Tobin’s mean-variance portfolio model predicts a smooth, downward-sloping speculative demand for money. This is a significant improvement over Keynes’s liquidity preference because:

Keynes: each individual holds either ALL money (r < critical rate) or ALL bonds (r > critical rate) — an all-or-nothing switch. The smooth aggregate demand curve only emerged from aggregating individuals with different critical rates. Tobin’s mean-variance framework: diversification is optimal at the individual level. Each person simultaneously holds both money (low risk, zero return) and bonds (higher return, higher risk), trading off expected return against variance. This generates a smooth individual demand curve — a theoretically superior foundation.