ȁȁǿ Partʺ: EconomicsAllais focused on what he considered beneficial allocation effects of
mild inflation. What amounts to a tax on real cash balances motivates peo-
ple to allocate agivenvolume of saving less toward them and more toward
real capital formation. Ļe inflationary erosion of wealth held as cash bal-
ances further promotes saving insofar as people try to recoup this lost
wealth (MundellȀȈȅȂ;ȀȈȆȀ, chap.ȁ). On the other hand, the loss of real-
balance services would itself tend to hamper economic activity (cf. Short
ȀȈȆȈ).
As for whether the willingness to wait is used productively or is di-
verted, securities resemble or represent capital goods and contrast with
money. Ultimately, securities can be bought only if they are issued; and, by
and large, they are issued more to finance real investment than to finance
consumption. If either Allais’s tax or ongoing price-level inflation prods
people away from money balances and into securities, financing capital
construction becomes cheaper and more attractive for companies. Ļe
resulting larger stock of capital goods, while tending to raise the productiv-
ity of complementary factors of production, tends to reduce those goods’
own marginal productivity and the marginal productivity of investment,
in line with the depressed interest rate.
Despite but not contrary to Allais’s analysis, an increase in overall
thriftiness, even if initially directed toward acquiring larger real money
balances, does tend to promote capital formation, although less so than
in the absence of the effect that worried Allais. Don Patinkin’s appara-
tus ofCC-BB-LLcurves (ȀȈȅȄ, chaps.ŕŤ–Ťŕ) is useful in showing how.
Although his apparatus, unsupplemented, does not distinguish between
consumer goods and capital goods, it does yield conclusions about changes
in the interest rate (and price level) that in turn suggest effects on capi-
tal-goods construction. A shift of preferences away from goods—from
current consumption, specifically—toward holding money tends to lower
the rate of interest and thus promote capital construction, although more
slightly than if the shift had been in favor of bonds. (A shift of pref-
erences away from money holdings and in favor of bonds would also
tend to lower the rate of interest and promote capital construction, as
Patinkin’s apparatus also illustrates, in agreement with Allais’s analysis.)
Even when oriented toward money, the willingness to postpone consump-
tion and accumulate wealth favors capital formation, though in a lesser
degree than when oriented to capital goods directly or to securities for
financing them. In a sense, money itself can be a vehicle of financial inter-
mediation, a means of conveying command over resources from savers to