...is everywhere. Lots of people in all economic traditions have pointed it out.
J.P. Koning has a great history of the idea here. I especially enjoyed some of the older Pigou passages pointing this out. I need to go back and look for details, but I'm quite sure Mun and some of the other mercantilists raised this point too.
Gene has been reading Malthus lately. Did he?
So what is so special about Keynes and this idea, because as Koning points out it's Keynes that we always associate it with? It could be just that sometimes ideas are crystalized by one person and it gets attached to them. Adam Smith laid out credit rationing and efficiency wage theory quite clearly in Wealth of Nations, but we think of both of those as Stiglitz's ideas. That's just how it works sometimes.
But I think it's a little more than that in Keynes's case. Keynes went beyond simply describing the demand for money or even describing the prospect of a general glut resulting from the demand for money. Both had been covered before. What Keynes did was develop a theory of interest where decisions on the margin about what Koning calls "moneyness" determine the interest rate rather than time preference. This is not to say that time preference is out of the picture, of course. I guess one could say that time preference determines the volume of savings and investment given an interest rate but liqudity preference and expectations determines the term structure itself. With New Keynesian economics, that central story has sort of fallen into the black box that is the random shock in the Taylore rule closure (if it's anywhere), but we're talking about the economics of Keynes here, not Keynesian economics!
You Know You're a Free Thinker!
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