Table of Contents

A Handbook of Alternative Monetary Economics

A Handbook of Alternative Monetary Economics

Elgar original reference

Edited by Philip Arestis and Malcolm Sawyer

This major Handbook consists of 29 contributions that explore the full range of exciting and interesting work on money and finance currently taking place within heterodox economics. There are many themes and facets of alternative monetary and financial economics but two major ones can be identified.

Chapter 20: Liquidity Preference Theory

Jörg Bibow

Subjects: economics and finance, financial economics and regulation, money and banking, post-keynesian economics

Extract

Jörg Bibow To ditch or to build on it? The theory of liquidity preference is probably the single most controversial of the core constituents of The General Theory. Keynes presented a ‘liquidity [preference] theory of interest’, a theory that is supposed to fill the vacuum left by what he regarded as the flawed ‘classical [savings] theory of interest’. In the early post-General Theory literature, the notion of liquidity preference quickly became a synonym for the demand for money. Together with a constant stock of money, liquidity preference was the factor that determined the rate of interest in the money market of Hicks’s seminal IS–LM model. The novelty of Keynes’s contribution was widely seen in the speculative motive for the demand of money only. And his revolutionary claim regarding the flawed classical theory of interest that needed replacement seemed ill founded when Hicks (1939) declared that liquidity preference and classical (loanable funds) theories were ‘equivalent’. Within the broader context of developments in postwar monetary and macroeconomic thought, this was but one element in weaving (or ‘synthesizing’) Keynes’s supposedly ‘general’ theory into the essentially unshattered neoclassical mainstream by relegating the relevance of his insights to special circumstances that could potentially arise in the short run if money wages were sticky (Modigliani, 1944). Correspondingly, in policy matters, monetary policy was stylized as a short-run tool that could help stabilize the economy by controlling the supply of money – with the money neutrality postulate firmly upheld as far as the long run is...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information