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The Relation of Money Balances to Optimal Consumption, Payments and Receipts

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journal contribution
posted on 01.05.1969, 00:00 by Karl Brunner, Allan 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.