IDEAS home Printed from https://ideas.repec.org/p/ins/quaeco/qf1402.html
   My bibliography  Save this paper

The liquidity preference theory: a critical analysis

Author

Listed:
  • Giancarlo Bertocco

    (Department of Economics, University of Insubria, Italy)

  • Andrea Kalajzic

    (Department of Economics, University of Insubria, Italy)

Abstract

Keynes in the General Theory, explains the monetary nature of the interest rate by means of the liquidity preference theory. The objective of this paper is twofold. First, to point out the limits of the liquidity preference theory. Second, to present an explanation of the monetary nature of the interest rate based on the arguments with which Keynes responded to the criticism levelled at the liquidity preference theory by supporters of the loanable funds theory such as Ohlin and Robertson. It is shown that this explanation is consistent with the definition of the non-neutrality of money that Keynes presented in his 1933 works in which he underlines the need to elaborate a monetary theory of production in order to explain the phenomena of the crisis and the fluctuations in income and employment.

Suggested Citation

  • Giancarlo Bertocco & Andrea Kalajzic, 2014. "The liquidity preference theory: a critical analysis," Economics and Quantitative Methods qf1402, Department of Economics, University of Insubria.
    • Handle: RePEc:ins:quaeco:qf1402
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    as
    1. Giancarlo Bertocco, 2005. "The Role of credit in a Keynesian monetary economy," Review of Political Economy, Taylor & Francis Journals, vol. 17(4), pages 489-511.
    2. Morishima,Michio, 1992. "Capital and Credit," Cambridge Books, Cambridge University Press, number 9780521418409, October.
    3. Paul Davidson, 1994. "Post Keynesian Macroeconomic Theory," Books, Edward Elgar Publishing, number 124.
    4. Giancarlo Bertocco, 2009. "The Economics of Financing Firms : Two Different Approaches," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 17(1), pages 85-123.
    5. Giancarlo Bertocco, 2007. "The characteristics of a monetary economy: a Keynes--Schumpeter approach," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 31(1), pages 101-122, January.
    6. Yasuo Nishiyama, 2007. "Monetary transmission---federal funds rate and CD rates," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(3), pages 409-426.
    7. Giancarlo Bertocco, 2010. "The Endogenous Money Theory and the Characteristics of a Monetary Economy," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 365-402.
    8. Martin H. Wolfson, 1996. "A Post Keynesian Theory of Credit Rationing," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 18(3), pages 443-470, March.
    9. Mark Setterfield (ed.), 2006. "Complexity, Endogenous Money and Macroeconomic Theory," Books, Edward Elgar Publishing, number 3552.
    10. Hyman P. Minsky, 1980. "Money, Financial Markets, and the Coherence of a Market Economy," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 3(1), pages 21-31, October.
    11. Peter Docherty, 2011. "Keynes's Analysis of Economic Crises and Monetary Policy in the General Theory : Its Relevance after 75 Years," Review of Political Economy, Taylor & Francis Journals, vol. 23(4), pages 521-535, October.
    12. Bindseil, Ulrich, 2004. "Monetary Policy Implementation: Theory, past, and present," OUP Catalogue, Oxford University Press, number 9780199274543.
    13. Scott T. Fullwiler, 2006. "Setting interest rates in the modern money era," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 28(3), pages 496-525.
    14. Claude Gnos, 2004. "Is ex-ante ex-post analysis irrelevant to Keynes's theory of employment?," Review of Political Economy, Taylor & Francis Journals, vol. 16(3), pages 335-345.
    15. John Smithin, 2003. "Controversies in Monetary Economics," Books, Edward Elgar Publishing, number 2541.
    16. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
    17. Giuseppe Fontana, 2007. "Keynesian Uncertainty and Money," Chapters, in: Philip Arestis & Malcolm Sawyer (ed.), A Handbook of Alternative Monetary Economics, chapter 26, Edward Elgar Publishing.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marco Missaglia & Alberto Botta, 2020. "The role of liquidity preference in a framework of endogenous money," Working Papers PKWP2015, Post Keynesian Economics Society (PKES).
    2. Marco Missaglia & Patricia Sanchez, 2020. "Liquidity preference in a world of endogenous money: A short-note," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 39(81), pages 595-612, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giancarlo Bertocco, 2013. "Money as an Institution of Capitalism: Some Notes on a Monetary Theory of Uncertainty," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 42(1), pages 75-101, February.
    2. Giancarlo Bertocco, 2007. "The characteristics of a monetary economy: a Keynes--Schumpeter approach," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 31(1), pages 101-122, January.
    3. Bertocco Giancarlo, 2003. "The economics of financing firms: the role of banks," Economics and Quantitative Methods qf0312, Department of Economics, University of Insubria.
    4. Bill Lucarelli, 2011. "The Economics of Financial Turbulence," Books, Edward Elgar Publishing, number 14252.
    5. Miglierina Enrico & Molho Elena, 2002. "Well-posedness and convexity in vector optimization," Economics and Quantitative Methods qf0221, Department of Economics, University of Insubria.
    6. Giancarlo Bertocco & Andrea Kalajzić, 2019. "A Keynes + Schumpeter model to explain development, speculation and crises," Working Papers PKWP1916, Post Keynesian Economics Society (PKES).
    7. Giancarlo Bertocco, 2011. "Finance and risk: does finance create risk?," Economics and Quantitative Methods qf1115, Department of Economics, University of Insubria.
    8. Giancarlo Bertocco, 2009. "The Relationship Between Saving and Credit from a Schumpeterian Perspective," Journal of Economic Issues, Taylor & Francis Journals, vol. 43(3), pages 607-640.
    9. Bruno Bonizzi, 2013. "Capital Flows to Emerging Markets: An alternative Theoretical Framework," Working Papers 186, Department of Economics, SOAS University of London, UK.
    10. Bertocco Giancarlo, 2004. "Are banks really special? A note on the theory of financial intermediaries," Economics and Quantitative Methods qf04021, Department of Economics, University of Insubria.
    11. Giancarlo Bertocco, 2005. "The Role of credit in a Keynesian monetary economy," Review of Political Economy, Taylor & Francis Journals, vol. 17(4), pages 489-511.
    12. Peter Docherty, 2012. "Keynes’s General Theory, the Quantity Theory of Money and Monetary Policy," Chapters, in: Thomas Cate (ed.), Keynes’s General Theory, chapter 6, Edward Elgar Publishing.
    13. Giancarlo Bertocco, 2011. "Housing bubble and economic theory: is mainstream theory able to explain the crisis?," Economics and Quantitative Methods qf1116, Department of Economics, University of Insubria.
    14. Jochen Hartwig, 2006. "Explaining the aggregate price level with Keynes's principle of effective demand," Review of Social Economy, Taylor & Francis Journals, vol. 64(4), pages 469-492.
    15. Eckhard Hein & Christian Schoder, 2011. "Interest rates, distribution and capital accumulation -- A post-Kaleckian perspective on the US and Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(6), pages 693-723, November.
    16. Heise, Arne, 2018. "Postkeynesianismus: Ein heterodoxer Ansatz auf der Suche nach einer Fundierung," ZÖSS-Discussion Papers 69, University of Hamburg, Centre for Economic and Sociological Studies (CESS/ZÖSS).
    17. M. Lopreite, 2012. "The endogenous money hypothesis and securitization: the Euro area case (1999-2010)," Economics Department Working Papers 2012-EP02, Department of Economics, Parma University (Italy).
    18. Levrero, Enrico Sergio & Deleidi, Matteo, 2019. "The causal relationship between short- and long-term interest rates: an empirical assessment of the United States," MPRA Paper 93608, University Library of Munich, Germany.
    19. Koutsobinas, Theodore, 2011. "Animal spirits, liquidity-preference and Keynesian behavioural macroeconomics: An intertemporal framework," MPRA Paper 43027, University Library of Munich, Germany.
    20. Giorgos Argitis, 2011. "A view on post-Keynesian interest rate policy," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 8(1), pages 91-112.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ins:quaeco:qf1402. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Segreteria Dipartimento (email available below). General contact details of provider: https://edirc.repec.org/data/feinsit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.