The Chimera of Macroeconomics

  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 ...

The geo-famed Solow growth model is built for Eternity over the River, wittingly or otherwise.              First of all, the so-named growth model does not have the time dimension. As an ABC in macroeconomics, the growth in GDP is defined to be ( Δlog Y)/ Δt . Voila, there in "growth" certainly is the time dimension in the negative (T -1 , T for time dimension). Incidentally, the negative sign enters in the equation for the purpose of performance evaluation only.              Take the marathon vs. the 100 meter dash for example. The length (L 1 in the space dimension) of running of the former is larger than that of the latter by many “orders of magnitude,” so to speak. You know what? The Solow model predicts that always and everywhere, “The winnerrrrrrr is the marathoner!” The running speed is just irrelevant, or more precisely the time duration ( Δt ) does not c...

Amazingly outlandish is the equation proposed by J. R. Hicks in his 1937 article titled “ Mr. Keynes and …” He is pointblank that J. M. Keynes was by profession neither a researcher nor an economist. No wonder there was in the particular room of 1940s in the U.S., there was only one non- Keynesian who happened to be a Commentator named J. M. Keynes.              Now let us put Professor Hicks’ equation on the table: M d = k ∙ P ∙ Y . where M d represents “liquidity preference” aka “ money demand ,” k a constant and P ∙ Y  the “ nominal GDP .” Keynesian or not, the equation is a great counterexample of “Sense and Sensibility.” Nonsense No. 1. Misnomer . Money is anything but to be demanded. There is neither a reason nor a way for the household to “demand” money. None would like to “buy” money with money as the medium of exchange in all trade above ground. If ever, it would be extremely uneconomic for any house...

I quote the following from Chapter 11 of N. Gregory Mankiw, Macroeconomics : The underlying reason is that the interest rate is the opportunity cost of holding money. ….   The demand [for money] is downward sloping because a higher interest rate raises the cost of holding money and thus lowers the quantity demanded.   Really amazing is that according to what I learned as a sophomore merely two sentences as above contains numerous fallacies. Fallacy No. 1. The opportunity cost of holding money is what we need most desperately at the particular accounting period of time. Over all else, some would choose apples while others movie-going.  F2. There is no such thing as demand for money. Demand represents the quantity of a certain object wanted in the accounting period of the narrator’s interest: for instance, half a dozen units of apples per week . F3. There is no such thing as demand for money. In the monetary economy , all demand pays and all supply is paid with...