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.

PROFESSOR EISNER'S attempt to revive the liquidity takes the form of five objections to the findings reported by Bronfenbrenner and Mayer.2 In this note I will direct my discussion to the question of evidence for the trap and comment only briefly on other points which Eisner raises. The main burden of my argument is that evidence for or against the liquidity must rest on a demand function for money which explains more than the period surrounding the supposed trap. The post-1 920 data alone are inadequate to support (or reject) the hypothesis. For it has long been known that long-term bond yields peaked in the U.S. in 1920-21 and thereafter declined. A similar movement is shown by velocity. At issue are two questions: (1) whether the data for the 1930's and 1940's show a movement of two variables which are related or a co-movement of two variables each of which declined for any one of a number of other reasons,3 and (2) if the variables are related, do they show evidence of a trap?

THE arguments or variables that enter the demand function for money, and the definition of the quantity of money appropriate for the demand function, have received substantial attention in both the recent and more distant past. For present purposes, it is useful to distinguish three separate disputes about these variables. First, there is the question of the constraint that is imposed on money balances-whether the appropriate constraint is a measure of wealth, income, or some combination of the two. A second dispute has centered on the importance of interest rates and price changes as arguments in the demand function. Third, the question of the definition of money balances has often been raised. Is a more stable demand function obtained if money is defined inclusive or exclusive of time and/or savings deposits, and perhaps other assets that have value fixed in money terms?