The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Liquidity Preference

  • Carlo Panico
Reference work entry


Keynes’s notion of liquidity preference stems from the fact that he made some specific sources of demand for monetary instruments depend upon the expected variations of the interest rate, and consequently on the expected variations in the capital value of financial assets. This source of demand was considered to be the cause of variations in the rate of interest. Economists close to Keynes realized that in the General Theory he had turned the analysis of liquidity preference into a new theory of the interest rate. Robertson defended the marginalist theory, while Hicks paved the way for the ‘neoclassical synthesis’.


Cambridge equation Central bank money Finance motive Hicks, J. R. IS–LM models Keynes, J. M. Liquidity preference Loanable funds Marginalist theory of the rate of interest Monetary instruments Natural rate and average rate of interest Neoclassical synthesis Precautionary motive Reserves–loans ratio Robertson, D. Saving and investment Simultaneous equilibrium Speculation Speculative motive Subjective probability Temporary equilibrium Tobin, J. Transaction motive Uncertainty Walras’s Law 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Carlo Panico
    • 1
  1. 1.