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Keynes's Approach To Money: An Assessment After 70 Years

  • L. Randall Wray

This paper first examines two approaches to money adopted by Keynes in the General Theory (GT). The first is the more familiar "supply and demand" equilibrium approach of Chapter 13 incorporated within conventional macroeconomics textbooks. Indeed, even Post Keynesians utilizing Keynes's "finance motive" or the "horizontal" money supply curve adopt similar methodology. The second approach of the GT is presented in Chapter 17, where Keynes drops "money supply and demand" in favor of a liquidity preference approach to asset prices that offers a more satisfactory treatment of money's role in constraining effective demand. In the penultimate section, I return to Keynes's earlier work in the Treatise on Money (TOM), as well as the early drafts of the GT, to obtain a better understanding of the nature of money. I conclude with policy implications.

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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_438.

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Date of creation: Jan 2006
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Handle: RePEc:lev:wrkpap:wp_438
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  1. James Tobin, 1956. "Liquidity Preference as Behavior Towards Risk," Cowles Foundation Discussion Papers 14, Cowles Foundation for Research in Economics, Yale University.
  2. Victoria Chick, 1983. "Macroeconomics after Keynes: A Reconsideration of the General Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530457, June.
  3. Sheila C. Dow, 1993. "Money And The Economic Process," Books, Edward Elgar, number 147, April.
  4. Michael Hudson, 2004. "The Archaeology of Money: Debt versus Barter Theories of Money's Origins," Chapters, in: Credit and State Theories of Money, chapter 5 Edward Elgar.
  5. Geoffrey W. Gardiner, 2004. "The Primacy of Trade Debts in the Development of Money," Chapters, in: Credit and State Theories of Money, chapter 6 Edward Elgar.
  6. Goodhart, Charles A. E., 1998. "The two concepts of money: implications for the analysis of optimal currency areas," European Journal of Political Economy, Elsevier, vol. 14(3), pages 407-432, August.
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