AST spring and summer we witnessed a vigorous exchange of views between the present Council of Economic Advisors to the President and the former chairman of that body, Professor Arthur F. Burns.' It was a lesson in humility to note that the key issue of this policy-oriented discussion was not some highly sophisticated model but the basic problem of determining the secular growth curve of the United States economy and of estimating the size of the output gap.

AMONG the behavior equations which enter ,I -into any economic model, the consumption function and the demand for money functions are of key importance. Originally, the consumption function was said to have a negative second derivative. This claim was based on a fundamental psychological law, upon which we are entitled to depend with great confidence . . . from the detailed facts of experience. . . ) 1 The detailed facts referred to by Keynes were all based on cross-sectional studies of the income-consumption relationship. Only much later, more extensive analyses of time series showing the relationship between consumption and income indicated that, over time, the second derivative of the consumption function is zero or close to it. This forced a revision of economic analysis employing the consumption function.2 In the case of the money market the situation is reversed. We have innumerable studies analyzing the demand for money by the use of time series; we have but one study relating the demand for money to its determinants on the basis of cross-sectional data. Yet, if the history of the consumption function is any guide, our understanding of the demand for money is likely to rest on shaky foundations as long as it is based on the analysis of only one type of data. In this paper I explore the determinants of the demand for money by the use of crosssectional data. Except for a minor digression dealing with the British demand for money as reflected in cross-sectional data, I deal exclusively with the demand for money by the population of Czechoslovakia in the fall of 1945. The country and the period have been selected, not because either would be of independent intrinsic interest to the profession, but because of the unique nature of the data. It is hoped that my exploration of these data will yield valuable insights into the determinants of the demand for money which can then be profitably employed in the utilization and interpretation of other empirical studies into the nature of the demand for money.

Suppose that the consumer has the choice among (a) a zero-yield and zero-risk asset, (b) a high-yield and excessively risky asset, (c) a low-yield and zero-risk asset, and (d) some real asset. If we restrict the consumer to the first two, he will select the first one, called In our world in which the consumer has all four choices, he will never select these balances. One economist (see my 1976 paper) wasted almost two pages of the Journal of Economic Literature proving that a consumer will prefer a positive risk-free income to zero income. Three economists (Winston Chang, Daniel Hamberg, Junichi Hirata, 1983) wasted eight pages and some matrix algebra on a renewed effort to persuade the profession of the same thing. Linear extrapolation suggests that a renewed effort will become due in 1990. But the problem is more serious. Given that the demand for speculative balances must be zero, Chang et al. ask (p. 46) why so many texts analyze the demand for them. I would add that these texts go on to raise the specter of a price-theoretic monstrosity-an infinite demand for speculative balances ( the liquidity trap) and its devastating consequences for monetary policy. This is not unusual. Texts give much space to the theory that current consumption is deternmined by unmeasurable future income, about which each of us forms only vague and changeable guesses (see my 1979 paper). The Pigou is explained to undergraduates even though its currency base (Don Patinkin, 1969, p. 1154) is a microscopic fraction of national wealth, and even though the effect is theoretically superfluous (see my 1982 paper). Many other such cases could be mentioned. Let me speculate why pedagogic failures litter our texts. The suppliers prefer to sell thick (expensive) books. Many of the intermediaries attract and impress students by endowing our field with more scientific content than it actually has. And, the captive demanders are not given protection by rigorous and extensive journal reviews of what should be the cornerstone of economics, the textbooks. Thus they are forced-to use Frank Knight's felicitous phrase-to know too many things that just ain't so.