A Reconsideration of Keynes' Finance Motive

Peter Smith

The Economic Record, 1979, vol. 55, issue 3, 236-242

Abstract: Keynes' finance motive is a much neglected part of monetary theory. This paper reassesses the meaning and importance of the finance motive and examines the distinction between it and the transactions motive. A specification of the demand function for money is proposed that takes account of the finance motive. The advantages of this specification for analytical and empirical purposes are explained. Finally, it is shown that this specification provides a satisfactory theoretical explanation for the evidence on timing between the real and monetary sectors; evidence thought by some to be inconsistent with Keynes' theory of liquidity preference.

Date: 1979
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