Difference between cash balance approach and cambridge approach
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Cambridge Equations in Cash Balance Approach:
The cash balance version of the quantity theory of money, though found in earlier writings of Locke, Petty and Cantillon became popular only in the twentieth century.
Following the lead of Dr. Marshall, some Cambridge economists, specially Pigou, Robertson, Keynes including R.G. Hawtrey, popularized and adhered to a slightly different version of the quantity theory of money, known as the cash balance approach, on account of its emphasis on cash balance (instead of transactions).
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According to cash-balance approach, the value of money depends upon the demand for money. But the demand for money arises not on account of transactions but on account of its being a store of value. Money has two characteristics—flatness and roundness—money sitting and money on wings— to serve as a store of value and as a medium of exchange. “In the one use money piles up, in the other it runs round.”
Thus, according to the advocates of this theory the real demand for money comes from those who-want to hold it on account of various motives and not from those who simply want to exchange it for goods and services: just as the real demand for houses comes from those who want to live in them and not from those who simply want to construct and sell them.
The cash balance approach relates the process of determination of the value of money to cash the subjective valuations of individuals who are the real force behind all economic activities. Such an approach enables us to throw more light on the somewhat puzzling phenomenon of the velocity of circulation of money, by enquiring more deeply into the nature of the demand for money, as the demand for the money in the cash-balance approach has reference to the store of value function of money.
This type of demand for money arises from the fact that holding of
The cash balance version of the quantity theory of money, though found in earlier writings of Locke, Petty and Cantillon became popular only in the twentieth century.
Following the lead of Dr. Marshall, some Cambridge economists, specially Pigou, Robertson, Keynes including R.G. Hawtrey, popularized and adhered to a slightly different version of the quantity theory of money, known as the cash balance approach, on account of its emphasis on cash balance (instead of transactions).
ADVERTISEMENTS:
According to cash-balance approach, the value of money depends upon the demand for money. But the demand for money arises not on account of transactions but on account of its being a store of value. Money has two characteristics—flatness and roundness—money sitting and money on wings— to serve as a store of value and as a medium of exchange. “In the one use money piles up, in the other it runs round.”
Thus, according to the advocates of this theory the real demand for money comes from those who-want to hold it on account of various motives and not from those who simply want to exchange it for goods and services: just as the real demand for houses comes from those who want to live in them and not from those who simply want to construct and sell them.
The cash balance approach relates the process of determination of the value of money to cash the subjective valuations of individuals who are the real force behind all economic activities. Such an approach enables us to throw more light on the somewhat puzzling phenomenon of the velocity of circulation of money, by enquiring more deeply into the nature of the demand for money, as the demand for the money in the cash-balance approach has reference to the store of value function of money.
This type of demand for money arises from the fact that holding of
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