Thursday, January 31, 2013

The Demand for Money

Demand? What is demand, anyway? If I'm hungry and I want to eat, that's demand.

Does the hamburger I had yesterday count as demand? Well, okay, unless today is New Year's Day, yesterday's hamburger counts in this year's measure of aggregate demand. But how about the hamburger I had in 1968? How about the new car I bought in 1974?

Stupid question? You'd think. Demand then was demand then. Demand now is demand now. The new car I bought then does not count as demand now, even if I still have that car. It's obvious.

But it's not obvious when we're talking about money. What is the demand for money?

For me, it's the reason I work: to satisfy my demand for money. And then I spend it, and then I have to work again the next week, because my demand for money is insatiable.

But what if I didn't buy that car in 1974. What if I put the money into savings instead. Then, instead of still having that car I would still have that money. And economists would figure that money in, when they figure the demand for money.

But they wouldn't figure my old car in.

But they would figure my old saving in.

Somehow, that's not right.

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