Prosperity and Depression.pdf

208 AnalYsis of Theories Part IA more careful analysis of what is meant by" liquidity preference" or " demand of money " will show, however, that the realdifference between Mr. KEYNES' theory and the theory whichexplains the rate of interest and its daily fluctuations by the interactionof demand for and supply of credit or loans (not saving)is not so great as may at first s~ght appear. A fundamentaldisagreement seems to arise, mainly because hidden assumptionsare overlooked, especially those which are covered by the ceterisparibu.rclause. The" other things " which are assumed to remainunchanged are not the same for all writers. Hence their disagreementis frequently due to their failure to realise the fact that theystart from different assumptions, rather than to the fact that theyarrive at different conclusions under the same set of assumptions.Threemotivesfor holdingmoney.Mr. KEYNES distinguishes three motives forholding money : (i) the· transactions-motive, (ii)'the precautionary-motive and (iii) the speculativemotive.The transactions-motive is defined as" the need of cash for the current transactions ofpersonal and business exchanges " 1 and is split upinto the" income-motive and business-motive ". 2 "One reasonfor holding· money is to bridge the interval between the ·receiptof income and its disbursement . and, similarly, theinterval between the time of incurring business costs and that ofthe receipt of sales proceeds."2 In other words, a certainamount of money is required to " handle" a certain income and acertain volume of transactions. How much money is neededdepends on the velocity of circulation of money and is determinedby the ~bits ofpayment and other factors which have been touchedupon in'ah earlier chapter, where references to the relevant literatureare to be found.aThe precautionary-motive is described as the de,sire to holdcash " to provide for contingencies requiring sudden expenditures1 General Theor'Y, page 170.I Ibid., page 195.a Compare footnote 1 on page 59 (Chapter 3, § 6). The locus classicusof the discussion of these problems is Professor Marget's Theory of Prices,New York. 1938.