What is speculative demand?
Speculative demand is a term from Keynesian economics which describes the desire to have money for the purpose of investing in assets. For Keynes, all assets other than money are categorised as ‘bonds’. His other two needs regarding demand for money are precautionary demand and transactions demand.
Key takeaways
Speculative demand, a term from Keynesian economics, describes the desire to hold money for the purpose of investing in assets, and is one of three motives for demanding money alongside precautionary and transactions demand.
In Keynesian theory, money is viewed as an asset class with its own rate of return and opportunity cost, with Keynes categorizing all assets other than money as 'bonds'.
Holding money generally provides zero rate of return with inflation risk, while the opportunity cost is the potential return from investing or lending that money instead.
Your speculative demand for holding money or other assets is driven by your future expectations of inflation, interest rates, and market returns.
Where have you heard about speculative demand?
As an informed investor, you’ve likely heard of British economist John Maynard Keynes and his economic theory that growth is best served by an interventionist government. Whenever you invest in an asset other than money, you’re engaging in Keynes’ speculative demand: you’ve foregone the high opportunity cost of holding cash.
What you need to know about speculative demand.
Speculative demand is one of Keynes’ three motives for demanding money. In this case, money is viewed as an asset class like any other with a rate of return and an opportunity cost of holding it. Generally, holding money provides you with a zero rate of return with the added prospect of high inflation lowering its value. The opportunity cost is the return you can earn by investing or lending your money. Therefore, your speculative demand for holding money or other assets is driven by your future expectations of inflation, interest rates and market returns.