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Money and the Real World pp 159–188Cite as

Palgrave Macmillan

The Demand for Money as a Medium of Exchange

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Abstract

The fundamental question for monetary theory is why do people hold money which is barren rather than interest bearing securities or ‘productive’ physical goods? The answer must involve uncertainty!

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Notes

  1. R. F. Harrod, ‘Themes in Dynamic Theory’, Economic Journal, 73 (1963) p 442.

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  2. A. Hansen, Monetary Theory and Fiscal Policy (New York: McGraw-Hill, 1949) p. 61.

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  3. J. M. Keynes, ‘Alternative Theories of the Rate of Interest’, Economic Journal (1937) 47, pp. 241–52.

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  4. Cf. J. Robinson, The Rate of Interest and Other Essays (London: Macmillan, 1952) pp. 20–2.

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  5. J. M. Keynes, ‘The Ex-Ante Theory of the Rate of Interest’, Econ. Jour. 47 (1937) p. 667.

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  6. As we will show below, it was this aspect that led D. H. Robertson to utter the triumphal note that Keynes had at last restored productivity ‘to something like its rightful place in governing the rate of interest from the side of demand’. See D. H. Robertson, ‘Mr. Keynes and “Finance”’, Economic Journal, 48 (1938) p. 317.

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  7. M. Friedman, ‘The Demand for Money: Some Theoretical and Empirical Results’, Journ. Pol. Econ. 67 (1959) pp. 328–38. Permanent incomes and prices represent expectational levels which, it is assumed, will be realised since there is no uncertainty in Friedman’s model.

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  8. J. R. Hicks, ‘Mr. Keynes and the “Classics”: A Suggested Interpretation’, Econometrica, 5 (1937) pp. 147–59.

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  9. Keynes, ‘The Ex-Ante Theory of the Rate of Interest’, Econ. Jour. 47 (1937) p. 669.

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  10. D. H. Robertson, Essays on Monetary Theory (London: Staples, 1940) pp. 10–12.

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  11. J. G. Gurley and E. S. Shaw, Money in a Theory of Finance (Washington: Brookings, 1960) p. 228.

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  12. J. M. Keynes, ‘The Ex-Ante Theory of the Rate of Interest’, Econ. Journ. 47 (1937) p. 668.

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  13. J. M. Keynes, ‘The Ex-Ante Theory of the Rate of Interest’, Econ. Jour., 47 (1937) pp. 668–9. Italics added.

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  14. J. M. Keynes, ‘Alternative Theories of the Rate of Interest’, Econ. Journ. 47 (1937) p. 248. Italics added. Of course, if there was some queueing initially (before the increase in the demand for finance), then the length of the queue will increase as planned transactions rise as a result of entrepreneurs attempting to finance more investment projects than before.

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Authors
  1. Paul Davidson
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© 1978 Paul Davidson

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Davidson, P. (1978). The Demand for Money as a Medium of Exchange. In: Money and the Real World. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-15865-2_7

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