The Two Demands: Why a Demand for Non-Consumable Money is Different From a Demand For Consumable Goods

Abstract

The paper explicitly discusses the key differences between a demand for consumables and demand for (non-consumable) credit money. For example, in contrast to consumables, money cannot be demanded by only one agent; it is a stock variable; credit requires special arrangements to implement trust now to clear up a debt later; for a finite time period there is zero demand for nonconsumable money (Hahn paradox). These issues are important for developing micro-foundations of monetary macroeconomics, including those for a liquidity trap and credit crunches, not well investigated in existing literature. Contemporary economic theory already has some answers, initiated by works of Martin Shubik. These micro-foundations are vitally important for understanding a credit crisis and credit cycle as interactions between real and financial sectors of economic systems.