This essay provides the kind of concise and incisive survey that we have learned to await with anticipation from the ever-active pen of Professor Johnson. This time he is discussing the role of monetary policy as a stabilization device. The paper, originally prepared for the Canadian Royal Commission on Banking and Finance, deals mainly with Canadian problems. But the author ranges over the pros and cons of a number of issues of general interest, and there are useful comments on a variety of open questions.

Interest in the short-run behavior of the demand for money has been stimulated in recent years notably by the studies of Professors Baumol, Tobin, and Friedman.1 Three issues which have been reopened by their studies will be discussed here. First, what factors influence the demand for money and changes in cash balances over short periods of time? Second, what is the role of interest rates in these short-term changes? Third, are there economies of scale in the holding of money balances? These questions are of some relevance for monetary theory and for discussions of the impact and utility of discretionary monetary policy.

The Baumol model, 423. — The Tobin model, 427. — Conclusion, 435.