The Chimera of Macroeconomics

    The Theory by Goliath . For the sake of convenience, we copy from somewhere else:   (Quote) (i)    The Income-motive . –One reason for holding cash is to bridge the interval between the receipt of income and its disbursement. … (ii)   The Business-motive . –Similarly, cash is held to bridge the time of incurring business costs and that of the sale-proceeds …. (iii)    The Precautionary motive . –To provide for contingencies requiring sudden expenditure and for unforeseen opportunities of advantageous purchases …. (iv) There remains the Speculative-motive . … [Experience] indicates that the aggregate demand for money to satisfy the speculative-motive usually shows a continuous response to gradual changes in the rate of interest…. (Unquote)              First of all, the first two are of the same nature, and often named collectively as “the Transactional motive.” After ...

  Implicit or explicit, macroeconomists conceive that the so-called “liquidity preference” (L≡ M d ) and “money supply” (M≡ M s ) comprise “the money market . ” This market is often opposed to the “product market” of the real investment ( I ) and the real saving ( S ). As well known to students, the two of L and M join forces to produce the LM curve. Umm, the one out of the IS-LM model!             Unfortunately, there cannot be anything like the LM curve. First, the time (duration), more than critical to the rest of us in Here on earth, is completely missing in the curve. Second, all the relevant terms, demand, supply, “liquidity preference” and the like are misnomers .             As expected the LM curve is misconceived and stillborn so as to be firmly fixated in a textbook.    Reality #1. John M. Keynes illustrates the “liquidity preference” function: M= L(r) (1936, p. 168)...

J.M. Keynes once commented, or is said as such, that he was the only non-Keynesian in the room. Probably he was right.              First, he in the 1936 book suggests the liquidity preference function, M= L(i) , to the effect that the interest rate is the cause and “money demand” the effect. Strangely however, his Disciples rebut that the interest rate is to be determined endogenously of their model even as they before anything else buy into “liquidity preference.” The unintended consequence: One of the two causal directions of contradiction must be wrong.              Second, the Master discredits in so many words the classical loanable funds “theory” of interest rate. The following year and on, J.R. Hicks and Alvin Hansen, among other macroeconomists, resurrected the so-called “theory” to use it as another pillar of the “fairly well working” IS-LM model. As for...