Edited by Philip Arestis and Malcolm Sawyer
Chapter 27: Speculation, Liquidity Preference and Monetary Circulation
Korkut A. Erturk The objective of this chapter is to give a general overview of the dynamic interaction of industrial and ﬁnancial circulation, focusing speciﬁcally on the macroeconomic eﬀects of asset market speculation in the context of the latter. Much of the emphasis in this discussion is on some of Keynes’s arguments in his Treatise which had been eclipsed by his much better-known General Theory (GT). In his latter work, Keynes tried to show the validity of the principle of eﬀective demand even in the turf of the mainstream economists by basing his argument as much as possible on conventional assumptions. He often referred to his Treatise on technical details of monetary and ﬁnancial matters and remarked that his two works complemented each other. But, among his readers in later generations, few had the beneﬁt of any in-depth knowledge of his earlier work. But, also, substantively, the formulation of his ‘liquidity preference’ argument into a theory of the interest rate and the sharp exchanges with some of his critics on the loanable funds theory made it harder to appreciate the degree of continuity in his thought with the tradition of monetary analysis that emanates from Wicksell, of which the Treatise was a part. As he (and his followers) became embroiled in debates with mainstream economists in the aftermath of the GT, many of his insights in the Treatise were lost or abandoned because they no longer ﬁt easily in the truncated theoretical structure he adopted in...
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