Study Guide to Man, Economy, and State with Power and Market

Chapter 11: Money and Its Purchasing Power 139
5. The Demand for Money
A. Money in the ERE and in the Market
Money would fade out of use in the ERE. With perfect
certainty, people would loan out their cash balances
and schedule repayment just in time for their planned
expenditures. But if everyone is doing this, then the
demand for money (i.e., the desire to hold cash balances)
would be virtually nonexistent. In the real world of
uncertainty, “idle” cash balances perform a useful service,
as they are a means to cope with unplanned expenditures.
B. Speculative Demand
People’s demand for money may be influenced by
their speculation about future changes in the PPM. For
example, if a woman expects that prices in general will
rise greatly in a few months, this may lower her current
demand for money (i.e., she will spend more). Thus her
expectation of a future fall in the PPM will lead to a
reduction in the current PPM of money.
C. Secular Influences on the Demand for Money
As an economy grows, there are more exchange
opportunities and hence (ceteris paribus) an increase in the
demand for money. On the other hand, the development
of clearing systems reduces the demand for cash.
D. Demand for Money Unlimited?
Some reject the notion of a demand for money,
because “people always want more money.” Yet this is
true for all producer and consumer goods! It is simply not