Uncertainty and money: Keynes, Tobin and Kahn and the disappearance of the precautionary demand for money from liquidity preference theory
Keynes answered to critics of the General Theory, in 1937, that they failed to realize that there were two main innovations in that work. The first, was the relationship between money demand and uncertainty; the second was the consumption multiplier. The relation between money demand and uncertainty was in fact the main reason to explain why aggregate demand could fall short of full employment income. However, this was explained by Keynes in 1937 by recourse to a form of precautionary demand for money. In The GT, Keynes had actually merged the precautionary demand into the transactions demand for money, making it very difficult for any reader, friendly or unfriendly, to actually see what he meant in 1937. As a result, Keynes liquidity preference theory of the interest rate in the GT exhibited some important shortcomings that were the subject of many reexaminations, including one by Richard Kahn and another by James Tobin. The paper evaluates Keynes's views, Kahn's and Tobin's solutions to Keynes's dilemmas. At its conclusion it is shown why these themes remain relevant today, particularly when financial systems are in turmoil. Copyright The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 34 (2010)
Issue (Month): 4 ()
|Contact details of provider:|| Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK|
Fax: 01865 267 985
Web page: http://www.cje.oupjournals.org/
|Order Information:||Web: http://www.oup.co.uk/journals|
When requesting a correction, please mention this item's handle: RePEc:oup:cambje:v:34:y:2010:i:4:p:709-725. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.