Keynes’ Finance Motive

The object of the present paper is to clarify the concept of finance and to inquire about Keynes’s position on this topic. Two aspects of the supply of finance are distinguished: a) initial finance, namely the provision of liquidity needed in order to cover current cost, and b) final finance, provided by issues on financial markets. In the macroeconomic literature, these two aspects of the finance problem are seldom distinguished. Keynes, while stressing the relevance of money as a store of wealth, had clearly in mind that current production is made possible by money outlays, and that people may therefore want money not for building up money balances, but for the purpose of financing production. He brought explicit attention to this point in a series of articles published between 1937 and 1939, where he stresses the point that no confusion should be made between supply of liquidity and supply of saving. This aspect of Keynes’s thought has been totally misinterpreted in the current literature.