1---
 2meta: 
 3  date: false
 4  reading_time: false
 5title: "Speculative Motive"
 6date: 2023-10-05
 7description: "The component of the demand for money driven by the aim of gaining from expected changes in interest rates."
 8tags: ["Monetary Theory", "Interest Rates", "Keynesian Economics"]
 9---
10
11## Background
12
13The speculative motive is a key concept within Keynesian monetary theory, reflecting the desire to hold or invest money based on future expectations of interest rates and bond prices.
14
15## Historical Context
16
17John Maynard Keynes first articulated the speculative motive in his seminal work "The General Theory of Employment, Interest, and Money," published in 1936. Keynesian economics introduced this as a way to understand the dynamics of liquidity preference and its impact on money demand.
18
19## Definitions and Concepts
20
21The speculative motive for holding money arises when individuals or institutions make decisions based on their expectations about future changes in interest rates. It is distinct from transactions and precautionary motives, which concern using money for immediate spending and as a safety net for unplanned expenses, respectively.
22
23## Major Analytical Frameworks
24
25### Classical Economics
26
27Classical economists did not emphasize the speculative motive, focusing instead on money as a medium of exchange and a unit of account.
28
29### Neoclassical Economics
30
31Neoclassical frameworks generally consider money demand in terms of transactions and precautionary motives but incorporate speculative considerations into broader asset demand analyses.
32
33### Keynesian Economics
34
35Keynesian economics places significant emphasis on the speculative motive. According to this framework, if investors expect interest rates to rise, they will sell bonds and hold more money, anticipating that bond prices will fall. Conversely, expectations of declining interest rates lead investors to purchase bonds while reducing their money holdings.
36
37### Marxian Economics
38
39Marxian economic thought does not focus directly on the speculative motive in its analysis of monetary theory. It concentrates more on the role of money in the accumulation and reproduction of capital.
40
41### Institutional Economics
42
43The speculative motive can be considered within institutional economics, which looks at how institutional practices, norms, and regulations influence expectations and liquidity preferences.
44
45### Behavioral Economics
46
47Behavioral economics examines how cognitive biases and psychological factors impact the speculative motive. It explores how investors' behavior under uncertainty affects money demand.
48
49### Post-Keynesian Economics
50
51Post-Keynesian economics extends the original Keynesian framework, emphasizing liquidity preference and the speculative motive as critical to understanding financial market behavior and stability.
52
53### Austrian Economics
54
55Austrian economists focus on individual actions and time preferences but typically do not categorize money demand explicitly into speculative motives.
56
57### Development Economics
58
59In development economics, understanding the speculative motive informs how developing economies might react to changes in interest rates and the ensuing impacts on investment and economic growth.
60
61### Monetarism
62
63Monetarist theories, which prioritize the control of money supply over other factors, may indirectly consider the speculative motive in discussions about the demand for money’s role in the liquidity trap.
64
65## Comparative Analysis
66
67Comparing various economic schools reveals varying degrees of emphasis on the speculative motive. For instance, Keynesians position it centrally, whereas classical and neoclassical approaches less so. Behavioral and institution-based frameworks provide nuanced, psychologically informed angles on speculative behavior.
68
69## Case Studies
70
71Real-world examples, such as post-2008 financial crisis behavior or reactions to central bank policy announcements, illustrate the speculative motive's influence on money-holding and investment decisions.
72
73## Suggested Books for Further Studies
74
751. "The General Theory of Employment, Interest, and Money" by John Maynard Keynes
762. "Monetary Theory and Policy" by Carl E. Walsh
773. "Understanding Modern Money: The Key to Full Employment and Price Stability" by L. Randall Wray
78
79## Related Terms with Definitions
80
81- **Liquidity Preference**: The desire to hold readily accessible funds for planned and unplanned transactions.
82- **Interest Rates**: The cost of borrowing money or the return on investment for savings, influential in speculative behavior.
83- **Bond Prices**: The current market price of bonds, which inversely relate to interest rates.