IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/98538.html
   My bibliography  Save this paper

Liquidity preference in the Walrasian framework

Author

Listed:
  • Icefield, William

Abstract

John Hicks argued that liquidity preference theory and loanable funds theory are equivalent, because in general equilibrium, Walras law dictates that one (for example, money) market is redundant when other markets (bond, commodities) are in equilibrium. While there are many other well-known criticisms of this point, I take a route that is rarely invoked - that liquidity preference can encode agent's reactions against risk of disequilibrium in a general equilibrium model. In such a case, money market may be in equilibrium, especially due to endogenous money, while other markets are in disequilibrium. In such a case, liquidity preference theory - or theory of money demand - determines rate of interest, as John Maynard Keynes asserted in General Theory, instead of loanable funds theory.

Suggested Citation

  • Icefield, William, 2020. "Liquidity preference in the Walrasian framework," MPRA Paper 98538, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:98538
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/98538/1/MPRA_paper_98538.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tsiang, S. C., 1989. "Finance Constraints and the Theory of Money," Elsevier Monographs, Elsevier, edition 1, number 9780127017211 edited by Kohn, Meir.
    2. Thomas I. Palley, 2013. "Horizontalists, verticalists, and structuralists: the theory of endogenous money reassessed," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(4), pages 406—424-4, OCT.
    3. Don Patinkin, 1958. "Liquidity Preference and Loanable Funds : Stock and Flow Analysis," Economica, London School of Economics and Political Science, vol. 25(100), pages 300-318, November.
    4. Randall Wright, 2018. "On the future of macroeconomics: a New Monetarist perspective," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 34(1-2), pages 107-131.
    5. M. G. Hayes, 2010. "The loanable funds fallacy: saving, finance and equilibrium," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 34(4), pages 807-820.
    Full references (including those not matched with items on IDEAS)

    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. Kehrwald, Bernie, 2014. "The Interest Rate in a Monetary Economy," MPRA Paper 102388, University Library of Munich, Germany, revised 12 Aug 2020.
    2. Kehrwald, Bernie, 2014. "The Excess Demand Theory of Money," MPRA Paper 57603, University Library of Munich, Germany.
    3. Thomas I. Palley, 2015. "Monetary Policy at the Zero Lower Bound and After: A Reassessment of Quantitative Easing and Critique of the Federal Reserve's Proposed Exit Strategy," Metroeconomica, Wiley Blackwell, vol. 66(1), pages 1-27, February.
    4. Icefield, William, 2020. "Nature and Logic," OSF Preprints btg7q, Center for Open Science.
    5. Marc Lavoie & Severin Reissl, 2019. "Further insights on endogenous money and the liquidity preference theory of interest," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 42(4), pages 503-526, October.
    6. Sebastian Gechert, 2023. "Fiscal policy: post- or New Keynesian?," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 20(2), pages 338-355, November.
    7. Klausinger, Hansjörg, 2000. "Walras' law and the IS-LM model. A tale of progress and regress," Department of Economics Working Paper Series 69, WU Vienna University of Economics and Business.
    8. Don Patinkin, 1987. "Walras' Law," WIDER Working Paper Series wp-1987-013, World Institute for Development Economic Research (UNU-WIDER).
    9. Juan Laborda & Cristina Suárez, 2024. "Heterogeneity in household consumption behavior: The role of inequality and financial instability," Journal of Evolutionary Economics, Springer, vol. 34(1), pages 63-88, January.
    10. repec:zbw:bofrdp:2018_022 is not listed on IDEAS
    11. Fabian Lindner, 2012. "Saving does not finance Investment: Accounting as an indispensableguide to economic theory," IMK Working Paper 100-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    12. Homburg, Stefan, 2017. "A Study in Monetary Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198807537, Decembrie.
    13. Avner Offer, 2017. "The market turn: from social democracy to market liberalism," Economic History Review, Economic History Society, vol. 70(4), pages 1051-1071, November.
    14. Bill Gibson & Mark Setterfield, 2018. "Intermediation, Money Creation, and Keynesian Macrodynamics in Multi-agent Systems," Review of Political Economy, Taylor & Francis Journals, vol. 30(2), pages 154-171, April.
    15. Leland Yeager & Alan Rabin, 1997. "Monetary aspects of Walras's law and the stock-flow problem," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 25(1), pages 18-36, March.
    16. Shinji MIURA, 2016. "Graphic Explanation for Welfare Economic Foundation of Hoarding Loss," Journal of Economics Bibliography, KSP Journals, vol. 3(2), pages 265-289, June.
    17. Mark Setterfield, 2014. "An essay on horizontalism, structuralism and historical time," Working Papers 1402, Trinity College, Department of Economics.
    18. James Heckman & Neil Hohmann & Jeffrey Smith & Michael Khoo, 2000. "Substitution and Dropout Bias in Social Experiments: A Study of an Influential Social Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(2), pages 651-694.
    19. Eugenio Caverzasi & Daniele Tori, 2018. "The Financial Innovation Hypothesis: Schumpeter, Minsky and the sub-prime mortgage crisis," Working Papers PKWP1815, Post Keynesian Economics Society (PKES).
    20. repec:hal:cepnwp:halshs-01231469 is not listed on IDEAS
    21. Douglas A. Irwin, 2023. "Economic ideas and Taiwan's shift to export promotion in the 1950s," The World Economy, Wiley Blackwell, vol. 46(4), pages 969-990, April.
    22. Shvets, Serhii, 2021. "How excessive endogenous money supply can contribute to global financial crises," MPRA Paper 110191, University Library of Munich, Germany, revised 30 Jul 2021.

    More about this item

    Keywords

    liquidity preference; loanable funds theory; disequilibrium; general equilibrium; Keynes; Walras law;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • D59 - Microeconomics - - General Equilibrium and Disequilibrium - - - Other
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

    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:pra:mprapa:98538. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.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.