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Speculation, Liquidity Preference, and Monetary Circulation

  • Korkut A. Erturk

The sharp exchanges that Keynes had with some of his critics on the loanable funds theory made it harder to appreciate the degree to which his thought was continuous with the tradition of monetary analysis that emanates from Wicksell, of which Keynes's A Treatise on Money was a part. In the aftermath of the General Theory (GT), many of Keynes's insights in the Treatise were lost or abandoned because they no longer fit easily in the truncated theoretical structure he adopted in his latter work. A part of Keynes's analysis in the Treatise which emphasized the importance of financial conditions and asset prices in determining firms' investment decisions was later revived by Minsky, but another part, about the way self-sustained biases in asset price expectations in financial markets exerted their influence over the business cycle, was mainly forgotten. This paper highlights Keynes's early insights on asset price speculation and its link to monetary circulation, at the risk perhaps, of downplaying the importance of the GT.

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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_435.

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Date of creation: Jan 2006
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Handle: RePEc:lev:wrkpap:wp_435
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  1. Culter, D.M. & Poterba, J.M. & Summers, L.H., 1990. "Speculative Dynamics," Working papers 544, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Robert Clower, 1999. "Post-Keynes Monetary and Financial Theory," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 21(3), pages 399-414, April.
  3. Asimakopulos, A, 1983. "Kalecki and Keynes on Finance, Investment and Saving," Cambridge Journal of Economics, Oxford University Press, vol. 7(3-4), pages 221-33, September.
  4. Shleifer, Andrei & Vishny, Robert W, 1997. " The Limits of Arbitrage," Journal of Finance, American Finance Association, vol. 52(1), pages 35-55, March.
  5. Peter Temin & Hans-Joachim Voth, 2003. "Riding the South Sea Bubble," Working Papers 91, Barcelona Graduate School of Economics.
  6. Korkut A. Erturk, 2006. "Asset Price Bubbles, Liquidity Preference And The Business Cycle," Metroeconomica, Wiley Blackwell, vol. 57(2), pages 239-256, 05.
  7. De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Noise Trader Risk in Financial Markets," Scholarly Articles 3725552, Harvard University Department of Economics.
  8. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
  9. Korkut Erturk, 2003. "Asset Price Bubbles, Liquidity Preference and the Business Cycle," Working Paper Series, Department of Economics, University of Utah 2003_09, University of Utah, Department of Economics.
  10. Shleifer, Andrei & Summers, Lawrence H, 1990. "The Noise Trader Approach to Finance," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 19-33, Spring.
  11. L. R. Wray, 1990. "Money and Credit in Capitalist Economies," Books, Edward Elgar, number 474, July.
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