A poor community has little money because it cannot afford more; it gets along with less money than is convenient just as it gets along with fewer agents of every other kind that it could use.  Pioneers in a poor community where the average wealth is low cannot afford to keep a large number of wagons, plows, good roads, or schoolhouses.  If the members of the community were wealthy enough each would have more of these and of other things, and the sum total of money would be greater.  Great as is the convenience of money, poorer communities have to do with little of it.  It is, therefore, a confusion of cause and effect when poor communities imagine that their poverty is due to lack of money.

Sec. 5. #Concept of the individual monetary demand.# Let us now seek to get in mind the idea of an individual monetary demand, as that amount of money which at any time is required by an individual to make his purchases in expending his income.  Every man may be thought of as having an average monetary demand, or his average individual cash reserve, throughout a period.  A man with a salary of $50 a month paid monthly has ordinarily a maximum monetary demand of $50.  If his expenditures are made in two equal parts, the one on pay-day, the other thirty days later, his average monetary demand during the month is a little over $25.  If most of his purchasing is done in the first week of the month, his average monetary demand may be perhaps $10.  Many a workman purchases on credit, running accounts at the stores for a month.  Then on pay day he spends his entire month’s wages the day he receives it, and goes without money for the rest of the month.  His average monetary demand throughout the month would then be about equal to one day’s wages.  Evidently any person’s cash reserve may be expressed as that proportion of his income that is to him of more value retained in money form for any period than if at once expended.

In this conception of the individual monetary demand, must, however, be included not merely the demands of retail purchasers, made by themselves, but also those of all agencies such as merchants, bankers, and transportation companies, serving the needs of ultimate consumers of goods.  The use of money may be necessary several times before a commodity completes its journey from producer to consumer.

Of two persons whose expenditures of money are of the same kind and made at the same rate, the one having the larger amount of purchases to make has the larger monetary demand.  But the amount of purchases does not always vary directly with the amount of real income[2]; for example, a farmer and a village mechanic may have at their disposal incomes equal in the quantities of goods, such as food, fuel, clothing, and house-uses (worth, let us say, $1000 for each), but the farmer would be getting a larger part of his goods directly from his farm and by his own labor, while the mechanic would be getting first a money income to be expended afterward for food, clothing, and rent.  The mechanic would in this case have an average monetary demand much larger than the farmer.