In section 13.2, Keynes introduces the concept of liquidity-preference to describe the manner in which an individual saves that portion of their income beyond what they consume. Specifically, this preference concerns how liquid they want those savings to be, and how much of a yield they want. Keynes states that the interest rate is the price of debts (see Chapter 13, Section III) and provides a formula to determine whether it is lucrative for someone to loan their savings given a given return of interest, at the cost of diminishing liquidity of their saving (because choosing to hold cash would be more liquid than holding a debt someone owes you): Specifically, this formula illustrates how, if the future interest rate is known (), one would not have a need for the precautionary liquidity of holding cash, which does not have yield, and would instead opt to hold debts with a foreseeable yield according to a future interest rate of which we are certain. Because we cannot be certain of future interest rates, the precaution of holding cash is warranted. The liquidity-preference of the individual reflects the precautionary consideration. Keynes also breaks down liquidity-preference into “transaction motive” (need for liquidity, i.e. cash, for present transactional purposes), “precautionary motive” (need for security in terms of future access to liquidity), and “speculative motive” (ability to have wealth appreciate, even at cost of present liquidity).
unresolved He also starts to explain how the monetary supply impacts these factors, but I did not adequately understand it.