Background
In economics, the asset motive refers to the incentive to hold money as a store of value. This motive is especially significant under certain economic conditions like inflation, deflation, and changing interest rates.
Historical Context
The term gained prominence in the context of Keynesian economics. John Maynard Keynes introduced the concept of the asset motive, elucidating why individuals might prefer holding money rather than investing it in other assets.
Definitions and Concepts
- Asset Motive: The desire to hold money as a store of value. It is influenced by the stability of prices and the potential returns on holding money versus other investments, like bonds.
- Store of Value: An asset’s ability to maintain its value over time without depreciating.
- Inflation: A situation where the overall price level rises, reducing the purchasing power of money.
Major Analytical Frameworks
Classical Economics
Typically, classical economists do not emphasize the asset motive as much, tending to focus on money’s primary functions as a medium of exchange and a unit of account.
Neoclassical Economics
In neoclassical models, the holding pattern of money versus other assets hinges on individual preferences and interest rates.
Keynesian Economics
In the IS–LM model, Keynesian economics elucidates that consumers hold money as one of the avenues for savings. The choice to hold savings in money versus bonds hinges on the individuals’ risk aversion and expectations about future economic conditions.
Marxian Economics
Marxian economics might critique the asset motive as a form of capital hoarding, contrasting it with productive use of capital.
Institutional Economics
Institutional economists would study how systems, laws, and conventions impact the desire to hold money versus other assets.
Behavioral Economics
Behavioral economists focus on how cognitive biases and risk perceptions influence the desire to hold money as an asset.
Post-Keynesian Economics
Post-Keynesian insights would further elaborate on how endogenous money and liquidity preferences impact individuals’ asset choices.
Austrian Economics
In Austrian economics, the preference to hold money as an asset would be viewed through the lens of individual time preferences and opportunity costs.
Development Economics
Development economists might study how the asset motive impacts savings rates and wealth accumulation in developing countries with unstable currencies or financial systems.
Monetarism
Monetarism would focus on the relationship between money supply and economic indicators like inflation and the asset motive’s impact on broader economic stability.
Comparative Analysis
The asset motive varies considerably under different economic conditions:
- Stable Prices: Money may not seem as an attractive asset due to its poor return relative to other assets.
- High Inflation: Money’s value erodes swiftly, making it less desirable as a store of value.
- Falling Prices: In deflationary periods, money increases in real value, making it an attractive store of value.
Case Studies
Examples of the asset motive in action could include economic behaviors in periods of hyperinflation (e.g., Zimbabwe, Venezuela), or during deflationary episodes (e.g., Japan’s lost decade).
Suggested Books for Further Studies
- Keynes: A Very Short Introduction by Robert Skidelsky
- Inflation: Theory and Practice by Lawrence H. Officer
- Modern Monetary Theory and Practice by L. Randall Wray
Related Terms with Definitions
- IS-LM Model: A macroeconomic model that shows the relationship between interest rates (I) and assets market equilibrium (LM) in understanding key macroeconomic balances.
- Inflation: The rate at which the general level of prices for goods and services is rising, subsequently eroding purchasing power.
- Deflation: The reduction of the general level of prices in an economy.
- Risk Aversion: The preference to avoid uncertainty concerning economic returns.
