This paper revisits KeynesÕs liquidity preference theory as it evolved from the Treatise on Money to The General Theory and after, with a view of assessing the theoryÕs ongoing relevance and applicability to issues of both monetary theory and policy. Contrary to the neoclassical Òspecial caseÓ interpretation, Keynes considered his liquidity preference theory of interest as a replacement for flawed saving or loanable funds theories of interest emphasizing the real forces of productivity and thrift. His point was that it is money, not saving, which is the necessary prerequisite for economic activity in monetary production economies. Accordingly, turning neoclassical wisdom on its head, it is the terms of finance as determined within the financial system that Òrule the roostÓ to which the real economy must adapt itself. The key practical matter is how deliberate monetary control can be applied to attain acceptable real performance. In this regard, it is argued that KeynesÕs analysis offers insights into practical issues, such as policy credibility and expectations management, that reach well beyond both heterodox endogenous money approaches and modern Wicksellian orthodoxy, which remains trapped in the illusion of money neutrality.
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