A Micro View of the Money Transactions Market

This paper provides a micro-oriented, price-theoretic perspective on the transactions money market. Such a perspective is useful for three reasons. First, it emphasizes that the supply of transactions money will depend on, among other things, the state of technology in the transactions-money producing industry, the price of transactions money, the cost of factors of production utilized to manufacture transactions money, and the prices of substitutes for and complements of transactions money--types of determinants that are commonly taken into account in the specification of a supply curve of commodities other than transactions money but have been given either little attention or ignored in the case of transactions money. Second, a micro perspective can also deal with the fact that transactions money is not a homogeneous good--provided that the costs of transforming/transporting the different money forms to a homogeneous state are specifiable (the divisia approach to monetary aggregation notably takes a percentage transformation/ transportation cost approach). Third, a micro perspective affords a framework for comparative statics--i .e., for estimating the a1 locative and distributive consequences of such aspects of the market as reserve requirements (a percentage tax on regulated transactions money producers), interest-rate cei1ings (transactions money price floors), and improvements in technology Or innovations (outward shifts of the transact ions money supply curve--contrary to the currently popular approach, which models such innovations as inward shifts of the demand curve for transactions money).