The General Theory and Keynes for the 21st Century
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The General Theory and Keynes for the 21st Century

Edited by Sheila Dow, Jesper Jespersen and Geoff Tily

This book is devoted to the lasting impact of The General Theory (and Keynes’s thought) on macroeconomic theory, methodology and its relevance for understanding the post-crisis challenges of the 21st Century. A number of contributions take their departure from Keynes's presentation during the 1930's of his new macroeconomic understanding and its policy implications. Other chapters take a more pluralistic view of Keynes's ideas and their importance for contemporary debates. Further, it is demonstrated that many textbooks often misrepresent The General Theory and therefore cannot be a reliable guide to 21st Century economic policy.
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Chapter 7: Weight of argument and liquidity preference

Alessandro Vercelli


This chapter investigates the rational foundations of liquidity preference theory as sketched by Keynes in The General Theory. Mainstream theory focuses on two determinants of liquidity preference related to weak uncertainty: risk aversion and transaction flexibility. Keynes, on the other hand, focused mainly on the nexus between liquidity preference and strong uncertainty, distinguishing two basic determinants: strong uncertainty aversion, and strong intertemporal flexibility. Though each of these determinants has been the object of specific interpretations of liquidity preference theory, this chapter suggests that we may encompass their analysis within a more general conceptual framework. To this end, the Keynesian concept of weight of argument plays a crucial role. In particular, we show that its variations along different phases of the business cycle alter the impact of each of the components of liquidity preference.

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