Re: Liquidity Preference and State Theory of Money

["Esteban Perez" <eperez@xxxxxxxxxxxx>]

In his 1938 letter to Shaw, Keynes wrote: ¨I described it (finance) as the coping stone and attached importance to it in my article mainly because it seemed to me that it provided a bridge betweeen my way of talking and the way of those who discuss the supply of loans and credits etc.¨ CW.XXIX, p282.
Yet one year later, 1939, Keynes states that finance was introduced to remedy an omission in the GT: ¨In my General Theory of Employment, Interest and Money, I was seriously at fault in omitting any discusion...of the process of capital formation. Under spur of criticism I have since endeavoured to remedy this omission in an article published in this Journal (1937). I there introduced a conception serving the same purpose as, but not identical with, that of funds available for investment under the name of finance..´ CW, XIV, p.283.


<<< Ted Winslow <egwinslow@xxxxxxxxxx>  5/ 2 10:16a >>>

---------------------------------------------
As I've also pointed out before
<http://csf.colorado.edu/forums/pkt/aug99/msg00158.html>, Paul's
interpretive claims about the "finance motive" are contradicted by what
Keynes himself says about it.

> Paul wrote:
>
> >But in Keynes's 1937 notes on the finance motive EJ, Keynes points
> out that
> >he overlooked this possibility in the GT and therefore the existence
> of an
> >overdraft system (endogeneousd money) is important.
> >Paul.
> >
> >Had Keynes revised the General Theory, the finance motive and the
> >possibility of endogeneous money would have played a much more
> substantial
> >role -- as I suggest in the discussion of the finance motive in my
> MONEY
> >AND THE REAL WORLD (1972, 1978 )book.
> >
>
>
> Aren't these interpretive claims contradicted by what Keynes wrote to
> E.S.
> Shaw in April 1938.
>
>
> >From letter of 4 April 1938:
>
> "My recent article in the _Economic Journal_ ["The 'Ex Ante' Theory of
> the
> Rate of Interest"] did no more than emphasise a little more than
> formerly,
> in the hope of helping some of my critics, the fact that the finance
> required by the planning of activity was one of the ways, by no means
> negligible, in which changes in activity affected the demand for liquid
> resources, a factor which had always played a prominent part in my
> theory.
> Substantially, my theory [of liquidity preference] is exactly what it
> was
> when I first published the book."  (XXIX, pp. 280-1)
>
> >From letter of 13 April 1938:
>
> "One point I do agree with.  I do not consider that the conception of
> 'finance' makes any really significant change in my previous theory.
> It
> is, as you say, no more than a type of active balance which I had not
> sufficiently emphasized in my book.  I described it as 'the coping
> stone'
> and attached importance to it in my article mainly because it seemed
> to me
> that it provided a bridge between my way of talking and the way of
> those
> who discuss the supply of loans and credits etc.  I thought it might
> help
> to show that they were simply discussing one of the sources of demand
> for
> liquid funds arising out of an increase in activity.  But, alas, I have
> only driven them into more tergiversations.  I am really driving at
> something plain and simple which cannot possibly deserve all this
> exegesis."  (XXIX, p. 282)

Ted