Post-Keynesian liquidity preference theory four decades later: a reexamination

Tracy Mott was best known as a scholar of the work of Michal Kalecki, but he also made an important contribution to Keynesian liquidity preference theory. In 1983 Tom Asimakopulos generated a firestorm in the Post Keynesian community with a series of articles claiming that while Keynes’s argument is that investment creates an equivalent amount of saving, this is true only ex post, after the multiplier has fully operated. Meantime, lack of savings could inhibit investment as the supply of bonds for long-term finance would exceed the supply of savings, driving up interest rates. Several Post Keynesians vociferously responded in defense of Keynes. Mott’s contribution to the debate approached the subject from a perspective that was more heavily influenced by Kalecki, Robinson, and Marx. Not only does the outcome of this debate impact our view of investment finance, but it also has implications for our view of financing government deficits. In this piece, I look back at Mott’s contribution to our understanding of liquidity preference, taking account of developments in Post Keynesian thought over the past four decades. The two most obvious and relevant are the endogenous money approach and Modern Money Theory.