The Oxymoron of “Liquidity Preference”
To begin, no one with the right mind would “prefer” liquidity to anything.
Ever
since the so-claimed “General Theory of the Rate of Interest,” the concept of “liquidity
preference” has been firmly settled in some minds of super-strong influence.
Alas, the term is an oxymoron at best or as much strongly misleading at worst.
Incidentally, “liquidity” is the nick name of money in Keynesian
macroeconomics.
First
of all, we never hoard money preferably or wishfully. We are forced to hold
money “just in case.” More specifically, we carry money around for the purpose
of purchasing various goods, services and assets on the way of “muddling
through” the long life. The more certain, the less money we hoard.
In
the year of 1930, six years before the General
Theory, Irving Fisher suggested “Money is of no use to us until it is spent.” Absolutely!
Money as is does no good for us: money do we rarely eat, wear or use as
shelter. If any of us does so, he might well visit two places, that is, the penitentiary
and a hospital.
Moreover,
money is not just inconvenient to hold but also dangerous. As we often see in
Westerns, robbers are masters of smelling money. Watch out: “The money, or your
life!” (Boney M., Ma Baker, 1977).
To
tell the truth, money would be the last thing we need if there were no “transaction
costs” of many kinds. We may make a safe bet that money will disappear in the
coming AI age where most everybody knows who’s who. All that we need would be
giant ledgers, organizational, communal or national.
Second
of all, money is never liquid when preferred.
In the past, hoarded money was solid in the form of gold, silver, bi-metal,
shells or even stones (Yap!). Modern times, the vast majority of money is “thin-airy”
in bank deposits (based on human credit). Only the pocket exchange is solid in
metal or paper.
After
all, money can be liquid only when dis-preferred and let go.
Like
a river, money never returns once running through it.
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