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Keynes's Approach To Money: An Assessment After 70 Years

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  • L. Randall Wray

Abstract

This paper first examines two approaches to money adopted by Keynes in the General Theory (GT). The first is the more familiar "supply and demand" equilibrium approach of Chapter 13 incorporated within conventional macroeconomics textbooks. Indeed, even Post Keynesians utilizing Keynes's "finance motive" or the "horizontal" money supply curve adopt similar methodology. The second approach of the GT is presented in Chapter 17, where Keynes drops "money supply and demand" in favor of a liquidity preference approach to asset prices that offers a more satisfactory treatment of money's role in constraining effective demand. In the penultimate section, I return to Keynes's earlier work in the Treatise on Money (TOM), as well as the early drafts of the GT, to obtain a better understanding of the nature of money. I conclude with policy implications.

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  • L. Randall Wray, 2006. "Keynes's Approach To Money: An Assessment After 70 Years," Economics Working Paper Archive wp_438, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_438
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    References listed on IDEAS

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    1. L. Randall Wray (ed.), 2004. "Credit and State Theories of Money," Books, Edward Elgar Publishing, number 3204.
    2. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 65-86.
    3. Michael Hudson, 2004. "The Archaeology of Money: Debt versus Barter Theories of Money's Origins," Chapters, in: L. Randall Wray (ed.), Credit and State Theories of Money, chapter 5, Edward Elgar Publishing.
    4. L. Randall Wray, 1998. "Understanding Modern Money," Books, Edward Elgar Publishing, number 1668.
    5. Geoffrey W. Gardiner, 2004. "The Primacy of Trade Debts in the Development of Money," Chapters, in: L. Randall Wray (ed.), Credit and State Theories of Money, chapter 6, Edward Elgar Publishing.
    6. Sheila C. Dow, 1993. "Money And The Economic Process," Books, Edward Elgar Publishing, number 147.
    7. Victoria Chick, 1983. "Macroeconomics after Keynes: A Reconsideration of the General Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530457, December.
    8. Goodhart, Charles A. E., 1998. "The two concepts of money: implications for the analysis of optimal currency areas," European Journal of Political Economy, Elsevier, vol. 14(3), pages 407-432, August.
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    Cited by:

    1. Ariel Dvoskin & German Feldman, 2010. "The Exchange Rate and Inflation in Argentina: A Classical Critique of Orthodox and Heterodox Policy Prescriptions," Forum for Social Economics, Taylor & Francis Journals, vol. 39(2), pages 145-169, January.
    2. Antonio Carlos Macedo e Silva, 2006. "Detalhes Extraviados E Ausências Conspícuas: Do Treatise À General Theory," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 114, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

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