The Mises Institute has recently posted the text of a lecture by Hans-Hermann Hoppe, "'The Yield from Money Held' Reconsidered". The title refers to a classic article by W. H. Hutt. The theme and title of Prof. Hoppe's lecture recall an earlier paper by George Selgin, "The Yield from Money Held Revisited: Lessons for Today," which originally appeared in Market Process and was reprinted in Peter J. Boettke and David L. Prychitko, eds., The Market Process: Essays in Contemporary Austrian Economics (Aldershot, U.K.: Edward Elgar, 1994), pp. 139-65. Selgin's article does not appear to be available online.

Hoppe's discussion unfortunately suggests that Selgin's view (and mine, and Roger Garrison's) is opposed to that of Hutt's classic article. Not so. Selgin and I are both big fans of the article, and I assume Garrison is as well.

Hoppe writes:

The second example [of supposed anti-Hutt thinking] is from closer at home, i.e., from the proponents of "free banking" such as Lawrence White, George Selgin, and Roger Garrison. According to them, an (unanticipated) increase in the demand for money "pushes the economy below its potential," (Garrison) and requires a compensating money-spending injection from the banking system.

Here it is again: an "excess demand for money" (Selgin & White) has no positive yield or is even detrimental; hence, help is needed. For the free bankers help is not supposed to come from the government and its central bank, but from a system of freely competing fractional-reserve banks. However, the idea involved is the same: the holding of (some, "excess") money is unproductive and requires a remedy.

The second sentence of Hoppe's first paragraph quoted above is correct. The second paragraph contradicts the first, and makes no sense.

Let's be clear about terms. An "excess demand" generally means an excess of quantity demanded over quantity supplied, i.e. a shortage at the current price. An "excess demand for money" -- certainly not a phrase original with Selgin and me -- accordingly means a deficiency of money held. It exists when the current quantity of money units falls short of the quantity demanded at the current purchasing power per unit. It can indeed be alleviated by an injection of additional units (or, alternatively, by an increase in the purchasing power per unit of money).

In the second paragraph Hoppe takes "excess demand for money" to mean "the holding of (some, 'excess') money", or in other words a surplus of money units held. This is the reverse of its meaning.

On the correct understanding, being concerned about macroeconomic difficulties arising from an unsatisfied demand to hold money is fully consistent with embracing Hutt's point that money is held because it serves the holder's welfare.

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