Philipji.com

20 April 2011

I said a few days ago that all economists — the Keynesians, the monetarists and the Austrians — look upon money as cash balances and the demand for money as the demand for cash balances.

I am happy to find that there is at least one exception: Joseph Schumpeter. This is what he says in Business Cycles (1939):

"If people get their 'incomes' each Saturday and spend them on consumers' goods each succeeding Monday — transactions between firms being excluded — then the money will lie about in the vaults of firms from Monday to Saturday, not because there is any demand for cash holdings, but because the institutional arrangement so wills it."

Ah, common sense! So wonderful, so uncommon!

Category: Economics

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