Although the Demand for Money Can Be Defined as a FLOW or as a STOCK, We Will Use the Stock or Cash Balances Definition

The demand for money can be defined either as the demand for monetary payments (flow), or as the demand for cash balances (stock). As far as the determination of the price level is concerned, both definitions lead to the same result. We will work with the second definition (money demand concerns cash balances) because it highlights the crucial fact that money renders its services not only at the moment when it is used in spending, but also during the entire period when it is being held or “hoarded.” Money is the most marketable commodity. Thus cash balances, even while they are not being spent, provide liquidity services to their owners.

Cash balances are demanded for the liquidity services they provide. They are demanded for their purchasing power. The only exception is the merely nominal demand for money by collectors. The latter are not interested in the purchasing power of the bank notes and coins they collect. They are only interested in the notes and coins per se—that is why we call them collectors. But true money users do not demand mere nominal cash balances, but real cash balances. They demand a certain purchasing power.

—Jörg Guido Hülsmann, “The Demand for Money and the Time-Structure of Production,” in Property, Freedom, and Society: Essays in Honor of Hans-Herman Hoppe, ed. Jörg Guido Hülsmann and Stephan Kinsella (Auburn, AL: Ludwig von Mises Institute, 2009), 311.