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The analytical preconditions for Keynes' theory of money

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  • L. Johnson
  • Thomas Cate

Abstract

Evaluating Keynes' belief that the "general theory" would create a revolution in economics, depends, in part, on what defines the key elements of the general theory. This paper presents the analytical preconditions for one of these key elements, his liquidity preference theory of money. It is argued here that Keynes's liquidity preference theory of money was both a result of his own intellectual development and a theoretical necessity, given the rest of the theoretical structure of the general theory. Specifically, this paper argues that there were two analytical preconditions for the theory of money contained in the general theory. The first was Keynes' rejection of the quantity theory of money as the basis for conducting monetary policy, a theory he inherited from his English predecessors and he himself had embraced and to which he contributed earlier in his professional career. The second was his rejection of the neoclassical loanable funds theory of interest rate determination. Copyright International Atlantic Economic Society 2000

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  • L. Johnson & Thomas Cate, 2000. "The analytical preconditions for Keynes' theory of money," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(1), pages 84-94, February.
    • Handle: RePEc:kap:iaecre:v:6:y:2000:i:1:p:84-94:10.1007/bf02295753
    DOI: 10.1007/BF02295753
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    1. Thomas M. Humphrey, 1984. "Algebraic quantity equations before Fisher and Pigou," Economic Review, Federal Reserve Bank of Richmond, vol. 70(Sep), pages 13-22.
    2. Bradley W. Bateman, 1990. "Keynes, Induction, and Econometrics," History of Political Economy, Duke University Press, vol. 22(2), pages 359-379, Summer.
    3. Bernard W. Dempsey, 1935. "The Historical Emergence of Quantity Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 50(1), pages 174-184.
    4. Wicksell, Knut, 1907. "The Influence of the Rate of Interest on Prices," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 17, pages 213-220.
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    1. L. Johnson & Robert Ley & Thomas Cate, 2001. "Keynes' theory of money and his attack on the classical model," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 7(4), pages 409-418, November.
    2. L. Johnson & Robert Ley & Thomas Cate, 2004. "The concept of equilibrium: A key theoretical element in Keynes' revolution," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 32(3), pages 222-232, September.
    3. L. Johnson & Thomas Cate, 2002. "The general theory: Fabrication or revolution? David Laidler, 1999, pp. 377," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 30(1), pages 87-96, March.
    4. L. Johnson & Thomas Cate, 2006. "A History of Post Keynesian Economics Since 1936: A Review Article," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 34(1), pages 115-123, March.

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