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To: Ilaine who wrote (5707)	7/7/2001 9:28:18 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 74559

CB - By the way, if you read the article I linked in my last post, please note that when Keynes and other classical economists discuss the quantity theory of money, they talk about the "wish of the consumer to hold cash balances rather than immediately spending or investing that money." Because I own my own business, rather than live in an ivory tower in Cambridge, I think of real world reasons why people don't spend their money - like getting fired and being broke, like maxing out their credit cards and having no more money to spend, like having no customers coming through the door, like not being able to renew your line of credit, like having to compete with Chinese manufacturers who don't have to deal with unions, OSHA, EPA, zoning laws, and all the other aggravations of doing business in the First World. I represented a couple of people who got really screwed by the Savings and Loan debacle in the early 1980's, part way through a major subdivision development, land cleared, roads and sidewalks built, ready for the next tranche to start building houses, and no dice. FSLIC took over the S&L, started winding it up, and the people who were counting on the next tranche on their loan to keep going didn't get it, and went belly up personally, as well as the corporation, because they (and their wives) pledged their own assets in order to get the loan. Tough titty. We tried to sue to get the money (breach of contract, right?) but there's a little known clause in the law that says, "when Uncle Sam decides to change the rules, you're screwed." All the foo-foo talk about "opportunity cost" and "liquidity preference" sounds nice on paper, but I never forget the real world. Maybe the people at the top of the heap "forego" spending due to "liquidity preference", but not the rest of us. Your well-known hostility to economic theory should be directed at false theories, not theory in general. Your discussion of the reasons for cash balances above is in almost complete agreement with Austrian theory. Per Austrian theory, cash balances are almost entirely the result of the future being uncertain. Besides the emergency uses you emphasized, the desire to be able to take advantage of new products or bargains that may appear and the fact that your desires and tastes are changing all the time are other factors which lead you to hold a non-zero cash balance. Regards, Don