Keyne's Approach to Money: An Assessment after 70 Years

Levy Economics Institute Working Paper No. 438

21 Pages Posted: 10 Feb 2006

See all articles by L. Randall Wray

L. Randall Wray

University of Missouri at Kansas City; Bard College - The Levy Economics Institute

Date Written: January 2006

Abstract

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.

Keywords: Keynes's General Theory, money supply and demand, liquidity preference, finance motive, endogenous money, credit money, state money

JEL Classification: E12, E41, E43, E51

Suggested Citation

Wray, L. Randall, Keyne's Approach to Money: An Assessment after 70 Years (January 2006). Levy Economics Institute Working Paper No. 438, Available at SSRN: https://ssrn.com/abstract=880440 or http://dx.doi.org/10.2139/ssrn.880440

L. Randall Wray (Contact Author)

University of Missouri at Kansas City ( email )

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Kansas City, MO 64110-2499
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Bard College - The Levy Economics Institute

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Annandale-on-Hudson, NY 12504-5000
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