We consume things for survival at present. We reserve something for the future, just in case, and for a better future: the first is a must as long as we want to remain alive at old age; the second is an almost-indispensable contingency measure because of various uncertainties along our life; the third is strongly desired by our nature. Normally we reserve the something in the form of assets with a positive rate of return. Financial economists posit that we would consume at present if the rate of return from an asset is smaller than the time value of money.
At the center of Keynesian economics is the “preferred liquidity” aka money. Is money an asset? No, it is not, period! As Irving Fisher, before Keynes (BK), and Paul Samuelson, after Keynes (AK), each clarified, “money is useless until we get rid of it”: it is neither a product for consumption nor an asset for investment. Quite on the contrary, money is smelly, voluminous, and dangerous to carry around; if you are not sure, you may want to listen to Boney M’s signature song Ma Baker. Apparently, we are forced to hoard money in spite of various carrying costs in convenience and returns.
Now, you hoard money, preferably or forcedly. What follows? The interest rate goes up or falls down? C’mon, Isaac Newton has long proven that there would not be any reaction without an action: if you do not spend your money, an action, there would not be any effect whatsoever, a reaction, where-so-ever. Why is such impotent liquidity so very much important in economics?
To conclude, the term “liquidity” is more religious than economic. For more discussion, you may refer to the attachment.
Attachment:
Saving Macroeconomics from the Grand Trap of Liquidity