The Little Things

Holding Patterns

How are we gonna solve the big problems if we don't even know the meaning of little words?

Milton Friedman used to write about "the amount of money people want to hold." I never quite understood it. I want to hold lots of money. Who would want to hold less? It never made sense to me.

In a post I once wrote:

The ambiguous phrase 'holding money' cannot refer to M1, because nobody can hold on to it. The phrase must refer to (M2-M1) or money in savings.

Bob Murphy disagreed:

At any given time, every unit of money is held in somebody's cash balances. You are saying that it's impossible to hold money? I have $80 in my wallet right now. Don't you have some too?

For Murph, if it's in your wallet, you're "holding" it. M1 is the money we hold, according to this view. Or the money we hold is part of M1. (Which is very nearly the same thing you know, Alice.)

Maybe it's the word hold that gives me trouble. I start out the week with cash in the wallet. But by week-end it's gone. Is that holding money? I don't see it. I know, when I spend a dollar somebody else receives it. And then they get to hold it for a moment before they spend it. But this isn't holding. It's flow.

Reading really old stuff about money, from the 1600s or so, I've been struck by statements that money would change hands only two or three times per year. Now that was holding on to money.