Keynes's Finance Motive: a re-assessment. Credit, liquidity preference and the rate of interest

Abstract

This paper attempts to reconcile Keynes's post-General Theory writings on the finance motive with the horizontalist approach, as advocated by Moore, Lavoie, Kaldor and many proponents of the Franco-Italian Circuit school. It is argued here that, as Keynes felt himself lsquo;gradually getting into an outside positionrsquo; with respect to the General Theory—which he saw as a transition away from classical theory—he came to adopt many aspects of the horizontalist position as well as that of the circuit approach, including the exogeneity of the rate of interest and the view that rates do not necessarily increase during economic expansions. Keynes's post-General Theory writings therefore reject the theory of liquidity preference of the General Theory. It is suggested that, in their attempt to construct an alternative to orthodox monetary thought, post-Keynesians should abandon the confines of the General Theory, and focus instead on the views Keynes developed after the General Theory.