For a critique of the liquidity preference theory
and the liquidity trap from an Austrian perspective, see White, The Clash of Economic Ideas, 133-39; Skousen, The Structure of Production.
Keynes developed the liquidity preference theory
of the interest rate.
In terms of theory, Keynes breaks with tradition and replaces the 'classical' theories of the rate of interest with the liquidity preference theory
. What has been missed by many 'Keynesians' of all shades in their interpretation of liquidity preference theory
is the importance of the normal rate of interest as an independent variable that is not determined by the forces of "supply and demand'.
Aside from this focus on endogenous money and financial instability, major topics addressed by the contributions include chartalism and the tax-drive approach to money; French and Italian circuit theory; the theory of money emissions; the monetary theories of Keynes, Kalecki, Minsky, and Marx; the theory of interest rates; credit rationing; liquidity preference theory
; financial liberalization and the relationship between finance and growth; financial bubbles; Keynesian uncertainty and money; speculation, liquidity preference, and monetary circulation; and a property explanation of interest and money.
How do we reconcile liquidity preference theory
with the reality that central banks today operate with a short-term rate target?
Keynes' theory of money is most often referred to as the liquidity preference theory
of money, a name attributed to Keynes himself.
The liquidity preference theory
is based on the assumption that market participants are averse to risk.
The concepts analyzed in this chapter include liquidity preference theory
, sticky prices and money demand, liquidity preference with motion, monetary trends, money, and separation effects.
(7) The Keynesian liquidity preference theory
of the yield curve is incompatible with the marginal efficiency of capital.
'Unlike Keynes's version of the liquidity preference theory
, this approach is not susceptible to the Keynes effect and so provides the foundation for a long-run explanation of unemployment'.