Economics Dictionary of ArgumentsHome
| |||
|
| |||
| Liquidity preference: Liquidity preference in economics, introduced by John Maynard Keynes, refers to individuals' desire to hold cash or easily convertible assets instead of less liquid investments. It depends on motives like transactions, precautionary needs, and speculation, influencing interest rates and money demand in the economy._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
| Author | Concept | Summary/Quotes | Sources |
|---|---|---|---|
|
Keynesianism on Liquidity Preference - Dictionary of Arguments
Rothbard III Liquidity Preference/Keynesianism/Rothbard: Those Keynesians who recognize the grave diffculties of their system fall back on one last string in their bow - "liquidity preference." Rothbard: Intelligent Keynesians will concede that involuntary unemployment is a "special" or rare case, and Lindahl goes even further to say that it could be only a short-run and not a long-run equilibrium phenomenon.(1) >Unemployment/Keynesianism, >Equilibrium. RothbardVsModigliani/RothbardVsLindahl: Neither Modigliani nor Lindahl, however, is thoroughgoing enough in his critique of the Keynesian system, particularly of the "liquidity preference" doctrine. Causality/method/RothbardVsKeynesianism: The Keynesian system, as is quite clear from the mathematical portrayals of it given by its followers, suffers grievously from the mathematical-economic sin of "mutual determination." The use of mathematical functions, which are reversible at will, is appropriate in physics, where we do not know the causes of the observed movements. Since we do not know the causes, any mathematical law explaining or describing movements will be reversible, and, as far as we are concerned, any of the variables in the function is just as much "cause" as another. Praxeology/Rothbard: In praxeology, the science of human action, however, we know the original cause - motivated action by individuals. >Praxeology/Rothbard. Solution/Rothbard: This knowledge provides us with true axioms. From these axioms, true laws are deduced. They are deduced step by step in a logical, cause-and-effect relationship. Since first causes are known, their consequent effects are also known. Economics therefore traces unilinear cause-and-effect relations, not vague "mutually determining" relations. Interest/Keynesianism/Rothbard: This methodological reminder is singularly applicable to the Keynesian theory of interest. For the Keynesians consider the rate of interest (a) as determining investment and (b) as being determined by the demand for money to hold "for speculative purposes" (liquidity preference). In practice, however, they treat the latter not as determining the rate of interest, but as being determined by it. RothbardVsKeynesianism: The methodology of "mutual determination" has completely obscured this sleight of hand. KeynesianismVsVvs: Keynesians might object that all demand and supply curves are "mutually determining" in their relation to price. Demand/RothbardVsKeynesianism: But this facile assertion is not correct. Demand curves are determined by utility scales, and supply curves by speculation and the stock produced by given labor and land factors, which is ultimately governed by time preferences. >Time preference/Rothbard. Rothbard III 786 The Keynesians therefore treat the rate of interest, not as they believe they do - as determined by liquidity preference - but rather as some sort of mysterious and unexplained force imposing itself on the other elements of the economic system. Thus, Keynesian discussion of liquidity preference centers around "inducement to hold cash" as the rate of interest rises or falls. According to the theory of liquidity preference, a fall in the rate of interest increases the quantity of cash demanded for "speculative purposes" (liquidity preferences), and a rise in the rate of interest Iowers liquidity preference. RothbardVsLiquidity preference: The first error in this concept is the arbitrary separation of the demand for money into two separate parts: a "transactions demand," supposedly determined by the Size of social income, and a "speculative demand," determined by the rate of interest. (…) all sorts of influences impinge themselves on the demand for money. Value/demand for money: But they are only influences working through the value scales of individuals. And there is only one final demand for money, because each individual has only one value scale. There is no way by which we can split the demand up into two parts and speak of them as independent entities. Furthermore, there are far more than two influences on demand. In the final analysis, the demand for money, like all utilities, cannot be reduced to simple determinants; it is the outcome of free, independent decisions on individual value scales. There is, therefore, no "transaction demand" uniquely determined by the size of income. >Liquidity preference/Modigliani, >Demand for money/Rothbard. 1. Cf. Lindahl's critique of Lawrence Klein's The Keynesian Revolution in "On Keynes' Economic System - Part I," p. 162. Also see Leontief, "Postulates: Keynes' General Theory and the Classicists."_____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Keynesianism Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
||
> Counter arguments against Keynesianism
> Counter arguments in relation to Liquidity Preference
Authors A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Concepts A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
