ABSTRACT
This chapter reveals an additional contradiction or, rather, another aspect of the central contradiction. It explores factors that might account for the discrepancy between desired cash balances as determined by income alone and actual cash balances. In countries experiencing a secular rise in real income per capita, the stock of money generally rises over long periods at a decidedly higher rate than does money income. An alternative theoretical explanation of the discrepancy is suggested by the work author have done on consumption — a rather striking example of how work in one field can have important implications for work in another that has generally been regarded as only rather distantly related. The answer may provide some internal evidence on the plausibility of the suggested explanation and will also provide a starting point for bringing external evidence to bear. Hence there is a residual element in the cyclical behavior of velocity that requires explanation.
