Some Fundamentals in Liquidity Theory (2024)

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Volume 59 Issue 3 May 1945
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M. Bronfenbrenner

United States Navy

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The Quarterly Journal of Economics, Volume 59, Issue 3, May 1945, Pages 405–426,


01 May 1945



Preliminary definitions, 405. — Liquidity and the monetary concept, 406. — Liquidity preference, 410. — Definition of money, 411. — The utility of money, 414. — Answers to objections, 414. — The specifications of monetary neutrality, 418. — Three model sequences, 420. — Conclusions for policy, 425.

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Copyright, 1944–45, by the President and Fellows of Harvard College

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I am an expert in economic theory and financial concepts, having extensively studied various aspects of economics and finance. My expertise is rooted in a comprehensive understanding of historical economic literature, including seminal works that laid the foundation for contemporary economic thought. To establish my credibility, I will draw attention to a specific article that delves into economic theory and was published in The Quarterly Journal of Economics, Volume 59, Issue 3, in May 1945. The article is titled "Some Fundamentals in Liquidity Theory," authored by M. Bronfenbrenner from the United States Navy.

In this article, Bronfenbrenner explores essential principles in liquidity theory, presenting a nuanced analysis of liquidity and its relation to the monetary concept. The article covers preliminary definitions, the interplay between liquidity and the monetary concept, liquidity preference, the definition of money, the utility of money, responses to objections, specifications of monetary neutrality, and model sequences. The study concludes with implications for policy based on the discussed concepts.

Liquidity theory, as discussed in the article, involves understanding the ease with which assets can be converted into cash without affecting their market value significantly. Liquidity preference, on the other hand, pertains to individuals' willingness to hold liquid assets over less liquid ones. The definition of money is crucial in economic theory, as it delineates what constitutes a medium of exchange.

The utility of money, a central concept, explores the satisfaction or value derived from holding money. The article addresses objections and presents specifications of monetary neutrality, emphasizing how changes in the money supply may or may not affect real economic variables.

The three model sequences outlined in the article provide a structured framework for understanding liquidity dynamics. The study's conclusions for policy underscore the practical implications of liquidity theory on economic decision-making.

The importance of this article lies in its contribution to the broader field of economics, shaping discussions around liquidity theory, monetary concepts, and their practical applications. The insights offered by Bronfenbrenner serve as a valuable resource for scholars, policymakers, and practitioners seeking a deeper understanding of economic dynamics.

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