Авторы: 159 А Б В Г Д Е З И Й К Л М Н О П Р С Т У Ф Х Ц Ч Ш Щ Э Ю Я

Книги:  184 А Б В Г Д Е З И Й К Л М Н О П Р С Т У Ф Х Ц Ч Ш Щ Э Ю Я

2. Frequency of Payment

The demand for money is also affected by the frequency with which people are paid their wages or

salaries. Suppose, for example, that Mr. Jones and Mr. Smith are each paid an income of $12,000 a year, or

$1,000 per month. But there is a difference: Jones is paid every week, and Smith every month. Does this make

any difference to their economic situation? Let us first take Smith, and find out what his cash balance is on each

day. Let us assume, to keep things simple, that each man is paid on the first day of the wage period, and then

spends money at an even rate until the last day, when his money is ex hausted (and we assume that each man’s

income equals his expenditures for the relevant time periods).

Figure 5.1 Cash Balance: Monthly Income [p. 61]

Smith receives $1,000 on the first of the month, and then draws down his $1,000 cash balance at an

even rate until the end of the month by a bit more than $33 a day.

What is Smith’s average cash balance for the month? We can find out by simply adding $1,000 on

Day 1, and 0 on Day 30, and dividing by 2: the answer is $500.

Let us now compare Smith to Jones, who has the same total income, but receives his paycheck once a

week. Figuring four weeks to the month to simplify matters, this means that Jones gets a check of $250 at the

beginning of each week and then draws it down steadily until he reaches a cash balance of zero at the end of

the week. His monetary picture will be as follows:

Figure 5.2 Cash Balance: Weekly Income

Jones gets a check for $250 at the beginning of each week, and then draws down his cash balance

each day by approximately $35 until he reaches zero at the end of the week. His income is the same as

Smith’s; but what is his average cash balance? Again, we can arrive at this figure by adding $250, at the

beginning of each week, and 0 and dividing by 2: the result is $125.

In short, even though their incomes are identical, Smith, who gets paid less frequently, has to keep an

average cash balance four times that of Jones. Jones is paid four times as frequently as Smith, and hence has to

keep a cash balance of only 1/4 the amount.

Cash balances, therefore, do not only do work in relation to the level of prices. They also perform

work in relation to the frequency of income. The less frequent the payment, the higher the average cash

balance, and therefore the greater the demand [p. 62] for money, the greater the amount, at any price

level, that a person will seek to keep in his cash balance. The same cash balances can do more money

work the greater the frequency of payment.

In my salad days, I experienced the problem of frequency of payment firsthand. I was working on a foundation grant. My income was fairly high, but I was getting paid only twice a year. The result was that the

benefits of my respectable income were partially offset by the necessity of keeping an enormous cash balance

in the bank, just to finance my daily expenditures. In many painful ways, I was far worse off than I would have

been with the same income with more frequent checks coming in.

What effect might this have on the price level? If the general frequency of payment changes in a

society, this will shift the demand for money and raise or lower the price level. Thus, if people suddenly stop

being paid once a month, and instead get paid twice a month, this will lower everyone’s demand for money.

They will keep a lower cash balance for their existing income and price level, and so the demand for money

will shift downward, as in Figure 3.7. People will try to get rid of their surplus cash balances and, as they do so

by spending money on goods and services, prices will be driven upward until a new higher equilibrium price

level will clear the market and equilibrate the existing supply to the decreased demand.

On the other hand, if frequency of payment of salaries should shift generally from once a week to twice

a month, the reverse will happen. People will now need to carry a higher average cash balance for their given

incomes. In their scramble for higher cash balances, their demand for money rises, as in Figure 3.6 above.

They can only raise their cash balances by cutting back their spending, which in turn will lower prices of goods

and thereby relieve the “shortage” of cash balances.

Realistically, however, frequency of payment does not change very often, if at all. Any marked change,

furthermore, will only be one-shot, and certainly will not be continuous. [p. 63] Frequency of payment is not

going to go up or down every year. Changes in frequency, therefore, could scarcely account for our

contemporary problems of chronic inflation. If anything, the general shift from blue-collar to white-collar jobs in

recent decades has probably reduced the frequency of payment a bit, and therefore had a slight price-lowering

effect. But we can safely ignore this factor if we are looking for important causal factors.