Real cash balances are at least in part a factor of production. To take a trivial example, a retailer can economize on his average cash balances by hiring an errand boy to go to the bank on the corner to get change for large bills tendered by customers. Then it costs ten cents per dollar per year to hold an extra dollar of cash, there will be a greater incentive to hire that errand boy, that is, to substitute other productive resources for cash. This will mean both a reduction in the real flow of services from the given productive resources and a change in the structure of production, since different productive activities may differ in cash-intensity, just as they differ in labor- or land-intensity.
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