Carnegie Mellon University
The Relation of Money Balances to Optimal Consumption Payments a.pdf.pdf' (970.09 kB)
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The Relation of Money Balances to Optimal Consumption, Payments and Receipts

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journal contribution
posted on 1969-05-01, 00:00 authored by Karl Brunner, Allan MeltzerAllan Meltzer

One of the classical problems of economics is to explain why people hold money. The variety of attempts to derive or explain the existence of a demand for money have made the existence of a non-zero -demand depend x>n legal restrictions, -uncertainty, the expectation of price changes and many other factors. The most frequent explanation is the Keynesian explanation which makes the demand for money depend on a number of ostensibly separate Motives" for holding money. This explanation differs from its classical forebears because a variety of motives are introduced in place of the single classical motive —"the transactions motive. The Keynesian and.the classical arguments both suffer from the same defect; they fail to relate the explanation of money holding to economic theory. Holding money is not explained as the result of maximizing behavior by individuals and firms -- the ultimate money holders.




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