This paper examines whether private assets provide sufficient liquidity for the efficient functioning of the productive sector or if the state needs to supply liquidity and regulate it. The authors model a scenario where firms can meet liquidity needs through issuing new claims, obtaining credit lines, or holding claims on other firms. In the absence of aggregate uncertainty, these instruments are sufficient for achieving the socially optimal contract, which imposes a maximum leverage ratio and liquidity constraint on firms. Intermediaries coordinate liquidity use, and without them, scarce liquidity may be wasted. When aggregate uncertainty is present, the private sector is no longer self-sufficient. The government can improve liquidity by issuing bonds that commit future consumer income. Government bonds command a liquidity premium over private claims. The government should manage liquidity by loosening it when shocks are high and tightening when shocks are low. The paper provides a microeconomic rationale for government-supplied liquidity and active government policy. The paper analyzes liquidity supply in a general equilibrium model with many firms. Each firm can issue claims contingent on its financial position, and the government can supply liquidity through securities like Treasury bonds. Firms can meet liquidity needs by issuing claims on their assets, holding claims on other firms, holding government claims, or using credit lines. The authors show that in the absence of aggregate uncertainty, government securities do not add useful liquidity beyond private claims, and the private sector is self-sufficient. However, individual firms may not be able to meet liquidity needs with private instruments alone. Intermediaries can act as liquidity pools or insurers, redistributing excess liquidity to firms that need it. Intermediation may dominate financial markets. In the presence of pure aggregate uncertainty, the private sector cannot be self-sufficient. The government can achieve a Pareto improvement by issuing Treasury bonds, which can be sold at a liquidity premium. The government can ensure the productive optimum by issuing bonds at the market rate of interest. The introduction of government bonds reduces date-0 investments but increases date-1 reinvestments. Expected output, aggregate investment, and firm value all increase. The government's objective is to maximize total surplus, and the liquidity premium reflects the cost of supplying liquidity. The paper concludes that government-supplied liquidity and active management are essential for efficient outcomes.This paper examines whether private assets provide sufficient liquidity for the efficient functioning of the productive sector or if the state needs to supply liquidity and regulate it. The authors model a scenario where firms can meet liquidity needs through issuing new claims, obtaining credit lines, or holding claims on other firms. In the absence of aggregate uncertainty, these instruments are sufficient for achieving the socially optimal contract, which imposes a maximum leverage ratio and liquidity constraint on firms. Intermediaries coordinate liquidity use, and without them, scarce liquidity may be wasted. When aggregate uncertainty is present, the private sector is no longer self-sufficient. The government can improve liquidity by issuing bonds that commit future consumer income. Government bonds command a liquidity premium over private claims. The government should manage liquidity by loosening it when shocks are high and tightening when shocks are low. The paper provides a microeconomic rationale for government-supplied liquidity and active government policy. The paper analyzes liquidity supply in a general equilibrium model with many firms. Each firm can issue claims contingent on its financial position, and the government can supply liquidity through securities like Treasury bonds. Firms can meet liquidity needs by issuing claims on their assets, holding claims on other firms, holding government claims, or using credit lines. The authors show that in the absence of aggregate uncertainty, government securities do not add useful liquidity beyond private claims, and the private sector is self-sufficient. However, individual firms may not be able to meet liquidity needs with private instruments alone. Intermediaries can act as liquidity pools or insurers, redistributing excess liquidity to firms that need it. Intermediation may dominate financial markets. In the presence of pure aggregate uncertainty, the private sector cannot be self-sufficient. The government can achieve a Pareto improvement by issuing Treasury bonds, which can be sold at a liquidity premium. The government can ensure the productive optimum by issuing bonds at the market rate of interest. The introduction of government bonds reduces date-0 investments but increases date-1 reinvestments. Expected output, aggregate investment, and firm value all increase. The government's objective is to maximize total surplus, and the liquidity premium reflects the cost of supplying liquidity. The paper concludes that government-supplied liquidity and active management are essential for efficient outcomes.