In his latest book, Pascal Blanqué invites himself into the controversy between monetarists and neo-Keynesians, relating to the influence of monetary creation on economic activity. The publication of his work is all the more timely since, since the financial crisis of 2008-2010, this fundamental question has been debated by the Keynesians, supporters of low interest rates and an accommodating monetary policy, and the Friedmanians , followers of high rates and monetary restrictions. This controversy is revived by the current inflation of producer and consumer goods.
The book is organized into three parts and 14 essays which can be read separately. The first takes up in particular the observations of his previous book (Ten weeks into covid-19), which received the special Turgot prize in 2022, relating to psychological approaches (perception of time, memory and forgetting capacities) of liquidity. money and financial markets. The second part analyzes the functions performed by liquidity, the notion of optimal liquidity and the question of the paradox of liquidity. The third re-examines the relationship between liquidity and the value of physical and financial assets at the different phases of an economic cycle.
This construction is explained in particular by the four-step intellectual journey followed by the author since the 2008 crisis. In the first, he questions the very notion of liquidity and criticizes the fundamental equation of the quantitative theory of money (MV=PT), posed a century ago by Irving Fisher, according to which, in a situation of full employment, the quantity of money combined with its speed of circulation, balances the amounts of transactions of goods and services. Pascal Blanqué shows in particular that the creation and circulation of money are dominated by the economic activity of the United States and Asian countries. In a second step, he revisits the first term (MV) of the equation, by introducing the notion of psychological time, the speed of circulation being anticipated and perceived differently according to the actors, according to their more or less selective memories (“ central banks remain haunted by inflation”), their capacity to forget and/or their sensitivities. In the third phase, he criticizes the second term (PT) of the equation, revisiting the relationship between the value and the price of a material or financial good or service. It reformulates the notions of inflation, deflation and stagflation, as defined by Friedman. Finally, it analyzes the effects on monetary circulation of variations in instantaneous and long-term interest rates. It reinterprets the paradoxes of liquidity and the notion of optimum liquidity.