Chapter dzǴ: Land, Money, and Capital Formation ȁȀȈSupposing a certain type of change of tastes helps us understand this
divergence between private and social viewpoints. Although people remain
as willing as before to postpone consumption by holding assets, they desire
to hold more of their wealth as money and less in other forms. Ļe resulting
initial excess demand for cash balances (and deficient demand for goods
and services) tends to deflate prices and wages. Ļe corresponding rise in
the real value of the unchanged total nominal money supply is an increase
in real wealth for individual holders, but it is less fully so from the social
point of view. Yet this increase in private real monetary goes toward satisfy-
ing people’s willingness to postpone consumption and accumulate wealth;
it makes the propensity to consume higher and the propensity to save lower
than they would otherwise be. Fewer real resources are released from pro-
viding current consumption and made available for capital-goods construc-
tion. Ļe more of this quasi-fictitious wealth people hold, the less real
wealth (including capital goods) they want to accumulate. In short, the
availability of wealth in the form of cash balances diverts some of people’s
propensity to wait away from the accumulation and construction of real
capital goods.
Allais accordingly regrets the opportunity open to savers to accumu-
late their savings partly in the form of money. Ļe problem would be worse
when price-level deflation was actually rewarding the holding of money
rather than physical assets (or securities financing them). Growth in the
real value of money would be maintaining effective demand for current
output by satiating an increased demand for real cash balances, that is, by
stimulating consumption and partially neutralizing the public’s propensity
to save.
Allais’s proposed remedy provides further insight into his reasoning.
He suggested stamped money (as Silvio Gesell,ȀȈȂȃ, did but for a differ-
ent purpose). Ļe tax thus imposed on cash balances would prod people
to accumulate wealth in other forms, such as capital goods or securities.
Almost equivalently, a policy of chronic mild price inflation would dis-
courage money-holding and channel propensities to save and accumulate
into socially more productive directions. Allais even suggested splitting
apart the unit of account and medium of exchange. Ļe “franc,” the unit
of account, would be defined so as to have a stable value. Ļe “circul,”
or medium of exchange, would continuously depreciate against the sta-
ble franc, discouraging holdings of circul-denominated banknotes and
deposits. Use of the circul as unit of account would be “flatly forbidden”
(ȀȈȃȆ, vol.ŕŕ: pp.ȄȆȈ–ȄȇȄand passim).