Source: David Friedman’s Substack
by David Friedman
“What is the social cost of your cash balance, the cost summed over everyone in the society? The answer is roughly zero. Due to the Law of Large Numbers, on average total consumption and production are almost always equal, the individual differences averaged out. The society as a whole does not need a shock absorber. It follows that individuals will hold the optimal stock of money, the stock that maximizes economic efficiency, only if the nominal interest rate is close to zero. It is possible that a few of my readers, not being economists, are not familiar with the distinction I am making between real and nominal, hence a brief digression.” (04/06/25)
https://daviddfriedman.substack.com/p/the-optimal-quantity-of-money