Friedman’s theory of demand for money is partly Keynesian and partly non-Keynesian. It is non-Keynesian because Friedman completely ignores Keynes classification of the motives for holding money. It is Keynesian because Friedman generalises Keynes’ analysis of the speculative demand for money by treating demand for money as a part of the theory of capital or wealth.

Friedman’s theory of demand for money is a wealth theory of demand. In his view, money is “a durable consumer good held for the services it renders, and yielding a flow a services proportional to the stock.” Money is a type of capital good which is held for the services it provides. Thus, money is demanded as an asset or capital and the theory of demand for money is a part of the capital or wealth theory.

Friedman analyses the demand for money as a whole instead of examining it in terns of specific motives. He does not distinguish between transaction and speculative balances as Keynes did. Rather money is regarded as rendering a variety of services because of the fact that it serves as a temporary abode for generalised purchasing power.

Friedman applies general demand analysis to the case of money. The ultimate wealth-holders are households who regard money as durable consumers good. He also assumes that money is subject to the law of diminishing marginal rate of substitution.

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Friedman uses a broader concept of wealth in his analysis of demand for money. For him, wealth consists of anything which is capable of generating an income stream and as such includes all the conventional assets.