Hi all,
I started reading Rothbard's "The Mystery of Banking" -- this is a fantastic book and I can't imagine why it ever went out of print! Anyway, this is my first exposure to this topic and I have little-to-no economics experience. I'm more than halfway through the book and almost everything makes sense, except the following...
Between pages 60-65, he discusses a subtopic called "frequency of payment". He argues that workers that get paid more frequently are at an advantage over those that get paid less frequently because cash balances "perform work in relation to the frequency of income. The less frequent the payment, the higher the average cash balance, and therefore the greater the demand for money, the greater the amount, at any price level, that a person will seek to keep in his cash balance. The same cash balances can do more money work the greater the frequency of payment."
As an example, he compares Smith who receives $1000 on the 1st day of the month and Jones who receives $250 on the 1st day of each week during the month. And if each worker consumes ~ $33/day so that their entire balance is $0 on the last day of the month, that Jones is better off because he maintains a lower average cash balance in his account.
This doesn't make any sense to me! It seems that Smith can take some of his money on the 1st day of the month and invest it, even if its just in a simple savings account, thus gaining interest. Jones cannot do the same, since he only has enough money for the week. Am I missing something big here??
-Michael Hall