps this is why those coming from the New Keynesian perspective will be puzzled by attacks on loanable funds theory in critiques of the Austrian business cycle theory."
Nobody is puzzled. It's perfectly clear that Keynes was adamant that he didn't like how Hicks brought loanable funds back in and it's also perfectly clear that sometimes Post-Keynesians like to make a big deal of this. We just think clinging to this idea that loanable funds is a fallacy is wrong.
Let's imagine there are only two places to put your money: in a mattress and in a bank. Your time preference is going to determine how much money you save, in total, to use in the future rather than to use today. But there are reasons you're going to want to stay liquid too. It makes the most sense to think of liquidity preference as a demand for an amount of liquid assets, and not a share of your savings.
So if s is savings, m is mattress money, and b is bank money then b = s - m where m = l(x), it is equal to a person's liquidity preference which is a function of a vector of variables including the interest rate. So b = s - l(x), and presumably l(x) is decreasing in the interest rate (that's the opportunity cost of liquid money - this is the liquidity preference theory of interest). s is also increasing in the interest rate assuming the substitution effect dominates the income effect because s is determined by time preference and a higher interest rate acts like a reduction in future prices (that's loanable funds). So b is increasing in the interest rate because of both liquidity preference and loanable funds.
That sounds like an upward sloping loanable funds supply curve to me (because b is what we actually lend). I hope we don't have to demonstrate that the demand for loanable funds is downward sloping.
This mixes up the liquidity preference and time preference effects together. Hicks probably did it an easier way by just presenting things in terms of the bond market. But one of the reasons why I think Keynes's discussion is more natural to people is that he talks a lot in terms of personal savings which people relate to better.
So when Keynes gets all bent out of shape over Hicks, he's clearly the one in the wrong.
New Keynesians or Neoclassical Synthesis Keynesians are no more "bastard Keynesians" for thinking this than Post-Keynesians are for their various departures from Keynes himself. The biggest departure was probably from Keynes's assumption of competition. This was deeply opposed by the Post-Keynesians but of course that flies under the radar because Neoclassical Keynesians seemed to have had the common decency not to run around making accusations of "bastard Keynesianism" and seeking to factionalize the science the way a lot of Post Keynesians do.
On this point I think Keynes was wrong too - and of course New Keynesians agree with Post Keynesians on this point. In fact, New Keynesians are more true to the early Post Keynesian thinking on it insofar as their principal way of dealing with departures from competition is by using models of monopolistic competition, which was one of Joan Robinson's most important contributions to economic science! It's the Post Keynesians that dropped all that and went backwards from an actual theory of market power to Marxian and Kaleckian assumptions about mark-up rates that are just applied to costs. To be clear - everyone agrees on firm mark-ups, the question is whether you take that to be exogenous or not.
So all this fuss about who is the truest to Keynes is pretty stupid. Everyone likes some things he thought and doesn't like other things, and the only reason why Post Keynesians sometimes feel like they're on a pedestal is because New Keynesians are too busy doing economics to knock them off it.
One more point. Below is Giuseppe Fontana's adaptation of an endogenous money model you can find from Palley and elsewhere in the Post-Keynesian literature (this is from a 2004 Metronomica article - "Rethinking Endogenous Money", 55:4). Notice what's in the upper right quadrant? Yup. A loanable funds market.
LK and I are internet buddies. This is just a disagreement. But there are grouchier Post Keynesians out there that may get a whiff of this post and not know me better. So it's worth noting that I don't really think of myself as a "New Keynesian", I'm just an economist (a labor economist actually, that does some macroeconomics) that's a Keynesian in the sense that he's the guy I most identify with. I value New Keynesian contributions, but I'm from a heterodox department (AU) and I value a whole lot of Post Keynesian work too.
But one thing I don't do is play this game of pitting heterodox economics against mainstream economics the way a lot of heterodox economists like to do.