We see thus that a person’s monetary demand at any time is that amount of money which rests in his possession as the necessary condition to making his purchases as he desires.  Individual monetary demand varies in proportion directly to the delay, and inversely to the rapidity with which the individual passes the money on; and directly to the amount of the person’s income that is received and expended in monetary form.

Sec. 6. #Concept of the community’s monetary demand.# The monetary demand of a community at a given time is the sum of the monetary demands of the various individuals and enterprises.  It is that stock of money which is necessarily present to effect the exchanges of the community in the prevailing manner at the existing price level.  A single dollar as it circulates helps to supply the monetary demand of many individuals in turn:  the more quickly each person spends the piece of money he receives, the greater its rapidity of circulation.  Let us suppose that every piece of money passed from one person to another once each day.  Then a dollar would, in the course of a business year (about 300 days), serve to buy (and at the same time to sell) $300 worth of goods.  If the average purchases of each individual amounted to $1000 a year, the average monetary demand of each would be about 3-1/3 dollars.

But every moment beyond the average time that any one kept money would increase his monetary demand.  If he delayed a day, a week, or a month in spending the money, waiting until he could buy in some other market, or until a better time to buy, he would thus increase insomuch the amount of money needed to make the trade (on that scale of prices).  It requires more slow dollars than swift dollars to make a given volume of purchases.

Evidently the times of maximum monetary demand of the different individuals do not coincide; rather they alternate with each other, and the community’s total monetary demand at a given time is a composite of the many individual variations.  The amount of money that will remain in circulation in a community depends on several factors, the chief among them being the amount of goods to exchange, the methods of exchange, and the prevailing scale of prices.  The amount of goods to be exchanged may change even when the amount produced is unaltered (e.g., a change from agricultural to industrial conditions).  The methods of exchange may alter so as to require either more money (e.g., cash instead of credit business), or less money (e.g., use of bank checks displacing use of money by individuals).  Or, apart from the other factors, the scale of prices may change as the conditions of gold and silver production are altered.  The interrelations of gold and silver production, paper money issues, banking growth, and money-inflow and outflow in foreign exchanges give rise to the most interesting and important problems in the field of monetary theory.