The Theory of Money and Credit - Ludwig von Mises [148]
The cash reserve which is maintained by every business enterprise also is a part of its working capital. If an enterprise feels for any reason obliged to increase its reserve this must be regarded as an increase of its capital. If it requisitions credit for this purpose, its action cannot be regarded as any different from a demand for credit that arises from any other cause—say, on account of an extension of plant or the like.
But attention must now be drawn to a phenomenon which, even if it adds nothing new to what has been said already, may serve to set some important processes of the money-and-capital market in a clearer light. It has been repeatedly mentioned already that commercial practice concentrates all kinds of settlements on particular days of the year so that there is bound to be a bigger demand for money on these days than on others. The concentration of days of settlement at the end of the week, the fortnight, the month, and the quarter, is a factor which considerably increases the demand for money, and so of course the demand for capital, on the part of undertakings. Even though an entrepreneur could reckon safely on sufficient receipts on a given day to meet the obligations falling due on that or the following day, still it would only be in the rarest cases that he could use the former directly for paying the latter. The technique of payment is not so far developed that it would always be possible to fulfill obligations punctually without having secured some days beforehand free disposal over the necessary means. A person who has to redeem a bill that falls due at his bank on September 30 will usually have to take steps, before that date, for covering it; sums which do not reach him until the very day of maturity of the bill will mostly prove useless for this purpose. In any case it is completely impracticable to use the receipts on any given day for making payments that fall due on the same day at distant places. On the days of settlement there must therefore necessarily be an increased demand for money on the part of the individual undertaking, and this will disappear again just as quickly as it arose. Of course, this demand for money too is a demand for capital. Hypercritical theorists, following Mercantile usage, are accustomed to draw a subtle distinction between the demand for money and the demand for capital; they contrast the demand for short-term credit, as a demand for money, with the demand for long-term credit, as a demand for capital. There is little reason for retaining this terminology, which has been responsible for much confusion. What is here called the demand for money is nothing but a real demand for capital; this must never be forgotten. If the undertaking takes up a short-term loan to supplement its cash reserve, then the case is one of a genuine credit transaction, of an exchange of future goods for present goods.
The increased demand of the entrepreneur for money and consequently for capital which occurs on these days of settlement, expresses itself in an increase of the requests for loans that are made to credit-issuing banks. In those countries where notes and not deposits are the chief kind of fiduciary media, this is perceptible in an increase in the quantity of bills handed in at the banks-of-issue for discounting and, if these bills are actually discounted, in the quantity of notes in circulation. [15] Now this regular rise and fall of the level of the note circulation round about the days of settlement can in no way be explained by an increase in the total quantity of bills in existence in the community. No new bills, particularly no new short-term bills, are drawn and handed in to the banks to be discounted. It is bills that have the normal period to run, that are negotiated shortly before maturity. Until then they are retained in the portfolios either of nonbankers or of banks whose issue of fiduciary media is limited, whether because they have a small clientele