Dear Sergei Esipov,

thank you for your information. I have given a coup d'oeil (sorry! but lack of time enforced me) on three of your papers:

• Correlations between a Contact and Portfolio and Internal Capital Allocation (2012)
• Weakly Inefficient Markets: Stability of High-Frequency Trading Strategies (2012)
• Bid-Ask Spread Formulation and Liquidity Cost Risk and Reward of A Market Maker (Co authored with Morozovsky, 2000)

I cannot say I have understood your papers, but it seems the power of stochastic process analysis is enormous. It will be wonderful if we can continue our discussion.

Liquidity is a crucial property for a smooth functioning of the modern economy. Fetish of liquidity and need of liquidity are topics of totally different levels. The first is simply "love of money" and the latter is the social necessity.

I am doubtful if Keynes's concept of "liquidity preference" is a good economic concept to understand and predict what happens in the economy and in finance in particular.

Let us understand simply that the liquidity preference is an attitude to hold more of money. Is the quantity of money increased when the general level of liquidity preference is increased? I think the answer is negative. Quantity of money in an economy is determined by a totally different mechanism: credit giving by bank and returning of loans and interest. Keynes imagined that the strength of liquidity preference influences the interest rate. I doubt if there is any notable causal chain from the level or change of liquidity preference to the level or change of interest rate.

My interest in hoarding is based on different perspective. Let us divide the economy into two parts: real economy (production of goods and services, circulation and consumption) and financial economy and imagine money is also divided into two: money which circulate in the real economy and money which circulate in the financial economy. Industrial circulation and financial circulation Keynes used in his Treatise on Money seems to be similar conceptions. Hoarding in old days meant money reserve held somewhere inside the house, but we can re-coin the term to mean the quantity of money which circulate in the financial economy.

There are always, of course, changeovers from real to financial economy and in the opposite direction. If we can know the volume and the direction of these changeovers, we can tell the change of quantities of money in two economies.

I am wondering if an increase of money in the financial economy or hoarding in my new definition increases an "energy level" (in a highly figurative sense) of the financial economy and we may say something on it, for example higher probability of bubble or financial crush. How do you think on my idea?

Have you seen this article by Ho-Po Crystal Wong ? 

From A Treatise on Money to the General Theory: John Maynard Keynes' Departure from the Doctrine of Forced Saving

Ho-Po Crystal Wong

Center for the History of Political Economy

Here is the article attached.  I hope you'll find it helpful. I know of another one if I could locate it, I'll send it to you.

Hessein S Kazemi

No, I have not. Thank you for your precious information and for sending me Wong's paper. I have had no enough  time to examine it in detail. I will try to read it as soon as possible.

I did not even know hoarding and enforced saving have a close conceptual relation. Enforced saving and overconsumption are  for Austrians two key concepts in business cycle  theory. The question of hoarding seems to be connected to many strands of economics. I am happy to open my eye to this new topic. 

You are quite welcome.

I think there has been a lot of hoarding since the financial crisis, and that it has been an important influence in retarding the recovery. By 'hoarding' I mean building up stocks of liquid assets for precautionary reasons. The hoarding has been undertaken by companies, who can't get committed lending facilities from their banks as they once could (partly because of the Basel 3 Liquidity Coverage Ratio), and by governments and central banks, many of which were faced in late 2008 by the prospect of their countries' banks not being able to repay dollar deposits and were rescued by the Federal Reserve's swap lines. They are frightened that in a new global liquidity crisis they might not get rescued by the Fed and are building up their own liquid reserves as a kind of insurance. The attached papers support these various assertions.

From a perspective of History of Economic Thought, see Robinson, Joan (1938). The Concept of Hoarding

http://www.jstor.org/discover/10.2307/2224931?sid=21105534489503&uid=2&uid=4