GENTLEMEN PREFER LIQUIDITY: EVIDENCE FROM KEYNES

• 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
• ISSN: 1053-8372; 0142-7716; 1469-9656
• DOI: 10.1017/S1053837213000230

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.