The Chimera of Macroeconomics

    Macroeconomists propose there be three rationales why we keep money free of interest  in cash or deposits. First, the “transactional motive” is in preparation for personal or corporate exchanges. Second, the “precautionary motive” is supposed to be from “the desire for security” via risk diversification or as a buffer just in case. Third, the “speculative motive” be particularly of those prescient speculators who can pick the best time to buy fixed-income securities .             In other words of theirs, there are three “variables” to define “money demand” ( M d ). Probably, on the other hand, they know that “money supply” is fixed as at the moment ( M s ,  T 0 ).               What would happen if the “money market” is not in equilibrium as of now ( T 0 )? Which should vary, M s or M d ?   The Rest of Us . We might have no clue i...

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...