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Methodological Considerations in Demand-for-Money Construction

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Timberlake Jr., R. Methodological Considerations in Demand-for-Money Construction. Credit and Capital Markets – Kredit und Kapital, 16(3), 381-393. https://doi.org/10.3790/ccm.16.3.381
Timberlake Jr., Richard H. "Methodological Considerations in Demand-for-Money Construction" Credit and Capital Markets – Kredit und Kapital 16.3, 1983, 381-393. https://doi.org/10.3790/ccm.16.3.381
Timberlake Jr., Richard H. (1983): Methodological Considerations in Demand-for-Money Construction, in: Credit and Capital Markets – Kredit und Kapital, vol. 16, iss. 3, 381-393, [online] https://doi.org/10.3790/ccm.16.3.381

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Methodological Considerations in Demand-for-Money Construction

Timberlake Jr., Richard H.

Credit and Capital Markets – Kredit und Kapital, Vol. 16 (1983), Iss. 3 : pp. 381–393

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Timberlake Jr., Richard H.

References

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  31. Ritter, Lawrence S. and William L. Silber: Principles of Money, Banking, and Financial Markets, 2nd ed., N.Y.: Basic Books, 1977.  Google Scholar
  32. Weintraub, Robert: Introduction to Monetary Economics, N.Y.: Ronald Press, 1971.  Google Scholar
  33. Yeager, Leland B.: “Essential Properties of the Medium Exchange,“ Kyklos, Vol. 21, No. 1, pp. 45 - 68, [re-printed in Monetary Theory, ed., R. W. Clower, Penguin Books, Ltd.: England, 1970, pp. 37 - 60.]  Google Scholar
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  35. Buchanan, James: “Ceteris Paribus: Some Notes on Methodology,” Southern Economic Journal, Vol. XXIV, No. 3 (January, 1958), pp. 262 - 263.  Google Scholar
  36. Cannan, Edwin: Money, London: Staples Press, 8th ed., 1946.  Google Scholar
  37. Chandler, Lester V. and Stephen M. Goldfeld: The Economics of Money and Banking, 7th ed., N.Y.: Harper & Row, 1977.  Google Scholar
  38. Friedman, Milton: “The Marshallian Demand Curve,” Journal of Political Economy, LVII (December, 1949), pp. 463 - 495.  Google Scholar
  39. Friedman, Milton: “The Quantity Theory of Money: A Restatement,” from Studies in the Quantity Theory of Money, Friedman (ed.), University of Chicago Press: Chicago, pp. 3 - 21.  Google Scholar
  40. Kamerschen, David R.: Money and Banking, 7th ed., Cincinnatti: South-Western Publishing Co., 1980.  Google Scholar
  41. Kaufman, George G.: Money, the Financial System and the Economy, N.Y.: Rand McNally, 1973.  Google Scholar
  42. Keynes, John Maynard: The General Theory of Employment, Interest and Money, NYL Harcourt Brace, 1936. - Klein, John J.: Money and the Economy, 2nd ed., New York: Harcourt Brace, 1980.  Google Scholar
  43. Makinen, Gail: Money, The Price Level, and Interest Rates, N.J.: Prentice-Hall, 1977.  Google Scholar
  44. Mill, John Stuart: Principles of Political Economy. (ed. W. J. Ashley), NY: Longmans, Green, 1923.  Google Scholar
  45. Modigliani: “Liquidity Preference and the Theory of Interest and Money,“ Econometrica, 12 (1944), pp. 45-88, [re-printed in Readings in Monetary Theory, The Blakiston Co.: NY, 1951, pp. 186 - 239].  Google Scholar
  46. Patinkin, Don: Money, Interest, and Prices, 2nd ed., Harper & Row: NY, 1965.  Google Scholar
  47. Pigou: “The Value of Money,” Quarterly Jourrial of Economics, 32 (1917 - 1918), pp. 162 - 183, [re-printed in Readings in Monetary Theory, Mints and Lutz ed., (NY: 1951), The Blakiston Company, p. 165.] - Ritter, Lawrence S. and William L. Silber: Principles of Money, Banking, and Financial Markets, 2nd ed., N.Y.: Basic Books, 1977.  Google Scholar
  48. Weintraub, Robert: Introduction to Monetary Economics, N.Y.: Ronald Press, 1971.  Google Scholar
  49. Yeager, Leland B.: “Essential Properties of the Medium Exchange,“ Kyklos, Vol. 21, No. 1, pp. 45 - 68, [re-printed in Monetary Theory, ed., R. W. Clower, Penguin  Google Scholar
  50. Books, Ltd.: England, 1970, pp. 37 - 60.] References Beranek, William: “Keynes’s Liquidity Trap: Another View,“ (forthcoming).  Google Scholar
  51. Buchanan, James: “Ceteris Paribus: Some Notes on Methodology,” Southern Economic Journal, Vol. XXIV, No. 3 (January, 1958), pp. 262 - 263.  Google Scholar
  52. Cannan, Edwin: Money, London: Staples Press, 8th ed., 1946.  Google Scholar
  53. Chandler, Lester V. and Stephen M. Goldfeld: The Economics of Money and Banking, 7th ed., N.Y.: Harper & Row, 1977.  Google Scholar
  54. Friedman, Milton: “The Marshallian Demand Curve,” Journal of Political Economy, LVII (December, 1949), pp. 463 - 495.  Google Scholar
  55. Friedman, Milton: “The Quantity Theory of Money: A Restatement,” from Studies in the Quantity Theory of Money, Friedman (ed.), University of Chicago Press: Chicago, pp. 3 - 21.  Google Scholar
  56. Kamerschen, David R.: Money and Banking, 7th ed., Cincinnatti: South-Western Publishing Co., 1980.  Google Scholar
  57. Kaufman, George G.: Money, the Financial System and the Economy, N.Y.: Rand McNally, 1973.  Google Scholar
  58. Keynes, John Maynard: The General Theory of Employment, Interest and Money, NYL Harcourt Brace, 1936.  Google Scholar
  59. Klein, John J.: Money and the Economy, 2nd ed., New York: Harcourt Brace, 1980.  Google Scholar
  60. Makinen, Gail: Money, The Price Level, and Interest Rates, N.J.: Prentice-Hall, 1977.  Google Scholar
  61. Mill, John Stuart: Principles of Political Economy. (ed. W. J. Ashley), NY: Longmans, Green, 1923.  Google Scholar
  62. Modigliani: “Liquidity Preference and the Theory of Interest and Money,“ Econometrica, 12 (1944), pp. 45-88, [re-printed in Readings in Monetary Theory, The Blakiston Co.: NY, 1951, pp. 186 - 239]. - Patinkin, Don: Money, Interest, and Prices, 2nd ed., Harper & Row: NY, 1965.  Google Scholar
  63. Pigou: “The Value of Money,” Quarterly Jourrial of Economics, 32 (1917 - 1918), pp. 162 - 183, [re-printed in Readings in Monetary Theory, Mints and Lutz ed., (NY: 1951), The Blakiston Company, p. 165.]  Google Scholar
  64. Ritter, Lawrence S. and William L. Silber: Principles of Money, Banking, and Financial Markets, 2nd ed., N.Y.: Basic Books, 1977.  Google Scholar
  65. Weintraub, Robert: Introduction to Monetary Economics, N.Y.: Ronald Press, 1971.  Google Scholar
  66. Yeager, Leland B.: “Essential Properties of the Medium Exchange,“ Kyklos, Vol. 21, No. 1, pp. 45 - 68, [re-printed in Monetary Theory, ed., R. W. Clower, Penguin Books, Ltd.: England, 1970, pp. 37 - 60.]  Google Scholar

Abstract

Methodological Considerations in Demand-for-Money Construction

This paper challenges the logic, the utility, and the theoretical consistency of constructing a demand for money that uses interest rates as the independent variable. The classical economists from Mill to Pigou saw money in a framework where the independent variable was the inversion of an index of money prices. Their demand for money thus had the same methodological constraints - tastes and real incomes - as the demand for any conventional good or service. The Keynesian construction in the General Theory buried the price level in the spending aggregates (income, consumption and investment), and posited a speculative demand-for-money that assumed one or another of various interest rates as the independent variable. It thereby obscured and de-emphasized the effect of money on prices. Current textbook treatment of the demand for money is almost entirely along Keynesian lines; that is, it is couched in terms of interest rates while the classical construction using an inversion of money prices is ignored. The reason the Keynesian concept prevails is because it offers the simplification of putting money into a market so that a price (interest rate) may be seen. In fact, as Leland Yeager has observed, money to be money must be in all markets. And the only way to obtain a price for an item that enters all markets in which money prices are determined is by use of an aggregated abstraction, i.e., an index number. The conclusion is that the utility of monetary analysis to the economist is maximized when the constraints surrounding the demand-for-money function are compatible with those assumed for the demands of ordinary goods and services