GENTLEMEN PREFER LIQUIDITY: EVIDENCE FROM KEYNES

This paper deals with the concept of liquidity in Keynes’ theoretical and political writings. First of all, liquidity, according to Keynes, is a concept much more comprehensive than commonly held nowadays: for Keynes, liquidity means more than an easy convertibility, a high marketability (land might...

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Bibliographic Details
Published in:Journal of the History of Economic Thought 2013-09, Vol.35 (3), p.397-422
Main Author: RIVOT, SYLVIE
Format: Article
Language:English
Subjects:
Assets
Buffer stocks
Capital assets
Commodities
Economic history
Economic theory
Fiscal policy
Humanities and Social Sciences
Interest rates
Investments
Keynesianism
Liquidity
Monetary policy
Money markets
Owners
Prices
Private sector
Purchasing power
Securities markets
Uncertainty
Wealth
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Summary:This paper deals with the concept of liquidity in Keynes’ theoretical and political writings. First of all, liquidity, according to Keynes, is a concept much more comprehensive than commonly held nowadays: for Keynes, liquidity means more than an easy convertibility, a high marketability (land might have been highly liquid in ancient times). In short, an asset is highly liquid when its value is weakly dependent on a change in our long-term state of expectations. In a second step, this reassessment of liquidity is applied to Keynes’ political writings, in particular to monetary policy and also to the ‘buffer-stock’ scheme. On the one hand, our investigation shows that in a context of ‘uncertainty,’ monetary policy basically aims to encourage the private sector to have confidence in long-term expectations. Private wealth owners should accordingly ask for lower and lower ‘liquidity premium.’ On the other hand, Keynes’ ‘buffer stocks’ of commodities are not intended for a direct control of prices. Rather, their proper purpose is to confer more liquidity to commodities; i.e., to transform them to ‘monetary assets.’ All in all, monetary policy and buffer-stocks schemes prove to be two basic rationales of Keynes’ concept of liquidity still worth being investigated—today as before.
ISSN:1053-8372
0142-7716
1469-9656
DOI:10.1017/S1053837213000230