The total stock of money in a society is the total number of ounces of the money commodity available. Throughout this volume we have deliberately used “gold ounces” instead of “dollars” or any other name for money, precisely because on the free market the latter would only be a confusing term for units of weight of gold or silver.

Chapter 2 described the difference between “claims to present goods” and “claims to future goods.” The same analysis applies to money as to barter. A claim to future money is a bill of exchange—an evidence of a credit transaction. The holder of the bill—the creditor—redeems it at the date of redemption in exchange for money paid by the debtor. A claim to present money, however, is a completely different good.

Since money-substitutes exchange as money on the market, we must consider them as part of the supply of money. It then becomes necessary to distinguish between money (in the broader sense)—the common medium of exchange—and money proper. Money proper is the ultimate medium of exchange or standard money—here the money commodity—while the supply of money (in a broader sense) includes all the standard money plus the money-substitutes that are held in individuals’ cash balances.

One popular criticism of 100-percent bank reserves charges that the bank could not then earn any income or cover costs of storage, printing, etc. On the contrary, a bank is perfectly capable of operating like any goods warehouse, i.e., by charging its customers for its services to them and reaping the usual interest return on its operations.

It is true, as we have said, that the only use for money is in exchange. From this, however, it must not be inferred, as some writers have done, that this exchange must be immediate. Indeed, the reason that a reservation demand for money exists and cash balances are kept is that the individual is keeping his money in reserve for future exchanges. That is the function of a cash balance—to wait for a propitious time to make an exchange.

One of the most obvious influences on the demand for money is expectation of future changes in the exchange-value of money. Thus, suppose that, at a certain point in the future, the PPM of money is expected to drop rapidly. How the demand-for-money schedule now reacts depends on the number of people who hold this expectation and the strength with which they hold it. It also depends on the distance in the future at which the change is expected to take place. The further away in time any economic event, the more its impact will be discounted in the present by the interest rate.

Long-run influences on the demand for money in a progressing economy will tend to be manifold, and in both directions. On the one hand, an advancing economy provides ever more occasions for new exchanges as more and more commodities are offered on the market and as the number of stages of production increases. These greater opportunities tend greatly to increase the demand-for-money schedule. If an economy deteriorates, fewer opportunities for exchange exist, and the demand for money from this source will fall.

A popular fallacy rejects the concept of “demand for money” because it is allegedly always unlimited. This idea misconceives the very nature of demand and confuses money with wealth or income. It is based on the notion that “people want as much money as they can get.” In the first place, this is true for all goods. People would like to have far more goods than they can procure now.

We have been discussing money, and shall continue to do so in the current section, by comparing equilibrium positions, and not yet by tracing step by step how the change from one position to another comes about. We shall soon see that in the case of the price of money, as contrasted with all other prices, the very path toward equilibrium necessarily introduces changes that will change the equilibrium point. This will have important theoretical consequences.