In comments, someone asks for references behind “the point is liquidity, the point is liquidity, the point is liquidity.” So, here are my recommended readings on liquidity.
Mike Beggs: “Liquidity as a Social Relation.” This is the best single discussion I know of the Keynesian view of liquidity. Beside laying out the fundamental conceptual issues, and sketching the historical development of the concept, this piece also has a good discussion of how the definition of liquidity used in monetary policy has been transformed over the past couple decades. This is the first thing I’d recommend to anyone who wants to understand what exactly those of us in the left-Keynsian tradition mean by “liquidity.”
John Hicks: “Liquidity.” A lucid and intelligent summary of where the discussion of liquidity stood 20 years after Keynes’ death.
Jorg Bibow: “Liquidity preference theory revisited: to ditch or to build on it?” A rigorous analysis of the role of liquidity in the Keynesian theory of interest rates, with particular attention to the dynamics of conventional expectations. If you want to know how Keynes’ ideas about liquidity fit into contemporary debates about monetary policy, Bibow is your man. Also worth reading: “On Keynesian Theories of Liquidity Preference,” and Bibow’s book.
J. M. Keynes: chapters 12, 13, 15, 17 and 23 of the General Theory. Also: “The General Theory of Employment”; “The Ex-Ante Theory of Interest.“ The original source. I think the presentation in the articles is clearer than in the book. Beggs and Hicks and Bibow are even clearer.
Jean Tirole, “Illiquidity and All Its Friends.” Within the mainstream, Tirole has by far the best discussion of liquidity that I’m aware of. I have profoundly mixed feelings about his approach but I’ve certainly learned from him — for example, the distinction between funding liquidity and market liquidity is genuinely useful. If you’re tempted to criticize “mainstream” economics’ treatment of liquidity, you need to seriously engage with Tirole first — he incorporates a surprisingly large part of the Keynesian vision of liquidity into an orthodox framework.
Jim Crotty, “The Centrality of Money, Credit and Intermediation in Marx’s Crisis Theory”. Addresses liquidity in a somewhat different context than most of the above — he asks how the specifically monetary character of capitalist production shapes the dynamics of accumulation as described by Marx and his followers. It’s a bit askew to the other pieces here, but the underlying questions are, I think, the same. And it is one of the most brilliant scholarly essays I have read.
Perry Mehrling, “The Vision of Hyman Minsky.” I think this lays out the logic of Minsky’s work better than anything by Minsky himself. Also see Mehrling’s book, The Money Interest and the Public Interest. Everything we need to know about liquidity is in there, though you may have to read between the lines to find it. His “Inherent Hierarchy of Money” is also useful, making the point that any system of payments is inherently hierarchical, with the same instrument appearing as credit at one level and as money at the level below.
EDIT: Should also include Joan Robinson, “The Rate of Interest,” which has a useful taxonomy distinguishing illiquidity in the strict sense from capital uncertainty, income uncertainty and lender’s risk.
By the way, the phrasing the post starts with is taken from Tree of Smoke, Denis Johnson’s Vietnam war novel. (I know that’s not what you were asking.) It’s the best novel I read this year, I recommend it almost unreservedly. There of course the point is Vietnam.