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The Original Meaning of ‘Liquidity Trap’ in the Early Discussions Between Robertson and Keynes

In: New Perspectives on Political Economy and Its History

Author

Listed:
  • Luca Fantacci

    (Bocconi University)

  • Eleonora Sanfilippo

    (University of Cassino and Southern Lazio)

Abstract

The concept of ‘liquidity trap’ has recently seen a revival in macroeconomics. Its definition, however, is not univocal. It may be useful, therefore, to turn back to the original meaning of this expression in the works of the economists that first introduced it into economic analysis, John M. Keynes and Dennis H. Robertson. Building on primary sources and unpublished material, this chapter provides a reconstruction and contextualization of the original use of this expression with the aim of contributing to a better understanding of its meaning. In particular, it highlights that in the early theoretical debates the notion did not designate merely a specific circumstance, characterized by the ineffectiveness of monetary policy at the zero lower bound, or at low interest rates, but referred to a more general problem concerning the nature of liquidity as a shelter from uncertainty and the related structural tendency of a monetary economy towards stagnation.

Suggested Citation

  • Luca Fantacci & Eleonora Sanfilippo, 2020. "The Original Meaning of ‘Liquidity Trap’ in the Early Discussions Between Robertson and Keynes," Palgrave Studies in the History of Economic Thought, in: Maria Cristina Marcuzzo & Ghislain Deleplace & Paolo Paesani (ed.), New Perspectives on Political Economy and Its History, chapter 0, pages 343-363, Palgrave Macmillan.
    • Handle: RePEc:pal:pshchp:978-3-030-42925-6_17
    DOI: 10.1007/978-3-030-42925-6_17
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