Cite JOURNAL ARTICLE
Liquiditätstheorie des Geldes als Gegenkonzept zum Monetarismus
Credit and Capital Markets – Kredit und Kapital, Vol. 10 (1977), Iss. 2 : pp. 207–232
The Liquidity Theory of Moneyas an Alternative to Monetarism
The liquidity theory of money sets out, on the basis of empirical observations, to make allowances for the great importance of secondary liquidity in monetary theory and to derive conclusions for monetary policy. The following aspects appear to be particularly significant: It is shown to be necessary to draw a sharp distinction between money as defined by M, and secondary liquidity, where secondary liquidity embraces assets and borrowing potential capable of leading to availability of money at short notice and without significant costs (losses). The quantity of money is determined - at least with institutional arrangements such as those prevailing in the Federal Republic of Germany and other European countries - as a rule, not by the supply of money, but by the demand for money. From this follows that, contrary to the assertions of the monetarists, the quantity of money is not the determining factor for the price level and demand. This does not preclude the possibility that by limiting the supply of money the rise in demand can likewise be limited via far-reaching elimination of secondary liquidity. The money supply theory must be developed into a liquidity theory in the sense that, in addition to money, secondary liquidity must be taken into account as a central determinant. The secondary liquidity rates constitute the lower interest rate limit. The availability of secondary liquidity, however, enables the banks to adjust flexibly to demand for money to the extent that those demanding money are willing to pay the appropriate interest rates. The demand for money cannot be adequately explained by the traditionai Keynesian motives. Since in a modern economy there is a broad range of short-term, interest-bearing forms of investing money which involve no price risk and can be adjusted flexibly to individual money needs, the speculative motive is, in fact, of no significance for the demand for money. It seems advisable to take into account, in addition to the transaction motive, a further motive which derives the growth of money demand from the intended increase in demand on the goods and factor markets, which is mostly oriented to real assets. It is designated the financing motive. A new type of liquidity trap replaces the Keynesian one. Towards the lower end of the scale, the quantity of money adjusts itself to the demand for money via recourse by the banks to secondary liquidity and repayment of credits by non-bankers. With regard to monetary policy it proves that over and above money quantity policy there must be liquidity policy.