ȁȁȁ Partʺ: EconomicsĻe alternative method of accommodating a strengthened demand
for real money balances in a growth context works through price-level
deflation. Allais’s worry does apply to that method. It applies most straight-
forwardly to money based on a commodity, like gold, whose production
uses up real resources, to government fiat money of fixed nominal quantity,
and to bank money fully backed by such gold or such fiat money. It also
applies to money created to finance consumption (including government
budget deficits).
In short, Allais’s worry about the pro-consumption/anti-saving influ-
ence of wealth held in real money balances is not refuted by a different con-
sideration pulling in the opposite direction. Allais himself recognized it:
existence and growth of the demand for money provide opportunities for
the noninflationary creation of new money to finance investment projects.
It is not clear that the effect that concerned Allais is quantitatively
important. Relative to the volumes of saving and investment and financial
intermediation routinely accomplished anyway, only presumably small vol-
umes might be frustrated by absence of suitable growth of the nominal
money and of Allais’s measures to deter money-holding. Still, that effect
was worth describing because of its parallel with the similar and suppos-
edly worrisome effect of land.
ō ŐőŒőŏŠŕŢő ŠőŘőşŏśŜŕŏ ŒōŏšŘŠťŪ
As is evident from his arguments summarized above, Allais, along with
some other economists, thinks that the market-determined overall rate
of saving and capital formation is too low. An excessive market rate of
interest reflects and implements an inadequate degree of concern for the
future. A person’s choices between consumption today and consumption
ten or twenty years later are made by the present person only. Ļe future
person, who might well prefer a more future-oriented allocation, has no
say in the matter. Ļe state knows better and might legitimately impose
forced saving through taxation (ȀȈȃȆ, vol.ŕ: pp.ȁȁǿn.,ȁȁȀ–ȁȁȄ; vol.ŕŕ:
pp.ȄȈȁ–ȄȈȂ; similar thoughts are scattered widely through both volumes;
on individuals’ “telescopic faculty” being “defective” or “perverted,” com-
pare PigouȀȈȂȁ/ȀȈȄǿ, pp.ȁȃ–ȁȅ; and ScottȀȈȄȄ, chap.ȇ, “A Social Rate of
Time Preference”). On all this, remember that Allais was writing back in
ȀȈȃȆ, before the accumulation of subsequent experience with government
economic and budgetary policies and before the development of public
choice theory.