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Hutt - 1952 - The Yield From Money Held

Hutt - 1952 - The Yield From Money Held

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My
AIM
inthisessayistotempttocarrythetenorofMises'teachingastepfurtherintheofmonetarytheory.Afeatureofhisgreatcontribution,
H
Action,
isitsinsistencethatallgoodsandserviceshavethe
scarcity
significance,i.e.,thattheyallstandinanidenticaltohumanchoiceandexchange.Itseemstomethatmoneymonetaryservicesoughttobeincludedunderthisprin?iple,inmannerinwhichMiseshimselfhasnotargued.Inthisfieldeconomistshaveshared,Ifeel,inahinderingtraditionwhich,thelogicofhisapproachbeenextende.d'"Mises';,o<~ld~a,:~off.Irefertothenotionthatmoney
IS
barren,stenle,ductive,""offeringayieldof
nil."
Thisviewisheldtodaybyomistsofallschools.Yetpracticallywithoutexceptiontheythe"services"renderedbymoneyorthe"utilties"derivedmoney.Itisinthisrespectthatwefindtheclearestjusti~~ationWicksell'sconfessionthatin,thefieldofmonetarytheory,callyopposedandsometimesself-contradictoryviewsare
UvLv~JUV
bythemostfamouswriters."
1
Tothebestofmy~owledgedoctrineofthesterilityofmoneyhassofarbeensubjecttochallengeonlybyT.Creidanus.'Thelatterhas,,~owever,notexplainedthefullsignificanceofhis"yieldtheory.
3
1
Wicksell,
Lectures,
II,p.190.
2
T.Greidanus,
TheValueofMoney..
3
MiseshascriticizedGreidanus'workonthegroundsthatananalysismotiveswhichleadpeopletokeepmoneyonhandcannotexplainpurchasingwithoutbringinginthenotionsofcashholdinga~dthedema~~.for"andmoney.ButIhaveinterpretedGreidanusasmeamngthattheYieldhethereturntothe
holding
ofmoney.
196
xv
TheYieldfromMoneyHeld
byW.H.Hun
197
HEECONOMICSOFFREEENTERPRISE
Inthreearticlespublishedsince1952,4Ihavediscussedanam-intheconceptofthe"volumeofmoney."Wehavetodis-
I
havesuggested,betweentheideaof
theaggregateofmoneymeasuredinactualmoneyunits,
likepounds,dol-francs,etc.,and
theaggregateamountofmoneyassetsmeas-in"realterms,"
i.e.,measuredinunitsofconstantvalueinof"thingsingeneral."
5
Theformer,Iregardas"containers"varyingamountsofthe
latter."
Thenotionthatmoneyhasa"yieldof
nil,"
i.e.,thatitdiffersotherassetsinthatitis"deadstock,"persists,Ithink
inpart
gtotheabove-mentionedambiguity.Foroneoftheusualemlanattonsofthissupposedpeculiarityofmoneyreliesonthefactanincreaseinits"quantity"doesnotmeanthatthereisanyin"wealth"or"welfare"or"totalutility."Butthisistrueofthenumberofmoneyunitsor"containers"andnotofwhatinthem.Itisnottrueoftheaggregateamountofassetsmeasuredinrealterms.Moneysoconceivedisas'LV,"'U\CUvesallotherassets,and
productiveinexactlythesame
Andthefactthatthenumberof"containers"(units)mayvariedwhilst
theaggregateamount
ofwhatiscontainedinmayremainconstant(or
viceversa)
innowayaffectsthethatmoneyassetsofferprospectiveyieldsjustastherestofassetspossessedbyindividuals,firms,banksorgovernments.
nn,,"'''''r~
ofinvestment,theyarechosenforthesamereasonthatobjectsarechosen.Thus,
if
theirmarginalprospectiveyieldytimeis
below
thatofotherassets,itwillpaytopartwithofthem,andifitis
above,
itwillpaytoacquiremoneyassetsthepointatwhichthemarginalprospectiveyieldhasfallenrateofinterest.NowMiseshimself,andseveralotherecon-,maintainexplicitlythattheamountofmoneywhichindivid-andfirmsdecidetoholdisdeterminedbythemarginalutility
TheSouthAfricanJournalofEconomics
asfollows:
TheNatureofMoney,1952;TheNotion
at
theVolumeofMoney,
March,1953;
TheNotionofConstantValue,
SeptemberandDecember,1953.definitionswhichIhavefoundusefuldifferfromthosewhichMisesem-thattheterm"moneyassets"asIuseitcoversallassets(tokensorcom-thevalueofwhichisaffectedbyreasonoftheirbeingdemandedfor"i.e.,forthe.
mediumofexchange
serviceswhichtheycanperform.
1111VuLU""
andsecuritieswhichperformmonetaryservicesandotherfunctionsasincludedintheproportiontowhichtheyaremoney.Onthispoint,see
ofMoney,op.cit.,
p.
61.
ofthedifficultiesarisingfromtheconceptof"realterms"arediscussedin
ofMoneyofConstantValue,op.cit.
 
198
ONFREEDOMANDFREEECONOMICSOFFREEENTERPRISE
199
ofits
services."
Yetforsomereasontheyhavenotmadethesmallstepneededtorecognizethisprospectiveyield(of"utili.ties"whichinvitestheholdingofmoney,asthenormalreturntoment.TheprospectiveyieldfrominvestmentinmoneyassetsIsuggest,(a)ofaprospective
pecuniaryyield,
inwhichcasemoneyassetsareproducers'goods;
8
or(b)ofaprospective
pecuniaryyield
inpersonalconvenience,inwhichcasetheassetsareconsumers'capitalgoods;
9
or(c)ofaprospectivei.e.,
non-pecuniary,
speculativeyield,inwhichcasetheassetsproducers'goods,whetherheldprivatelyorinthecourseofness.Inthecaseof(a)and(b),theyieldisderivedintheformtechnicalmonetaryservicesofvariouskinds,whichpermittheeconomicacquisitionofotherfactorsofproductionorgoodsforsumption.Inthecaseof(c),theyieldisderivedintheformthegreatercommandovernon-moneyassetswhicha
unit
ofisexpectedtohaveatsomelaterperiod.Asweshallsee,statementsareall
implied
byMises'teaching,butnever
p.Xlnrf\SSf~d
byhimintermsofprospectiveyield.Inthefollowingpages,Itrytosupportmythesisthatitislogicallycorrect,andfromthestandpointofexposition,torefertotheprospectiveorreturnfromtheholdingofmoneyassets,justasonedoestheholdingofnon-moneyassets.Ishalldosothroughannationoftheprincipalargumentswhichhavebeenusedbymistssincetheearliesttimestoexplainwhymoneyhas
no
pecuniaryorotherwise.IaminclinedtothinkthatthetraditionwhichIam
~".n"f-i;n"",·i.,.,
aroseOriginallythroughtheinfluenceofLockeuponThelatter'sdescriptionof"readymoney...whichadealerobligedtokeepbyhimunemployed,"assomuch"deadwhich...
producesnothing
eithertohimortohiscountry,"
10
influentialemphasistoabadprecedent.Lockehadthreeusedtheverysamewordsofmoney,"producesnothing."land,whichproducessomethingvaluabletomankind,said
7
E.g.,Mises,
HumanAction,
p.445.
8
E.g.,cashinthe
till,
whichoffersprospective
pecuniary
yieldsinexactlysamewaythatthesite,orthebuildings,orthematerials,orthelaborbusinessofferpecuniaryyields.
9
E.g.,thenotesorcashinone'spurseorthebalanceinone'spersonalaccount,theyieldfromwhichisintermsof"gratifications,"just
as
withfurniture
or
house.
10
AdamSmith,
TheWealth
at
Nations,
CannanEdition,
Vol.
I,
p.
303.
italics.)
isabarrenthing";andyetitwas,heargued,subjecttothewsofvalueasothercommodities.Ptheideaisancient.Severalwritershaveattributeditto
12
fo:hecondemnedusuryonthegroundsthat"thebirth~"......"frommoney"was"themostunnatural"modeofmakingCannaninsistedthatitisbynomeanscertainthatAris-though~3mo~ey
was
ba~ren,butmerelythathethoughtit
tobe..
Wicksteed
pomtedoutthatDante,follOWingAris-emphasI~ed.theunnaturalnessofmoneybreedingmoney,byasso~latmgusurers,":ith"sodomitesl
14.
Bacon(whoarguedthetolerationofusury)said,Theysaythatitisagainstnaturemoney~obeg~tmoney,"
1~
but~idnotexplainwhether"they"thatItwasImmoralor
impossible.
Shakespeare,inthesameofthecontroversyoverusury,madeAntonio,in
TheMer-ofVenice,
referto"abreedofbarrenmetal."
16
WecanblameShakespeareforwhathemadeoneofhischaractersthr?ughthisp~ssage;Bonaragreed,"awrongtwist"was
grven
toAnstotles
meaninz.l"
AndBenthamface-ridiculingwhatAristotlewassupposedtohaveh~ldal-thatthe"celeb~,atedheathen"philosopherdescribedm~neybecausehehadneverbeenabletodiscover,inanyoneofmoney,any'or~ansf?rgeneratinganyothersuchpiece."
19
althoughthisdISCUSSIOnfthelegitimacyofusurycontin-tobe~loudedbythe~onfus~onoftheconceptofmoneywithofcapital(allmoneyISc~pltal,butnotallcapitalismoney),
-.....~_.LU
tohav~beenresponsibleforthecontinuingandstillcur-thatmoneydoesnotmulitplyitself,"asdootherforms
SomeConsiderationsoftheConsequencesoftheLoweringofInterest
.InLocke,
Works,
Vol.V,1801Edn.,pp.36-7.Lockediscussedaymentuseofmoney,.butthenbecamecaughtinthepersistentconfusionbetweenandmoneywhichwassocommonbeforeMill'stime.
.nn:LUUltJ.,
Polit~cs,
I,
(10),JowettTranslation,1258b.AdamSmithwasun-dIre~tlyI~uencedalsobyAristotle'sremarkableinsightintothenatureSeniorpointedoutthatAdamSmithusedaphrasewhichwouldserve
uuusrauon
ofaphraseinAristotle's
Ethics.
the?elightful.symposiu~,
Whosaid"BarrenMetal?",
byCannan,Ross,Wicksteed,m
Economiea,
1922,No.5.ThisparagraphisbasedonthatWicksteeld,in
tu«,
p.109.
.onUsury,
quotedin
Ibid.,
p.107.
rn
p.105.p".107.Bonar.
pointed
outalsothatAristotle'sideasonthe
subject
had
Via
the
canonists.
'U.DOfllfl-J:'aw'erKescribeditas"Witty,"Cannanas"coarse."'ne:ntn;am,
Defence
of
Usury,
quotedin
Ibid.,
p.105.
 
200
ONFREEDONfANDFREEECONONfICSOFFREEENTERPRISE
201
ofproductivecapital.Andwemust,Ifear,blameeither
LU'-'Alt:,
whosefailuretothrowofftheancientandbarrennotionofmetal"therebyperpetuatedit,orelseAdamSmith,whowasuncriticallyindebtedtoLocke(orAristotledirectly)and
,..""t1"·HI~
gatedtheinsidiousfallacy.Locke'sinfluencewasallthegreaterbyreasonoftheimpressiverationaltreatmentwhichhedevotedtotheroleandfunctionsmoney.Hehadaremarkablymoderngraspofthetasksmoneyhasto
perform."
Indeed,heperceivedclearlywhatwetodaythe"institutional"factorsdeterminingthedemandmoney."21Andmostinterestingofall,hesawthatmoneyhadnatureofland,"theinterestonlandbeingbuttherent.22Inthesewords,heseemedtocomeveryneartostatingtheveryfortherecognitionofwhichIamnow
pleading,
for,hesaid,
"income"
oflandiscalled"rent"andthatofmoney,"use."page
216)
Alittlelateron,however,heapparentlyAristotle(orAntonio!)andwrote:"Landproducessomethingandprofitable,andofvaluetomankind;butmoneyisabarrenandproducesnothing."23Inpart,theconfusionhereseemstobetothenarrowviewofwhatconstitutesproductiveness;although,havesaid,theoldconfusionbetweentheconceptsofmoneyanditalseemsmainlytoblame.Hethoughtofmoney
lent
as
IHIJLlL'--
tothelender,butpresumablynotproductivetotheborrower.thereissimilarlyno
direct
pecuniaryreturnfromlandunlessitouttosomeoneelse.Doesthatmean,then,thatourlandusnoreturn,pecuniaryorreal,whenitisnotlent?Obvi-not.Ofcourse,
if
onefindsthat
thewholeof
one'scash
bal-
isunnecessary(i.e.,
if
somepartofthebalanceoffersnotiveorconvenienceyieldvaluedatabovetherateofinter-andonethenfailstomakeotheruseoftheredundantsum,lendittosomeonewhocan,thesurplus
will
remain"barren,"likeunutilizedland.Atrader'sstocksof
anything
maybewaste-large.Thereisnothinguniqueaboutmoneyinthisrespect.owingtoLocke'sfailuretomakethesmallfurtherjump,andtostatethattheproductivenessofmoneydoesnotinanymaterialmannerfromthatofland,thatwemayhaveoriginoftherootfallacywhichhasconfusedmonetarytheorysince.Thesubsequenttraditionhasbeentoregardmoneyas"resourcevalue"orcapitalvalue,butno"servicevalue."LockeandAdamSmith,variouswritersperceivedtheofmoney,e.g.,CantillonandBurne,buttheyfailedto"usefulness"isameresynonymfor"productiveness"or
"24
20
Thus,herecognised"thenecessityofacertainpropo~ion"ofmoneyto(Locke,
op.cit.,
p.21);hesawthatthenecessaryproportiondependsnotonthequantityofmoney,butthequicknessofitscirculation"
(Ibid.,
P:23
explainedthatacoin
could,
"restinthesamehandsonehundreddays
.~_~.k,_.
whichwouldmakeit"impossibleexactlytoestimatethequantityofmoneyintrade"
(Ibid.,
p.23);andhegaveasurprisinglycompletetreatmentofindispensabilityofmoneyasaninstrumentinthehandsofdifferentclassesofcommunity(laborers,farmers,tradesmen,landholders,brokers,consumers,
(Ibid.,
pp.24ct.
seq.),
21
Forexample,hewrote:
"It
werebetterfortrade,andconsequentlyforbody,(formoneywouldbestirring,and
lesswoulddothebusiness)
if
rentspaidbyshorterintervals....Agreatdeallessmoneywouldservefortheofacountry."
Ibid.,
p.
27
(myitalics).
If
hehadsaid,instead,thattherehavebeen
lessworkformoneytodo,
hewouldhavebeenmuchnearerto
enunciat-
ingareallysatisfactorytheory.
22
Ibid.,
p.
33.
23
Locke,
op.cit.,
p.36.Onotheroccasionsheappearedtowaver.anotherplace,heactually
implied
thatmoneyisproductive,although
lessrreaueruu.
thanland.Hereferredto"themanyandsometimeslong
intervalsof
hnrrenmes
whichhappentomoneymorethanlan~.Moneyatuse,whenretur~~,dto~heoftheowner,usuallyliesdeadthere,tillhegetsanewtenantforIt
(Ib,d.,
p.myitalics).Butasweshallsee,moneydoesnotworkbycirculating.
Smith'scontributiononthepoint,althoughobviouslyin-bythatofLocke,differedslightlyfromit.Attimes,he
re-
moneyas"theinstrumentofcommerce,"
25
butatotherhe
denied
thatitwas"atooltoworkwith."
26
"Goldandsilver,"wroteelsewhere,"whetherintheformofcoinorofplate,are...asmuchasthefurnitureofthekitchen."
27
Buthenothavedescribedfurnitureas"productive."This"deadhesaidofmoney,"isaveryvaluablepartofthecapitalofcountry,whichproducesnothingtothecountry."
28
His
ac-
'-:llI"UI~;C
ofsuchaparadoxcanprobablybeexplained,aswithbythenarrowconceptionof"productivity"ofhisday."Theandsilvermoneywhichcirculatesinanycountrymay,"he"veryproperlybecomparedtoahighway,which,whileitandcarriestomarketallthegrassandcornofthecountry,
UUIU.'-'~;;')
itselfnotasinglepileofeither."29Tosomeextenthe
SeeGreidanus,
TheValueofMoney,
pp.21-31.AdamSmith,
op.
cit.,
Vol.
I,
p.396.Humealsousedtheword"instrument"for(QuotedGreidanus,
op.
cit.,
p.31.)Vol.
I,
p.
279,
Ibid.,
Vol.
I,
pp.
406-7.
Ibid.,
Vol.
I,
p.
304.
(Herepeatedthesewords-"deadstock,""produces
noth-
thesameparagraph.)
Ibid.,
Vol.
I,
p.
304.

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