Toward a reconcilement of endogenous money and liquidity preference

A theoretical synthesis of endogenous money and liquidity preference is not possible so long as the latter is recognized as a theory of the demand and supply of money. A key step toward the reconcilement of the two theories is a revival of the original version of Keynes's theory, which appeared in the Treatise on Money as the "theory of bearishness." The most widely known version of liquidity preference is misspecified in that it conflates two distinct phenomena--changes in money balances required to effect a fluctuating stream of current or planned transactions as against portfolio disequilibrium--into a single demand for money function.