Towards a Post-Keynesian Formulation of Liquidity Preference

Abstract

In a recent issue of the Cambridge Journal of Economics, A. Asimakopulos (1983) raises some criticisms of the lack of concern on the part of Michal Kalecki and J. M. Keynes concerning the importance of saving in financing an increase in investment expenditure. His major point is that, even ignoring the increased requirement for transaction balances given an increase in national income, the new investment will not create sufficient saving to restore the initial liquidity position of the suppliers of finance until after the multiplier effect on income has completely worked itself out. Asimakopulos relates this to Nicholas Kaldor's (1939) analysis of the problem, in which Kaldor points out that Keynes's full investment multiplier of one over the propensity to save is a special case in which speculators prevent a rise in the long-term rate of interest by purchasing at the existing yield the full amount of securities issued to finance the new investment.