A Subjectmst Approach to the Demand for Money

The renewal of interest in subjectivist economics since the inid 1970s has brought with it the opportunity to apply some of its insights to various fields in econon~ics. One area that has been pursued to a significant extent has been the theory of money. Beginning with Carl Menger'sl theory of money's origin, extending through the contributions of Hutt, Rothbard, White, O'Driscoll, and Selgin2, there appears to be a distinct line of subjectivist monetary theory. Of these contributions however, only the ones of Hutt and Selgin examine what a subjectivist approach to the demand for money might look like. What both emphasize is that the act of holding nloney provides a subjective utility yield to the holder. The recognition of this subjective yield from nloney held is important, but more can be said. A subjectivist approach to the demand for inoney needs also to examine the nature of this yield, compare it to non-money goods, and explore the relevant opportunity costs of holding money. A subjectivist approach can show that the demand for money is not fundamentally different fro111 demanding nonmoney goods. As a result, neoclassical and Keynesian models that portray the only opportunity cost of money held as interest-bearing securities are over-simplified, which leads to problematic macroeconolnic implications. The paper is divided into four sections. The first attempts to describe the yield from money held and compares it to the yield from non-money goods. Next is a conlparison between the demands for money and near-moneys. The third section brings in subjective cost theory to explore more precisely the cost of money held. 'The paper concludes with a discussion of some inacroeconoinic implications.