The Chimera of Macroeconomics

  In the asset market, the investor sits on the demand side. Seated on the supply are the two kinds: the liquidator , or “ dis-investor ” as we herein call, and the “ constructor ” of a fresh unit asset (to “ I ” in macroeconomics); the former is in the secondary channel while the latter the primary channel.             In various regards, the matter of “liquid” is elusive to catch always and everywhere, while the term “liquidity” is illusive in macroeconomics. First of all, “liquidity preference” is an oxymoron at best; in addition “liquidation” is a misleading name for a channel of “supply of funds” second to the primary of “saving” (“ S ” in macroeconomics) “Liquidity” in and out of Cambridge . Have you ever grasped the water , the most ubiquitous and most unanimous liquidity of all? At any rate, we prefer the liquidity of water only second to the general air (as opposed to the particular “thin air” around the bankin...

John M. Keynes proposes a liquidity preference function, M= L(i) (1936, p. 168). The function is partly true. Some of us would keep larger money in cash or bank deposits than usual when there is no opportunity whatsoever from which to expect a positive return or interest receipt. Unfortunately, however, “Half knowledge is more dangerous than ignorance.”              Whose fault may it be, the equation has long been over-relied, way too much, in Cambridge macroeconomics. Particularly, the equation is one of the four pillars in the IS-LM model, which is “pretty-well working” according a famous and infamous Nobel laurate.              First and foremost, there on earth is no such thing as the interest rate. As well known in elementary finance, interest rate is very specific to the investor, the asset, the time horizon, the portfolio, and the social, political and ec...