2013년 2월 5일 화요일

Some excerpts of The General Theory mentioning liquidity

출처: The General Theory of Employment, Interest and Money (Keynes, 1936)
자료: MIA(html); eBook; single PDF; Gutenberg.au (cf. my catalog of his writings)



■ Preface to the French Edition, 1939
In recent times it has been held by many economists that the rate of current saving determined the supply of free capital, that the rate of current investment governed the demand for it, and that the rate of interest was, so to speak, the equilibrating price-factor determined by the point of intersection of the supply curve of savings and the demand curve of investment. But if aggregate saving is necessarily and in all circumstances exactly equal to aggregate investment, it is evident that this explanation collapse. We have to search elsewhere for the solution. I find it in the idea that it is the function of the rate of interest to preserve equilibrium, not between the demand and the supply of new capital goods, but between the demand and the supply of money, that is to say between the demand for liquidity and the means of satisfying this demand. I am here returning to the doctrine of the older, pre-19th century economists. Montesquieu, for example, saw this truth with considerable clarity,ㅡMontesquieu who was the real French equivalent of Adam Smith, the greatest of your economists, head and shoulders above the physiocrats in penetration, clear-headedness and good sense (...) But I must leave it to the text of this book to show how in detail all this works out. 
■ Chapter 9_ The Propensity to Consume: II. The Subjective Factors
There are, in general, eight main motives or objects of a subjective character which lead individuals to refrain spending out of their incomes (...) These eight motives might be called the motives of Precaution, Foresight, Calculation, Improvement, Independence, Enterprise, Pride and Avarice (...) Apart from the savings accumulated by individuals, there is also the large amount of income, varying perhaps from one-third to two-third of the total accumulation in modern industrial community such as Great Britain or the United Sates, which is withheld by central and local government, by institutions and by business corporationsㅡfor motives largely analogous to, but not identical with, those actuating individuals, and mainly the four following: 
(i) The motive of entrepriseㅡto secure resources to carry out further capital investment without incurring debt or raisinng furthe capital on the market;
(ii) The motive of liquidityㅡto secure liquid resources to meet emergencies, difficulties and depressions; (...)
■ Chapter 10_ The Marginal Propensity to Consume and the Multiplier, Section III
Mr Kahn was mainly concerned...in considering that offsets we ought to take into account ... adverse reactions on investment in other directions. It would seem (following Mr Kahn) that the following are likely in a modern community to be the factor which it is most important not to overlook (though the first two will not be fully intelligible until Book IV has been reached):
(i) The method of financing the policy and the increased working cash, required by the increased employment and the associated rise of prices, may have the effect of increasing the rate of interest and so retarding investment in other directions, unless the monetary authority takes steps to the contrary; whilst, at the same time, the increased cost of capital goods will reduce their marginal efficiency to the private investors, and this wil required an actual fall in the rate of interest to offset it.
(ii) With the confused psychology which often prevails, the government programme may, through its effect of 'confidence', increase liquidity-preference or diminish the marginal efficiency of capital, which, again, may retard other investment unless measure are taken to offset it. 
■ Chapter 12_ The State of Long-Term Expectation, Section IV
(...) Investments which are 'fixed' for the community are thus made 'liquid' for the individual. It has been, I am sure, on the basis of some such procedure as this that our leading investment markets have been developed. But it is not surprising that a convention...should have its weak points. It is its precariousness which creates no small part of our contemporary problem of securing sufficient investment. [Section V] Some of the factors which accentuate this precariousness may be briefly mentioned. (...) It is not sensible to pay 25 for an investment of which you believe the prospective yield to justify a value of 30, if you also believe that the market will value it at 20 three months hence. Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called 'liquidity'. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon holding of 'liquid' securities. It forgets there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. (...) 
■ Chapter 13_ The General Theory of the Rate of Interest, Section II
The psychological time-preferences of an individual require two distinct sets of decisions to carry them out completely. The first is concerned with ... the propensity to consume which determines for each individual how much of his income he will consume and how much he will reserve in some form of command over future consumption. But...there is a further decision which awaits him, namely, in what form he will hold the command over future consumption... In other words, what is the degree of his liquidity-preference (...)
(...)  the rate of interest at any time, being the reward for parting with liquidity, is a measure of the unwillingness of those who possess money to part with their liquid control over it. The rate of interest is not the 'price' which brings into equilibrium the demand for resources to invest with the readiness to abstain from present consumption. It is the 'price' which equilibrates the desire to hold wealth in the form of cash with the available quantity of cash (...)
■ And chapters 14, 15, 17, 18 including others.

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